The emergence in the 1980s of strategic sourcing--a concept in which procurement leaders take a holistic approach to their organization's supply chain and constantly seek to improve purchasing behavior--was a defining moment for procurement, with the potential to transform it from a primarily administrative function to a powerful new force for competitive advantage. Today, however, this reinvention has stalled in many businesses.
Many chief procurement officers (CPOs), chasing short-term stretch goals and facing a lack of interest from other functions, no longer seek to influence the supply chain or strive to tackle the underlying drivers of cost and value. They are increasingly focused inward, implementing sophisticated ways of improving procurement itself but neglecting coordination with the wider organization. Indeed, CPOs have been successful in refining their function. Innovations of the past five years, such as e-procurement, e-auctions, spend analysis, and procurement outsourcing, reflect this attention.
But focusing on cost reduction leaves untouched the significant potential for creating value generated when procurement engages the rest of the business and its suppliers. In today's business environment, many companies are finding top-line growth elusive. To generate revenue and eliminate costs, they are devising complex business models that will require more sophisticated skills from procurement leaders. It's time for those leaders to step up to the challenge: Procurement is uniquely positioned to reach out across the organization and the supply chain, pursuing cost reduction, but also emphasizing collaboration, innovation, flexibility, and resilience.
Too often, management invites procurement to participate only after decisions have been made and detailed contracts need to be negotiated and drafted. For procurement to be considered more than a functional tool for other departments, CPOs need to build influence and credibility with their internal management colleagues by showing that what they do adds real value. By engaging with peers--that is, by taking a cross-functional approach--procurement can influence the decisions that impact value all along the chain. There are several key ways for CPOs to accomplish this.
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