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Is Procurement a C-Level Priority?

The biggest problem with procurement today is inadequate capacity—despite cost saving being so crucial.

Put simply, procurement is the consumption of things necessary for the life of your business—and determining what to buy, when and how much.

In its 2015 Global Procurement Study, business technology and services provider Xchanging dispelled the common notion that procurement’s challenges are owed to a lack of skills and talent, instead pointing to inadequate capacity, lack of internal engagement and misaligned key performance indicators (KPIs) as the “real issues.”

“The role of procurement has changed,” the study noted. “It has evolved from a cost saving function to an invaluable strategic partner.”

Xchanging interviewed 830 procurement decision makers across the U.S. and Europe and found that 80 percent of procurement professionals noted team time pressures as a challenge, 20 percent calling it a “major challenge,” indicating that capacity issues are prevalent.

Talent shortage, however, was only cited as a challenge by 59 percent of those surveyed, and only 12 percent ranked it a major challenge.

Xchanging Procurement’s executive director Chirag Shah said, “If you were to go by media headlines and conference topics over the past few years, you might well think that talent shortage was the only problem plaguing the procurement function. Whilst our study confirms it’s still an operational challenge, there is a much bigger issue found in the form of ‘team time pressures.’ The main problem isn’t lack of available talent but rather insufficient capacity within procurement.”

As the procurement team’s role expands, Shah explained, its resources are stretched thinner. And when companies don’t grasp all that a procurement function provides, they don’t provide the right resources.

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“CPOs [chief procurement officers] need to get better at communicating their growing remit to the wider organization in order to gain access to additional resources,” Shah said.

When it comes to cost, 47 percent of procurement professionals said “cost savings realized” was their primary KPI. In fact, the top four listed KPIs were all cost related. Corporate social responsibility/sustainability impact on the other hand, was the least important with only 1 percent naming it as relevant at all.

“These results strongly indicate that there is a problem with the current KPI structure,” Shah said. “Procurement teams are responsible for many business critical functions. From risk management to sustainability impact, procurement is engaged in activities that far surpass its cost-cutter legacy. The metrics against which organizations track procurement’s performance do not line up with what procurement actually delivers.”

The study found that there is a perception gap between those representing procurement at an executive level and those doing the day job: 60 percent of CPOs indicated that procurement is a C-level priority in their organizations compared to 37 percent of procurement middle managers. And when asked about the most common reason for missing targets, 33 percent of those surveyed cited lack of internal engagement.

“To improve internal engagement, and properly communicate the value of procurement, procurement departments need to consider tactics such as introducing governance boards, using score cards to track deliverables, leveraging analytics and reporting tools to demonstrate results and even re labeling team members with non-cost centric job titles that relate to their roles, for example ‘Risk Manager’ or ‘International Consultant,’” Shah explained.

Skills considered most important for procurement professionals were relationship management and negotiation skills, and those were also the areas noted to have the greatest gaps in available skills.

Relationship management came in four places ahead of financial acumen and seven places ahead of category management, signaling the shift in procurement’s role from cost savings-centric to a more strategic partnership model.

“This is most likely due to the fact that procurement decision makers do not yet realize how imperative being able to use these new tools will be to the success of the industry,” Shah said.

Procurement specialists can help synchronize big companies’ processes and purchases, and some, like Xchanging, say they have been able to improve clients’ business profits by as much as 30 percent.

According to the study, U.S. procurement decision makers are almost twice as likely than their European counterparts to identify relationship management as an important skills gap and more than twice as likely to list aptitude for technology.

“The U.S. is ahead of the curve in terms of recognizing where procurement is headed and planning for that future,” he added.