Is Your Procurement Team Strategic or Tactical?

Are they contributing to the success, profitability and growth of the organization?

With the 2009 economic downturn and more recent slow recovery, we have all experienced the transition from lean and mean, cost cutting organizations during the painful downturn and now back again to an exciting growth period with the addition of new staff and strategic business investments.

This pendulum, depending on the market and economic conditions, seems to swing in one of these 2 directions which can be significantly challenging for any company. Obviously, when businesses go through the financial and economic trauma experienced from 2009 to 2014, serious changes were required- plant closures, staff layoffs, payments extended, investments postponed, the downsizing of the overall business etc.

Now that our economy is on the mend and some would say prosperity is back, I think it is time to consider a more balanced functional and strategic approach. As the saying goes,” a high tide covers many rocks” and I believe some organizations who are experiencing solid revenue growth may overlook the critical strategic sourcing, cost reduction and spend management disciplines that often go unnoticed during the good times. Prosperity can sometimes be so intoxicating that we only focus on revenue and business expansion and overlook the potential savings and additional margin opportunity that exists and the resources required to maximize those results.

As a procurement consultant that has the highest regard for Sales and Revenue, I believe that the most successful businesses are those who meld revenue growth, strategic sourcing and expense management simultaneously. Unfortunately, I occasionally find companies that are so focused on revenue and market expansion during strong economic times, that the purchasing departments are marginalized and act more as a reactionary tactical group responding to the immediate needs of the business vs. being a strategic resource and valued contributor at the senior strategy meetings. I understand how these internal business attitudes develop, especially if the purchasing staff was never considered strategic, effective and pro-active within the company. Unfortunately, when this scenario is the norm, the company may never experience the significant benefits of a highly effective profit contributing procurement entity.

On the other hand, many companies completely get the benefits of an effective and strategic procurement staff and value it as integral part of the business. Most businesses fully intend to have a procurement and supply chain team that is appropriately staffed with talented professionals and in sync with the rest of the organization’s overall objective of sales expansion, margin growth, cost savings and high productivity. The disconnect occurs when business grows very fast and the required customer and sales support are immediate and paramount creating a situation where critical procurement resources and tools are overlooked limiting the team’s ability to continue making real and consistent impact both short term and long term.

In addition, even though most organizations would never admit it, departmental silos still exist often competing for resources and priority to achieve their specific objectives vs the overall company goals. One of the best ways to combat this situation is to schedule weekly (or as frequently as required) cross functional meetings with all the critical areas (Sales, Operations, IT, Finance, Procurement etc.) to address the business needs for today and tomorrow. All business strategies, requirements, investments, resources, challenges, risks and ideas should be open for discussion and decision.

As business improves and revenues opportunities increase, I encourage Senior Management to take the time to investigate and understand the downstream impacts that additional sales are creating. For example, too often the procurement team is asked to absorb the additional work that is associated with the increase of new accounts, products and volumes without the addition of new resources. This may be a prudent move initially since there may be some slack in the system or the sustainability of the new business may be in question. The procurement team may be able to accommodate this initial work but over time as additional business is added, the Procurement function will slowly and quietly drift from performing as a strategic resource to a more tactical entity – simply because the staff lacks the time and resources to do anything but get the “mail out” each day.

If Senior Management does not recognize the real and gradual diminishment of its’ procurements team’s capabilities – they will soon have an overwhelmed tactical team that is seriously limited in it financial and strategic contribution. When this occurs, supplier meetings are reduced and cancelled, new products and ideas are missed, timely and forward-planning RFPs are not created, cross functional categories are not addressed, costs are not managed, overall spend is not optimally leveraged and unnecessary suppliers are added. Worse yet some excellent people could leave.

In response to these internal resource challenges, the HR team should be continually in search of procurement talent to support the additional business requirements and elevate the team and its deliverables to the next level. Some businesses who are not fully confident in the new business growth or are having difficulty finding the right candidates - may consider hiring a procurement consultant and/or temporary procurement staff until there is more certainly to the business and staffing needs. I have also noticed some businesses assign their indirect spend, cost savings efforts or unique stand along projects to procurement consultants while their core team manages the daily demands of the core business and strategic cross functional collaborative projects. Also, as a temporary option some procurement consultant groups do offer temporary support for a project, specific category or as a generalist for an interim period of time until a permanent hire is in place. In essence there are various staffing options that are available during these transition periods.

In summary, the real goal is to ensure the company’s most talented procurement staff remain focused on the strategic and critical elements of the business, even during favorable economic times, so that maximum profitability and risk mitigation are achieved.