PROCUREMENT AS A STRATEGIC CATALYST IN ORGANIZATIONAL SUCCESS

‘It really does not matter how much water you try to put into a vessel; if there is a leakage, you are merely wasting your time’ – Author

In my experience, most organizations rank their departments in the order of how much revenue they can rake in. From Marketing, to the Operations unit, down to Sales, Finance, HR, etc. this also reflects in how these department heads are recruited, and the amount of face time they have with the CEO and shareholders. If you study the value chain of these companies, you will typically find that they make a clear distinction between “Core” departments and “Support” departments. Is it any wonder then why these support units become the source of the deepest frustrations these organizations have?

In the last few years, we have had Procurement/Supply Chain associations and institutes call for and demand a ‘seat at the table’. I have worked for multinationals who reluctantly heeded this call and chose to invite Procurement/Supply Chain Heads to their Leadership teams. Whether this decision impacted in their bottom line is left for the annual reports to show; it is however becoming increasingly clear to top corporate organizations around the world that you really cannot deliver on your shareholders objectives without having Procurement/Supply Chain on your leadership team.

Take the analogy of a car for example: the interior comfort, body lines, color, and luxury isMarketing; its fuel economy is Finance; the technical specifications could represent Operations; the technology it runs on is IT, and the tires which make contact with the road and also indicate how fast it goes is Sales.

Now, will you call the engine a support component? Will you treat the car engine as an accessory? The Procurement and Supply Chain of an organization is the engine, without which, the vehicle is merely an empty shell. There is the question however of a bad or knocked engine – this is the situation where the Procurement/Supply chain unit is underperforming, or not capable of moving at the speed of the rest of the company. The debate in this case is not about whether one should throw it away or change it; it’s more about how much time the CEO has put into looking after it. The fact that you only open your bonnet to look at the engine when something goes wrong is a sign that something is wrong! All the complaints and frustrations about Procurement can be easily resolved if more attention is paid to this critical part of the organisation! Unfortunately, some CEOs and CFOs never make the time to do this, and they therefore end up blaming the very team they ignored.

I recognize that I am putting Procurement and Supply Chain in the same basket here, and while I appreciate that Procurement is an integral part of the Supply Chain, there are schools of thought who insist on keeping them as separate entities, to avoid the conflicts of interest that may occur when Procurement reports into the same organization, they are meant to control costs for. many organizations are yet to see this and manage them as one.

According to the Korn Ferry Institute, ‘Across industries—including technology, manufacturing, health care, and retail—the supply chain is much more than just the purchase and movement of materials and components. There are distinct competitive advantages offered by the supply chain, including cost-effectiveness and the social responsibility and environmental impact of material sourcing (sustainability). With greater strategic importance placed on the supply chain, the CPO—the Chief Purchasing Officer or Chief Procurement Officer— is moving from a behind-the-scenes role into the spotlight. Although not a universally adopted role, CPOs are becoming more common in organizations—and they are increasingly near the top of the leadership pyramid. The CAPS Research 2014 Chief Purchasing Officers’ Mobility and Compensation Study, a survey of more than 100 Fortune 500 CPOs, reported that 82% have direct access to the CEO, an increase from 60% in 1999.’

When big companies fail to meet their targets, a huge part of the problem is traced to a failure in the Supply Chain, or a failure in integrating the Supply Chain into the mainstream. From General Motors investing in robots that mostly didn’t work in the 1980’s to CISCO’s poor demand inventory visibility leading to a $2.2bn inventory write-down in 2001; Adidas’ Distribution Center (Warehouse) automation failures in 1986, and Nike’s 20% stock drop over a failed planning system; when Supply Chains fail, they fail BIG time.

As it has become customary for CEOs to carry their CFOs like handbags into every important meeting and event, it is my suggestion that they include their CPO’s or Supply Chain Heads in that handbag. The early involvement of these critical team members will help foresee and manage risks; in fact, are Risk Management and Stakeholder management not core skill requirements of a supply chain expert? The wise CEO who invests into these roles and keeps them close-by is certain to reap the benefits. Iron sharpens iron, the Good Book says, so will the skills of the CPO be enhanced through close association with other leaders in the CEO’s team.

Tim Cook (Apple), and A.G. Lafley (Procter & Gamble), are but two examples of Supply Chain people who grew through the ranks to become excellent, world changing CEOs. How many such rare talents do we have waiting in the wings, who are forced to remain under the radar because of the outdated perception of supply chain people remaining as members of support teams? I suggest that CEOs and Boards of Directors engage more often with their Supply Chain people and see what they are missing. Procurement and other relevant teams should no longer be classified as ‘support’, but CORE to the success of any company.

Everything that goes into an organisation and is churned out from raw materials to finished products is looked after as part of the Supply Chain process; ignore them at your peril.