Procurement's
ability to contribute in a board-level
strategic role is much discussed. How does the function get away from the historical perception of being tactical and purely focused on cost-saving?
Cost savings are an easy default
"There is a continuous discussion in procurement about moving away from being measure on cost savings"
In reality, cost savings aren't really what matter most to a business. The key metric is value. When buying services, businesses care about value – the return for their investment.
But historically, procurement's success has been defined by how much cost they can save. Why is this? As the title suggests, it may be because it's the only thing they can really measure so it's the only thing they can be KPI'd on.
ROI is the goal. But the first step is building visibility
To measure procurement's impact on KPIs beyond cost, first procurement needs to
build a better understanding. For example, to understand its ability to deliver quality outcomes to deadline/budget, it needs to collect and leverage data.
Procurement's role beyond the contract signature
The challenge is one of operational efficiency. Procurement's efficacy is predicated on the ability to gather data on requirements, desired outcomes, results, project costs and deadlines.
Changing procurements relationships with the CFO
In many organisations, the finance team can only look to procurement for reducing cost because it’s the only thing they can see and measure.
This leads to a common cost-focused scenario being played out:
CFO: "What did we spend on consultancy last year?"
CPO: "We spend £100m."
CFO: "What did we get for that?"
CPO: "We spent it mostly with ABC consultants."
CFO: "OK, we need to reduce spend to £90m next year"
A much richer conversation can take place when procurement has visibility of value:
CFO: "What did we spend on consultancy last year?"
CPO: "We spend £100m."
CFO: "What did we get for that?"
CPO: "We delivered 150 major projects and we unlocked £500m in additional revenue."
CFO: "OK, we need to increase spend to £150m next year"
Data is key
Making the transition to value-based measurement starts with data. With rich data on the finer details of its services spend, procurement teams can build tools, processes and teams around measuring and influencing values. And this gives them new value-based metrics on which the business can measure their impact.