PROCUREMENT'S PLACE IN THE ORGANIZATION: WHAT POSITION DOES SUPPLY MANAGEMENT PLAY?

Procurement — Except for perhaps sales, it is arguably the department within an organization that has the most impact on that organization's bottom line. Unfortunately, the leaders and top management of many organizations have not discovered that, yet.

Imagine a sports team. That sports team has players for every position, just like every other team in their league. But picture the coach having no idea how one of those positions can contribute to victory.

That sounds ludicrous, right? It is ludicrous. Yet, that scenario has parallels to the way that procurement is perceived in many organizations throughout the world. The management teams of those organizations are just not aware of the value that procurement can contribute.

PROCUREMENT IS AN IMPORTANT PLAYER ON ANY BUSINES TEAM

We have a fond memory from a business conference that we attended. At one point, we spoke to another attendee, who was a senior manager for a government contractor. Out of curiosity and to make conversation, we asked him about how his procurement department operated and what improvement initiatives they were pursuing. He replied nonchalantly that his company really didn't do much in terms of procurement 2 training or process improvement, and he wasn't concerned. They were a small company and didn't spend much, relatively speaking.

We then learned that his company spends about $20 million per year on goods and services, so we asked if the company could save 5% of that — in other words, if pretax profit increased by $1 million — would the owners care? Would that be too small to matter? We could see by the look in the manager's eyes that he had an epiphany at that very moment.

The coach came to a dramatic realization of how one of his players can contribute to victory.

Corporate victory through smart procurement is what this book is about. It is literally a game plan for supply management success, providing play-by-play descriptions of how to achieve measurable results for your organization.

MANAGEMENT'S EXPECTATIONS OF MODERN PROCUREMENT

As stated earlier, some management teams have no clue about the value that procurement can deliver to the organization. It is up to you to demonstrate that value.

The best way to demonstrate value is by performing well and delivering real, measurable results. If you are in a procurement department that has not gotten much respect or attention over the years, you may need help in the form of new staff, technology, or training. You may need to ask management to make an investment in improving procurement performance.

You may also find yourself asking a question similar to the one we asked of the government contractor's senior manager, as described earlier in this chapter: "If you could have $x more in profit, would that matter to the owners/investors/ stockholders?"

What else can a reasonable person say? Saving, say, 5% of spend may be tough in an inflationary market, if you already squeezed out cost savings in the past few years. But if the company hasn't been historically concerned with procurement, there is likely a lot of low hanging fruit, a common phrase used to describe easy and obvious decisions that you can make quickly to achieve positive results.

On the other hand, management may have had its procurement epiphany a while ago. If so, they may have high expectations of you and they will challenge you to deliver more aggressive results. So what does management want from procurement? Here are a few common expectations:

• Cost savings — Management wants procurement to save money and reduce overall costs. Please note that the previous sentence is not synonymous with management wants procurement to get lower prices. You need to focus on the reduction of total cost of ownership, not just price reduction at any cost. Upcoming chapters will teach you more about total cost of ownership.

• Productivity improvements — Management will always expect you to do more work with fewer resources. No matter whether you are in a tactical or strategic procurement organization, there are many productivity metrics that you can choose from to track productivity gains: contracts executed per buyer per month/quarter/year, average length of sourcing cycle, man-hours per dollar saved, etc.

• Brand/differentiation support — Your organization's mission or vision statement should give you some clues as to how your organization wants to be perceived in the marketplace and how it wants to be differentiated from its competition, such as offering higher quality, faster cycle time, better service, lower cost, or something similar. Make sure that your decisions and metrics support your management's brand and differentiation strategy. As logical as this may sound, you would be surprised by how many organizations have a mission of being the highest quality provider in their industry, yet their procurement departments measure only cost savings.

• Customer satisfaction — Sometimes, being in procurement can make you feel separated from your organization's customers. But management relies on things that you're responsible for, like assuring continuity of supply, to keep its promises to its customers. Realize that you can personally be responsible for your organization's failure to meet customer expectations. In this era of tough competition, organizations have to meet or exceed customer expectations simply to survive, and you have a critical role in that survival.

• Positive cash flow — In some organizations, the timing of monetary receipts and payments is critical....