Procurement’s new role
From its earliest days, procurement has always been about acquiring the right products and services at the right time at the right cost, yet the profession has seen many changes in the past 30 years. Technology has automated many transactions and other tasks, freeing up procurement professionals to focus on more strategic activities. At the same time, more universities have created formal supply chain management programs that graduate talented leaders who have been taught to view procurement as more than a tactical function. Today, procurement is still about acquiring the right goods, but it’s more than that. At many companies, procurement is a valuable asset, contributing not only by reducing costs, but also by generating revenue with innovative supplier ideas.
Another way to think about it is procurement as a “trusted advisor.” This concept was originally articulated by The Hackett Group, a research firm that regularly tracks procurement and publishes an annual “Key Issues” study. The term has caught on with many in the profession. In procurement, trusted advisors have “a place at the table,” are actively involved in planning and budgeting, and provide market insights in such areas as supply chain risk. Trusted advisors collaborate with internal customers to understand their business and meet their goals. They are change agents and facilitators.
The best procurement departments, according to industry experts, are those that provide these strategic capabilities. Research shows that procurement “role models” have a broader view of procurement than their peers, set priorities that align with corporate initiatives, and work to add value through collaboration. According to the IBM “Chief Procurement Officer Study,” role models use technology to free up resources to participate in these activities.
The concept of procurement as a trusted advisor isn’t limited to research reports and analysts’ suggestions. Here are a few real-life examples of procurement playing a strategic role:
- At the broadband and communications company Cox Communications, the procurement group helps reduce to the overall operating budget by partnering with finance to ensure that business-unit and department savings resulting from working with procurement go back to the company. They don’t let the department spend the savings, and even add an item to the budget directing the department to work with procurement on further reductions, according to Bill Mangen, vice president, strategic sourcing, procurement, and supplier diversity.
- At Flex (formerly Flextronics), Tom Linton, chief procurement and supply chain officer, and his team monitor the supply chain in real time in a state-of-the art “Pulse Center” and are involved in product development of “wearables”—putting electronics in clothing. He meets with farmers to learn about weather and soil and how they affect fibers that go into wearable fabrics. Linton played a key role in helping the company transition from contract manufacturer to a global supply chain company.
- At Intel, Frank Sanders, vice president, technology and manufacturing, and director, strategic sourcing, has moved some of the company’s spend on such areas as sales and marketing, human resources (health care), and engineering services to outcome-based contracts to provide the company a competitive advantage. Outcome-based contracts differ from standard contracts in that the customer company only pays for results agreed upon during the negotiation. In a standard contract, the customer pays an agreed-upon price for goods and services. Benefits include lower costs and improvements in supplier performance.
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