12 October 2015
Topics in this article
  • Strategy & Planning

As key indicators of market growth point skywards and business confidence increases, boards are looking to align every aspect of their business to the wider growth agenda. But, for many of these companies, not all of their internal functions are able to shift their sights from defence to offence at the same time (or at all, in some cases). This creates a disconnect between the board’s ambition and the operational reality – a common source of frustration for many senior executives.

So, why the sudden shift from defence to offence? New statistics from a number of key analysts indicate that the economy, and in turn  business confidence, has turned increasingly positive over the past month. Just last week the OECD “sharply” upgraded its  economic forecasts for the Eurozone. And, while there continue to be many conflicting reports ; for the UK in particular, the key indicators of market growth, consumer confidence, business confidence and  M&A activity  all appear to be heading north, while inflation and interest rates remain relatively flat. These conditions provide businesses made lean from the recession, a key opportunity for growth.However, although welcome, these market changes bring with them a new set of challenges for corporations the world over. Times of economic growth require new objectives, strategies and management practices. Ensuring that the business and all its functions are aligned to the overarching growth agenda is a complex task.

Connecting the sourcing process to the commercial agenda

For procurement – a traditionally defensive business lever – times of business growth often mean a decreased demand for, and understanding of, the value adding services that procurement provides. When business is booming, the “savings guys” become an administrative drag, limiting the ability to quickly capture new growth opportunities. This common view however is limiting. It does not account for the wider supplier management activities that inevitably increase during times of rapid expansion. During periods of growth, companies may loosen their cost controls to enable budget holders to seek out and find new opportunities that will increase business growth. The increased level of spend and the relaxation of cost controls can lead to higher levels of supply-led risk. All this at a time when the majority of the business is focused on the things that will drive forward momentum – not defending the current position. The best example of this can be seen in M&A deals. When an acquisition completes, the acquirer is typically left with a relatively dispersed and unknown supply network. Consolidation, integration and alignment to corporate objectives is an often overlooked but crucial aspect of the deal, that if not properly managed, can detract significant value. As maverick spend and invisible supplier activities rise, this can result in value leakage and the potential larger issues of failure to meet regulatory compliance or the occurrence of unethical practices.  Overcoming M&A challenges through effective procurement practices  then becomes a significant challenge for many.So why then is procurement often overlooked as a key component in the growth phase? Once again, it all comes down to  perceptions of the function. It’s no surprise that for a function primarily associated with savings, times of expansion facilitate the notion that procurement is an administrative burden that slows down growth initiatives.

Overcoming the perception problem

Shifting corporate management’s  attitudes towards procurement  is a challenge that looks set to test the function for the foreseeable future. But, in an era of growth and expansion there are a few “quick wins” that procurement can implement to ensure its recognition as a strategic tool:

  • Act as facilitator between stakeholders and suppliers:  Focus on drawing out innovations, synergies and better ways of working
  • Share knowledge of good commercial contracting:  If stakeholders want to manage their own supplier relationships, switch to advisor mode and offer guidance around how best to setup and use contracts throughout the relationship’s lifecycle
  • Connect procurement to the commercial agenda:  Further to the above, approach each of your key stakeholders and find out what they are trying to achieve (and challenges in doing so). Take savings off the table as a discussion point and instead focus on how different spend behaviors, or using suppliers in a different way, could overcome these challenges
  • Connecting with the board’s agenda:  By highlighting the critical areas that might hinder growth, increase risks (such as a supplier failure) or detract fromshareholder value – procurement guarantees its involvement in board-level conversations and improves the perception of procurement as a key business function capable of furthering the growth agenda.

For procurement to be truly connected to the wider corporate growth agenda, CPOs and sourcing team leaders must be able to effectively influence internal stakeholders, engaging them on a level beyond cost reduction. The ability to draw out solutions from the external supply market and combine with knowledge of effective sourcing practices will see procurement shift the negative ‘cost cutter’ perception toward a more positive perception of a commercial partner.

How are you ensuring your sourcing operation is aligned with the corporate growth agenda? How are you communicating the value that procurement can add during times of growth?

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