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Procurement: Is It Pulling Its Strategic Weight?

Posted By Jeff Moad, March 07, 2012 at 4:45 PM, in Category: Global Value Networks

Is your company still struggling to master supplier risk management, demand management, and supply chain reporting? If so, it may be at least in part due to shortcomings in your procurement organization.

According to a recently-released study by KPMG International, the procurement functions in manufacturing companies, on average, demonstrate surprisingly low levels of maturity in those disciplines. Based on a survey of 585 enterprises, KPMG, for example, found that only four percent of procurement groups at manufacturing companies have achieved the highest level of risk management maturity related to direct spending, while 20% have not moved beyond the lowest--or what KPMG calls 'foundational--maturity in direct-spend risk management. Sixty percent of manufacturing procurement departments, meanwhile, have made some progress on risk management but cannot be considered leaders.

And, while procurement departments in manufacturing companies tended to show much higher levels of maturity in supplier performance management, category management, and supplier relationship management, their maturity was low in demand management and management information and reporting.

The report blamed the lack of achievement in these areas on what it called the inability of many procurement functions to take on a more strategic role. Many, the report concluded, continue focus primarily on tactical cost-cutting, while failing to connect with and support other parts of the enterprise.

The report recommended five steps procurement leaders should take to raise the strategic roles of their organizations:

1) Earn a place at the table by working more closely with key stakeholders and understanding the business strategy. Identify how procurement can add value in order to truly become a strategic business partner;

2) Stretch beyond cost savings. Provide the procurement team with a license to get involved in more strategic business considerations such as demand management and make-versus-buy decisions;

3) Invest time in understanding if the current procurement operating model meets the business' objectives;

4) Take a more active role in risk management. Proactively encourage procurement professionals to take charge of the supplier risk agenda;

5) Maximise the use of technology and management information. Leverage technology to automate transactional tasks and realize enhanced value.

What do you think? Is procurement at your company contributing all it should to strategic activities such as risk management and make-versus-buy decisions? How can procurement become more strategic?

Written by Jeff Moad

Jeff Moad is Research Director and Executive Editor with the Manufacturing Leadership Community. He also directs the Manufacturing Leadership Awards Program. Follow our LinkedIn Groups: Manufacturing Leadership Council and Manufacturing Leadership Summit


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