Investing in building procurement capability
Procurement Capability: People Matter Most
Many companies underinvest in the purchasing team’s capabilities and exclude them from strategic decision-making processes in favor of functions, such as operations and sales.
The lack of importance placed upon procurement, has unintended consequences over time. A negative compounding effect develops resulting in:
- talent flows away from procurement towards the perceived higher-status functions
- procurement becomes buried at the bottom of the organizational structure, and
- those within procurement develop a ‘victim mindset’, seemingly impotent to do anything to change the situation.
These consequences ultimately bring about a self-fulfilling prophecy – that procurement is not strategically important.
The consequences of this underinvestment in building procurement capability are often not obvious in day to day organizational life, but in reality they are highly damaging. On the other side of the negotiating table are sellers who receive heavy support in training and capability development. When they come up against an underdeveloped purchasing team, the result, like that of a football match between Bahamas and Brazil, is fairly predictable, and significant value is lost.
Yet purchased materials and services make up 50 – 90 percent of an organizations total cost in many industries. As a result, companies that do not invest appropriately in the purchasing team’s capabilities and culture are throwing away more value than they realize. It is now well documented that Purchasing Leaders achieve higher margins than Purchasing Laggard. Among the dimensions that strongly affect purchasing’s success, are capabilities and culture. So people matter most.
Building procurement capability helps to raise the function’s profile and to give high-performing procurement professionals more leadership-development opportunities and exposure to senior management – building their self esteem and facilitating more powerful behaviors.
In our experience, companies that invest in developing purchasing skills are able to attract and retain better purchasing talent and capture the financial impact more quickly and sustainably. If you would like to learn more we would love to talk to you.