Procurement: more than just purchasing

Tania Seary, CEO of The Faculty, talks with WNIFT&M about procurement.

What exactly does procurement involve?

Among the fastest growing professions in the Asia-Pacific, procurement is no longer solely focused on achieving cost reduction and compliance.

Today, procurement’s remit is much broader, concerned with developing procurement strategies and supply models that will simultaneously deliver cost savings, competitive advantage and protect the business’s corporate reputation.

To achieve these outcomes, procurement continues to hold prime responsibility for driving global cost competitiveness; however, other tasks such as supplier relationship management, category strategy development, performance measurement, risk management and increasingly, corporate social responsibility, also now fall under procurement’s responsibilities.

What’s the difference between procurement and just plain purchasing? How might you justify the procurement process to a potential client who thinks you’re just giving purchasing a fancy name so you can charge more for your services?

Procurement represents a far more comprehensive and strategic process than purchasing, which is focused only on the tactical acquisition of goods and services.

Although the terms are sometimes (incorrectly) used interchangeably, the evolution of procurement has been borne out of the volatile, globalised and highly competitive context in which businesses now operate.

Unlike the purchasing department of old, procurement’s role is more about helping the business to navigate complex supply chain risk which may come in the guise of fluctuating currency concerns, volatile commodity prices, economically unstable suppliers or greater reliance on third-party suppliers and contractors, often based in new geographic regions.

Is procurement something a company might do in-house or is it something it’s likely to outsource? If in-house, are there particular skills/qualifications/attributes that are beneficial to the procurement process?

Managing external relationships, dealing with ambiguity in a global environment, navigating the fine line between cost and brand management are just some of the essential skills required of procurement professionals.

As with IT, Accounts Payable or HR, the decision to outsource procurement typically moves in cycles. Most organisations, however, now recognise the value of building internal procurement capability, possibly supplemented by external procurement experts to assist from time to time.

In terms of the specific skills and qualifications, The Faculty Roundtable recently conducted research into the attributes that set leading chief procurement officers apart from their peers. The research concluded that top-performing procurement professionals have strong commercial leadership skills, stakeholder engagement and change management experience. More traditional ‘procurement’ skills, such as contract management, cost analysis, negotiation and technical category knowledge are regarded as almost a ‘licence to operate’.

What role can procurement play in ensuring a company’s social or environmental policies are adhered to?

Consumers and shareholders now increasingly say they will only buy from, invest and work with companies whose products and processes are green and ethical. Meanwhile, continuous cost pressure from global competitors means that sourcing from emerging markets is more widespread than ever. Walking the tightrope between being globally competitive and a good corporate citizen is becoming a whole lot harder.

Procurement is uniquely positioned to help the organisation adapt to these challenges, while delivering sustainable bottom-line benefits. Procurement does this by closely monitoring supplier approaches to fair remuneration, OHS conditions, overtime wages, foreign work contracts, child labour and environmental degradation.

Procurement also has a role to play in identifying internal processes that may contribute to suppliers’ non-compliance with ethical standards. Often the real causes behind violations do not lie solely with the supplier, but are rooted within the buying organisation. For example, unreasonably short production lead times and last-minute specification changes may lead to labour standards violations in an effort to meet demand.

How might the procurement process benefit, for example, a large-scale food manufacturer?

As food production becomes ever more competitive with more low-cost or house brands entering the market, FMCGs are increasingly dependent on the reliability, innovativeness and quality of their brands.

Establishing a robust procurement framework is critical not only to contain volatile commodity costs, but in order to deliver a trusted, global network of suppliers to the business.

Through stakeholder relationship development and strategic category management, procurement has an integral role to play in ensuring that your FMCG is positioned as a ‘Customer of Choice’ with the supply base.

Companies that are viewed positively by suppliers are more likely to receive competitive pricing, but attract a network of suppliers who can drive growth, deliver new product innovation and most importantly, ensure protection of trusted brand names and supply continuity.

Is procurement something only large companies would be interested in? Might a smaller company benefit from engaging the services of a procurement officer?

Regardless of the size or nature of a company, today’s uncertain economic environment and lengthening supply chains has increased both the need for greater cost competitiveness and for supply chain risk management. In some respects, small to medium-sized companies will have an even greater need to be cost conscious than their global counterparts and would benefit from applying a strategic procurement focus to their activities.

In smaller businesses, while there may not be a dedicated procurement function as such, procurement-related tasks will be undertaken by functional practitioners. For example, a senior legal counsel may also ‘own’ the legal services category, planning the size and sourcing the composition of the business’s legal services.

Building procurement capability, either within a dedicated procurement function or among non-procurement professionals, is therefore just as critical for a small business to ensure the team is appropriately skilled to manage supply chain risk.

Does a procurement officer need to have a thorough knowledge of a particular industry in order to work in it? Or are the overarching principles the same, regardless of the industry?

In the past, there was certainly a tendency for procurement professionals, particularly those operating within the FMCG sector, to build long and deep careers within a single industry or category. For example, an FMCG practitioner might become highly skilled in managing the indirect category of packaging or a commodity-based category such as sugar, or flavourings.

The overarching procurement principles and commercial skill set, however, remain the same, regardless of industry or category. Expertise such as strategic cost analysis, stakeholder management, negotiations and category management are critical skills in the procurement practitioner’s tool kit.

Our experience placing candidates through The Source indicates that procurement managers are now increasingly open to seeding their team with professionals not only from other sectors, but different functional groups, including marketing, sales, finance and legal, to bring new perspectives and skills to the procurement team.

The Faculty is a management consultancy that optimises procurement strategy, processes and people for leading organisations. It helps organisations identify, initiate and enhance activities that generate measurable value and aid companies cease activities that are value-destroying.