This week, the Hackett Group released their 2013 Procurement Key Issues study. This study, which was likely the last hurrah from Pierre Mitchell as a Hackett Group Employee, found that some organizations are going deeper and broader to deliver borderless procurement services, which is good, but the one thing that blatantly stands out is that your average CFO, COO, and CEO still doesn’t understand the value of the Procurement Organization.
Before I explain, let me review a few of the key findings.
1. 82% of respondents state that increasing operational agility and flexibility is a key enterprise issue.
2. 65% of respondents state that pursuing game-changing innovation/technology is a procurement initiative planned for the next 12-24 months in support of enterprise strategy.
3. 76% of respondents state that expanding purchasing’s scope and influence is a major procurement-related issue in 2013.
4. 76% of respondents state that increasing innovation and product/service report is a major procurement-related issue in 2013.
5. 88% of respondents cite strategic sourcing as a major issue.
6. 81% of respondents cite category management as a major issue.
7. As a whole, respondents are projecting:
- a 0.4% drop in the operating budget and
- a 0.5% drop in the FTEs in the procurement function.
I think this calls for a WTF!
Strategy and category management require skilled resources with the right intelligence and toolsets. This requires adequate budget.
Innovation and agility require advanced skills, expertise, and market knowledge that requires a lot of supply market intelligence, outside information, and time to study mini- and mega-trends. This also requires adequate budget.
Scope of influence comes with results, and results require talented people with appropriate toolsets and knowledge. Again, this requires adequate budget.
Furthermore, we have the situation where budgets are not being cut equally. From what I’m gathering, for the fifth year in a row, Procurement Training budgets are being slashed or are non-existent! This is driving me nutz! This disconnect of separating expectations from budget is ridiculous, especially when the organization is supposed to be scored on value. Value is ROI. ROI is return on investment. In Procurement, this is defined as savings/avoidance/revenue increase over spend. This means that if spending $10K on training will give your category managers the capability they need to go negotiate another $100,000 of the TCO (Total Cost of Ownership) through unit price, logistics, and non-value added service savings, then you increase the budget by 10K because you are getting a 10X return!
If the goal is for the Procurement organization to deliver value, then they need the budget for the technology, supply market intelligence, and training they need to deliver that value. Otherwise, expecting them to do more with less (FTEs) is just stupid. Ludicrous in fact!