There is a great line in one of the Spider-man movies, “With great power comes great responsibility!”
Procurement organizations can have the power to spend and control as much as 75-80% of a company’s revenue. Now that is power! And with that power comes a huge responsibility.
Less enlightened organizations still think of Procurement as a back office function processing transactional purchase orders and standard contracts. But better informed and leading organizations see and recognize Procurement for its strategic value.
What actually is the power that is within Procurement’s mandate? And what responsibility does Procurement have commensurate with that power?
I have worked in industries were the Procurement spend constitutes as much as 90% of the revenue of the companies therein. That is a lot of spend! According to the Chartered Institute of Procurement and Supply “organizations can spend more than two thirds of revenue on Procurement.”
That power manifests itself in many forms. With the promise of future business awards Procurement is largely responsible for finding and qualifying potential new suppliers. Once there is a pool of suppliers Procurement conducts and leads the quotation and supplier selection process culminating in the award of business.
Procurement then leads the contractual negotiation process defining the terms and conditions framework under which the relationship will be managed. On the basis of performance Procurement usually has the ability to award more or less business.
And once the contract is up for renewal, or when new business is available, Procurement has the ability to decide whether to award business to incumbent suppliers or open the quotation process up to new suppliers as well.
Throughout the Procurement business process cycle they have the ability to establish, cultivate and promote Executive level relationships with suppliers that no one else in their company will have. When I was leading a Commodity Management organization for instance I had relationships with literally hundreds of company CEOs and Presidents. The power of networking was phenomenal.
Procurement also derives power from their functional position. When the organization is looking for cost reductions, terms improvement, and better materials supply in the face of customer demands who do they turn to?
The company must ask Procurement to help lower cost, improve profitability, enhance cash flow, provide competitive advantage, and strenghten return on investment.
But even more than that Procurement has the ability to connect the organization with suppliers who provide unique capabilities and technologies that can differentiate the company from its competitors.
With that great power comes great responsibility.
This starts with professionalism, integrity, and ethical behaviour. There are many examples were corruption leaches into the behaviours between Procurement individuals and their suppliers. Fraud, bribery, extortion, conflicts of interest, and unfair business practices are all behaviours that are unacceptable and intolerable.
First and foremost a Procurement organization must behave morally and ethically with no exceptions!
Procurement responsibility extends to meeting the objectives that the organization expects it to deliver. Cost reduction, terms negotiation, securing supply, handling quality and delivery issues and responding rapidly and professionally are all the purview of Procurement.
Business Process development, deployment, optimization and advancement also fall within the wheelhouse of Procurement. Especially in the emerging age of the Digital Supply Chain, Procurement is responsible to ensure that the organization is positioned to support current and future demands.
This includes skills development, training and personnel development. Procurement is going beyond the traditional paradigm of being a transactional organization to being a strategic, high value added function. That means that its personnel must evolve in their skills and become more strategic in their capabilities.
It goes without saying that Procurement is responsible for ensuring supplier performance. Cost, quality and delivery adherence to expectations are the norm, not the exception. On top of that Procurement is responsible to find and create opportunities with suppliers to delivery unique and competitively advantageous capabilities to a company.
Procurement is also responsible to suppliers. It is important that Procurement teams run and manage an effective and robust Supplier Relationship Management (SRM) program.
Procurement is also accountable for Responsible Sourcing. Environmental factors and sustainability are crucial issues and leading conduct is required of any Procurement team.
And finally Procurement is responsible to sell itself! There are still too many organization that think of Procurement as the transactional group that places purchase orders and calls suppliers. Procurement is so much more than that. But it is incumbent upon Procurement to make the rest of the organization aware of that, not just by saying so, but by delivering strategic and differentiated value to the rest of the company.
It is a profound statement: With great power comes great responsibility.
Yet it is very true.
And it is equally applicable to Procurement as it is to Spider-man, or any other Super Hero for that matter.