Somehow, I have been sitting on this discussion with a global procurement leader for far too long. I share with you now, the verbatim Q&A conducted several months ago.
How has Procurement changed since you first began in the profession?
The answer to this is a book in itself. In summary
- from a non-strategic function to a strategic one,
- from a transaction-focused one to an integrated commercial and strategic focus,
- from a backwater to a profession,
- from a Manager-led team to a Managing Director-led one,
- from a decentralised model to a centralised one,
- from a contract approach to a category one,
- from a non-value adding function to a value creation one this is a central part of business strategy
What are the top priorities of your organization for 2011 and what are the major risks associated with being successful this year?
These include (not a prioritised list):
- Staff retention / growth / talent attraction
- Supply chain assurance (and with it contractual protection),
- Meeting ever rising service levels / expectations from the customer (cost, service etc),
- Expanded sourcing in Emerging Economies (BRIC)
- Better technology / systems to support essential governance and review functions
- Ensuring that we can claim all our processes are in control and capable
Our biggest risks are supply chain assurance, ensuring we keep customers onside during difficult trading conditions and ensuring our technology platform “delivers.” One further risk lies in the potential for activity diversion, where our staff focuses on attending to “fires” and we fail to deliver on our promises.
How do you ensure that the goals of procurement match the goals and needs of the business?
These are achieved through 2 ways: (1) A service level agreement which has been agreed with all BUs (2) Ensuring that a significant percentage of our STIP (Short Term Incentive Program) is aligned with achieving customer metrics.
Describe your CPO reporting structure and overall procurement performance management.
The CPO reports into the Group Executive Business Support and Operations (who in turn reports into the CEO). Performance of the CPO is measured by delivery of what is noted under “Priorities” and having 40% of STIP dependent on Group business performance (safety / financial) so the focus is on functional as well as business performance achievement.
Where is your organization as it relates to innovation?
Innovation is a key theme but “Procurement” is not there yet to drive innovation into the business (new technology, business redesign); it can be there to shape global policy in certain areas (travel, corporate cards, use of consultants, etc.) but the customer preference is that key service metrics are achieved and we demonstrate that the function is in control and capable. Once we’re there, then the business will be open to discuss a wider remit. Procurement will always be open to hear / transfer supplier lead innovation in supply chain simplification / redesign but this is not a key driver / performance metric.
Where will procurement be in the next 10 years?
If I reflect on our own organisation, it will move further in the direction of “strategic.” The word “Procurement” may disappear and be replaced with “Commercial” and will provide greater authority over business operating plans – thus moving from a service function to an “Operator / Integrator” model. Size of teams will be smaller but highly qualified and more experienced. It will be a necessary career development area for those aspiring to senior leadership positions
In general, what do you think can be done to improve performance metrics and the evaluation of procurement performance?
With the right value policy in place to drive the right behaviours and commercial outcomes, this can set the building blocks for improved performance in the eyes of the customer. Secondly noone in “Procurement” should be in management / senior positions unless they have spent time in the business unit so they have a solid business grounding (builds trust). Regular feedback should be sought (of course) but the reference base has to be a set of metrics around a balanced scorecard with value metrics, operational metrics, Business Plan assurance, risk reduction, more transparent “felt” measures. The biggest challenge lies in integrating procurement with Operations – the more they are apart and not aligned with priorities, the less their perceived relevance. All that said, systems drive behaviour. With the right systems (measurement) and interface mechanisms in place (who, when, what etc), the building blocks are there.
Sage words from a seasoned pro….. Thank you sir! My apologies for the delay.
Postscript: Happy Birthday Ardent Partners!