Procurements Value Add: If not now – when?
Procurement is now front & centre of the business world. So when will CEO’s place it at the centre of their business strategy?
If ever there were a set of conditions to emphasize the procurement functions strategic place in business and the modern world, it is the current maelstrom of recession, sovereign debt, gathering inflation, political revolution and natural disasters. The impact of these events has sent oil and commodity prices rising, company valuations plummeting and halted the production of some of the world’s largest companies.
When supply fails as it has for many recently due to the problems brought about by Japans triple whammy of earthquake, tsunami and nuclear disaster the consequences have become plain and evident. Companies such as General Motors, Apple, Boeing, and Caterpillar have all been affected. GM closed its Shreveport plant, whilst Apple & Boeing have suffered component shortages and hits to their stock price.
Even in the public sector procurement is in the news. It is has become the war cry of governments around the world to battle inefficiencies and reduce sovereign debt by adopting private sector style strategies to reign in cost utilising a more central command approach via category management and strategic sourcing.
This rise to prominence during the current economic crisis shows that procurement is much more than the ‘engine room’ for business. Rather, it is positioned as the financial platform for sustainable growth, profitability and value creation. Procurement not only creates value by sustainably matching demand and supply, it also creates a platform for competitive advantage and differentiation by capturing innovation and scarce resources from supply markets.
Despite this dependency upon supply for sustainable value add, CEO’s the world over have made cost the priority for their CPO’s. Driving the trend towards; single sourcing, low cost country sourcing and extended supply chains with the associated increase in risk. The key challenge for CPO’s now after these tumultuous events is to make the business case for a procurement strategy which goes beyond cost savings and is measured against a balanced range of business metrics.