The Fatal Flaw in Procurement Organizations

by Omid Ghamami

If you are in this profession, you know it is progressing quickly.  Process automation, artificial intelligence, robots, predictive analytics, P2P, etc. 

In addition, over the last 30 years, we’ve made the shift from cost to total cost, from expediting purchases to commodity management and strategic sourcing, and from organizational procurement management to supply chain management. 

But one thing has completely lacked, and in fact has not improved at all.  This trait keeps us in the back office.  It keeps us perceived as an overhead function.  It limits us to insufficient headcount and tiny budgets for training.   Instead of being viewed as a Value Added Center of Profit, it keeps us as a non-revenue generating support function. 

Out of all the service provider divisions inside every company, we rank dead last in one category.

That category is internal influence and marketing.   

If we did that really well, every organization would have a CPO that reports either to the COO, President, or CEO – the Top Brass.

But we don’t.  That part of our skill set has languished.  We get the results without internal perception having been correspondingly influenced. 

Do you want to know what organization does this really well?  Human Resources.  HR has got communications all over the place, telling you what a great job they’re doing.  And they always report to the Top Brass. 

What keeps us down?  Keep reading.

The big problem is that we tell the organization what we accomplished using criteria that only matters to us.  For instance, our biggest metric is typically cost savings. 

Who else do you think cares about cost savings?  Business units and end users don’t care, that’s for sure.  If you think they do, show it to me on their status reports. 

And the Top Brass would care, except when we tell them we saved $125M in the last year, they think to themselves something like the following:

“Great!  So where is this money?  I could use it!  Which budget string is it in?  It’s not anywhere though.  It’s never anywhere.  It doesn’t exist anywhere outside of what procurement tells me in email, so it’s not real to me.  It’s just monopoly money.”    

We should be talking about contributes to EBIT, not cost savings.  And we should be requiring that cost savings go back to the Top Brass, not back to the business unit, who will just use it to buy more.  The savings actually does disappear.

We should be measuring ROI on the procurement department.  We should be talking about business unit and marketplace advantage that we’ve enabled – time to market, quality enablement, supply line establishment, resilience, and so forth.   

Better yet, the business units should be talking about it.  If procurement has to beat their own chest, it is of no value at all and indicative that something is wrong with… you guessed it… our internal influence and marketing strategies.

In fact, the root of all of our internal influence problems is that we use our agenda as the primary focus instead of that of the person we’re trying to influence. 

If there were no business units, there would be no procurement.  We exist to enable their objectives at the lowest total cost.  THEIR objectives.  Everything about our marketing and internal influence strategies need to reflect this. 

Otherwise, we will keep trying to shove our metrics and our agenda down the throats of the company.   And we will continue to report to strange places, such as Finance, Manufacturing, Legal, Operations, and I have even seen HR. 

Why do we report to strange places in the company?  Because the Top Brass doesn’t understand procurement’s value add.  If they did, we would be reporting to them directly, and the business units themselves would insist on it as well. 

We’ve come too far in our capabilities and results to let things like this languish. 

Now go off and do something wonderful. 

Be your best! 

Omid G

“THE Godfather of Negotiation Planning” ~ Intel Corp

P.S. The PSCM Institute is rebranding and an incredible CPSCM™ announcement is coming in the next 2 months.  Find out why almost half of the Fortune 100 have invested in CPSCM™ certification. It doesn’t get any better than this.  www.CenterforPSCMExcellence.org

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