Monday Morning Query: Is Procurement a Finance or Operations Function?
The Context
The next topic that Ardent Partners (a leading supply management research firm) will be focusing on is the relationship between the CPO & the CFO in a research report that will publish at the end of November. As a prelude to that research effort, I am in London this week where I will be speaking at an event organized by Sievo on just this topic.
One question that I will pose in my presentation is the question of procurement’s larger role in the organization and whether it should be considered a finance function, an operations function, a blend of the two, or something else?
Like a Rorschach slide, how a person answers the question will say much about the orientation, focus, and worldview that the person brings to his/her role.
The upcoming research report will focus on this question in great detail by examining the two competing worldviews (finance and procurement), understanding their implications, and highlighting how successful enterprises bridge the organizational gap and develop strong collaborative ties that deliver great value.
How do you see it? Please weigh in here or better still, help improve our research by participating in it. Drop me a note if you are interested in connecting on this topic.
Cheers!
Andrew, this question would never be asked of sales and marketing. The sales strategy stands alone as part of the firms go to market and growth strategies.
In turn I believe procurement should stand alone as part of the fundamental make or buy strategies which determine much of the firms internal and external cost structures and the risk which must be managed in conducting business.
Both finance and operations strategies such as capital requirements and lean vrs flexible operating systems fall out of the strategic sales and procurement decisions.
Dave –
Great thought and interesting take. In your view, who should manage procurement? To whom should the CPO report?
Andrew,
Undoubtedly, in most organizations procurement does report to one of these parts of the organization. Like much with procurement however, the logic dictating this depends upon the maturity of the procurement organization. So assuming a mature procurement capability, I argue:
1. Once procurement moves beyond controlling only direct purchases and takes on indirect purchases such as IT, HR, Legal etc then reporting to operations no longer makes sense.
2. Likewise once procurement shakes off the shackles of cost savings and moves to capture innovation to support growth, the brand and CSR then equally reporting to Finance no longer seams productive.
As procurement becomes more strategic (aligning internal and external resources to support business objectives), its role moves more and more towards aligning more closely with Sales & Marketing. Reviewing trends and events in external markets (Demand & Supply Side), routinely reviewing internal and external capabilities and developing future scenarios to influence business strategy.
In such a situation I see two logical implications for procurements reporting relationships:
1. CPO reports direct to CEO
2. CPO & Sales and Marketing report to a “Chief Commercial Officer” for want of a better name.
I belief such a reporting relationship supports the business fundamental that “every business has to buy, add value and sell”. This simplified value chain places procurement at as a core business competency – not a support function.