Procurement often feels like they are increasingly asked to ‘do more with less,’ and there seems to be no shortage of tasks and projects procurement gets pulled into from across the business.
From safeguarding margins, mitigating risk, navigating regulations, and ensuring supply chain resilience to championing sustainability and driving innovation, procurement has evolved into a core strategic value driver and critical business function with far-reaching impact.
Despite all the hats most procurement teams wear, the value procurement brings still is not clearly understood in many organizations. Why, and what can we be doing to change that?
In a recent AOP Live session, Kelly Barner and I spoke with Vishal Patel, VP Product Marketing at Ivalua, and Chris Sawchuk, Principal and Global Procurement Advisory Practice Leader at The Hackett Group. They discussed findings from The Hackett Group’s 2023 Procurement Value Measurement Study, which provides insight into how businesses value procurement and how to identify and communicate value beyond cost savings. They also explored new opportunities for value contribution procurement should take advantage of going forward.
“Given all the things procurement is doing, it does seem that a lot of their work tends to go unnoticed or be undervalued or is boiled down to that one bottom-line savings number,” said Vishal. “The truth is that procurement is involved with a lot.”
Rethinking the way we define and track procurement ROI is one way to clarify procurement’s value to the business. While cost savings remains a core performance indicator for procurement, we also have to do the difficult work of articulating all the value procurement brings that might be harder to quantify, impacting areas like risk or ESG. But, as the scope of procurement’s role in the business grows, we also have to find new and better ways to communicate that value up the chain.
“I think we have become more sophisticated in the way that we think about value,” said Chris. “When we look at the traditional ROI, it has been difficult to quantify some of these other value elements of what we do in the same way we have been able to for cost savings and cost avoidance.”
As Chris pointed out, “what gets measured gets done,” but for procurement there is still a common disconnect between how the business evaluates performance and how procurement measures their own value creation.
This is a gap that needs to be bridged. Doing so not only clarifies procurement’s value proposition across the business, but it can also safeguard procurement as a function from ending up on the budgetary chopping block when belts are tightened. When procurement’s value is clearly understood and supported, Chris pointed out, would the business be likely “to cut out and reduce costs in an area that could potentially help it generate additional value during difficult times?” Of course not.
In many ways, it is in procurement’s own self-interest to align their value creation with the expectations and goals of the business and expand the business’s understanding of all the things procurement contributes to on top of cost savings.