In six years of Return on Supply Management Assets (ROSMA) annual evaluation reports of procurement organizations — a collaboration of A.T. Kearney, Institute for Supply Management® (ISM®) and the Chartered Institute of Procurement & Supply (CIPS) — the results have shown remarkable stability.
Or disappointing monotony, as ISM CEO Thomas W. Derry remarked in What Good Looks Like, a white paper that analyzes the most recent ROSMA numbers: Again, only one-fifth of procurement organizations deliver high value in the eyes of CFOs and executive stakeholders. A quarter are struggling or inconsequential, while most make up what researchers label a “pack” that delivers satisfactory value but performs well below the top tier.
“The good organizations maximize all of their resources and think big. Unfortunately, in many companies, procurement still amounts to ‘three bids and a cloud of dust,’ ” Derry says, playing on the old football saying about a strategy that’s unimaginative — and antiquated.
Derry adds: “The profession needs to be more aggressive in adopting strong practices to help increase the number of organizations in the highest levels. We’re getting better, but there’s still work to be done.”
Among the attributes of the highest-performing procurement teams include capable and respected talent that has built a strong brand, effectively engages all stakeholders and delivers tangible, substantive results. Your organization does not want to be among those struggling or inconsequential; the paper paints a grim picture of such outfits as unorganized, unaccountable and disrespected by executives and stakeholders.
So, what’s the way out of procurement purgatory, or away from the “pack,” to become what the paper calls a “leader and leaner” organization?
The ideal first step in raising a procurement organization’s performance, Derry says, is determining priority targets — involving stakeholders in the process — and developing a clear plan of attack. The initial goals should be modest, as Derry says capturing “low-hanging fruit” can build an organization’s confidence and provide a blueprint for tackling new areas of spend.
“Establish clear performance expectations from the procurement team,” Derry says. “How many sourcing events are we going to run? What cost savings must we deliver? Support the team and give it the tools and training it needs to maintain the expected performance.”
Maximizing the Toolbox
Among the tools that has and will continue to impact procurement is, of course, technology. What Good Looks Like identifies two emerging areas: (1) procurement performance management (PPM) technology, which is expected to be mainstream by 2023, and (2) advanced digital technologies, specifically robotic process automation (RPA).
These technologies have already made big impacts in accounts payable offices and distribution centers for high-performing companies. But for almost every success story, there seems to be a tale of woe about an organization that is struggling to understand, let alone harness, high-tech tools.
Regarding technology, Derry says organizations must “capture the value, learn from the implementation, and then identify the next promising area for implementation. Keep rinsing and repeating. Don’t let a project get hijacked by the IT team without an understanding of procurement processes and how procurement delivers value.”
However, one of the most critical and disruptive tools available to procurement professionals is their own curiosity. The paper states that CPOs must “encourage their people to get out from behind their desks and visit suppliers to better understand how procurement is creating value for the company.” While this doesn’t seem like a novel idea, some procurement organizations lack the initiative — or, in some cases, the resources from upper management — to see processes firsthand.
Derry cites an example from the hospitality industry, when an organization was tasked with getting lower costs from food suppliers without sacrificing quality. Procurement insisted that no more blood could be drained from the savings turnip. However, a conversation with a supplier revealed that the delivery process required refrigerated trucks to idle at the buyer’s site for hours until they were unloaded — raising fuel costs and lowering driver productivity.
“Recognition of these underlying cost drivers, and changing the delivery process to reduce the supplier’s overall cost, allowed the buyer to achieve its cost reduction targets,” Derry says.
Targeting the Audience
For procurement professionals, almost as critical as performance is conveying its effectiveness and value — not just to executives and stakeholders, but the students and graduates that are the source of the supply management profession’s future. And in this area, the white paper puts it bluntly: Procurement has a branding problem.
Procurement must have a clear, compelling story to tell in a board room, and even more so when competing with other business sectors for recent college graduates and MBA recipients. This dynamic has hit logistics perhaps the hardest. The industry is struggling to fill a jobs vacuum — 1.4 million positions by 2018, according to trade group Materials Handling Industry (MHI) — because logistics is an afterthought to many college graduates.
The challenge for logistics is convincing young people that it is much more than warehouses and forklifts — that, as a company president put it last year, “this stuff is cool.”
Derry says that supply management needs to emphasize to students and recent graduates that there are few professions where one can have a substantial, speedy impact. And procurement organizations, regardless of their audience, must find a clear voice, backed up by performance, that commands attention and respect.
“Leading procurement organizations can articulate what’s cool about their jobs: Want to be part of a team negotiating a (US)$1 billion deal?” Derry says. “Want to work directly with CEOs, CFOs, and others C-suite execs when still in your 20s? Want a chance to travel and experience new cultures? Want to drive sustainable processes that contribute to better stewardship of global resources? Want to be recognized for demonstrable contributions to improving your company’s bottom line? Some or all of these characteristics are available in procurement roles.”
A procurement organization interested in better gauging its value to a company can take the ROSMA Performance Check, a free benchmarking service.