Raising the Profile of Procurement
10 November 2023
In this blog, Alan Heron, our Director of Procurement for the Procurement Hub, part of Places for People, discusses the common perceptions of procurement, how we measure its success and why it should be seen as a multifaceted function.
Understanding the perception of procurement
I’ve been in Procurement for over 20 years and I unashamedly love my job. I’m a Procurement geek! But, like almost every fellow procurement professional I’ve met in my career, I didn’t think about procurement when I was in school. It wasn’t a career choice for me. I wanted to be a lawyer or an architect – procurement wasn’t on my radar! I fell into a career in procurement along life’s twists and turns, by fortune rather than planning!
And therein lies a problem… procurement simply doesn’t have a strong career profile, which is why it might not be the default career choice of many, nor widely understood or appreciated. This is a real shame as I see procurement as one of the most challenging, rewarding, varied and interesting careers you could possibly have.
And this leads us to question the common perceptions many people in our organisation and others may have about procurement. A common (and inherently wrong) perception of procurement is that it is an administrative function, a cost centre, or a simply support service.
At Places for People, we turn that perception on its head. Our procurement function is a unique function within a not-for-profit organisation with a rich social purpose. It brings in vital revenue for us and last year generated almost £4 million – the vast majority of which was invested directly back into the provision of social impact projects for our Customers. This was on top of the £3.1 million in cashable savings that the Procurement Team helped the business generate through contract negotiations and tendering. That’s quite an impact to the Group – and more importantly our Customers.
We also help deliver the Group’s ESG targets – pioneering its approach to eradicating modern slavery, increasing environmental standard in our supply chain, securing the best possible deals in green energy, and much more.
The Group’s procurement team is often asked to speak at external conferences, judge national procurement awards, and are often consulted by other public sector bodies.
But the procurement team in Places for People is not typical of most other organisations. Most procurement functions do not generate revenue, nor do they perhaps have such a proactive input in delivering their organisation’s corporate strategies. And that’s what can reinforce those stereotypical perceptions of procurement as an administrative cost centre.
How do we measure the success of procurement?
To consider how organisations can change that stereotypical perception of procurement, we must first ask ourselves how procurement is measured? What does success mean?
I recently asked this very question to an audience at a conference in London, and the answer was both immediate and unanimous:
However, I would challenge that. Let’s look at using savings as the benchmark of success a little closer.
Everyone is acutely aware of the cost-of-living crisis. Prices have been rising at higher-than-expected levels for the last few years. Energy prices were at a generational high last year, we have food inflation, high levels of interest, and commodity prices increasing wherever we look.
Ironically, this also means that sales of some of the ridiculously highly priced goods and services are falling, because people (and businesses) have less disposable income to spend.
If we then looked at a graph of the highest prices in the market against the lowest prices in the market over the past few years, it would look like this:
As we can see above, the lowest prices we pay for goods and services are increasing significantly, the highest prices are falling slightly, although the overall trend is still one of increasing prices.
Now, let’s consider the scenario of the worst buyer in the world and the best buyer in the world. The worst buyer in the world goes out to buy a product four times in a two-year period. Each time he buys the product, he pays its highest price available anywhere in the world:
Now, let’s consider the best buyer in the world. The best buyer goes out at the same times to buy the same products, but they buy them at the lowest possible price available anywhere in the world:
In the scenario above, the worst buyer in the world consistently delivers savings back to his business. However, the best buyer in the world consistently delivers price increases back to the business.
Now, if we only measure the success of procurement in terms of savings, then we are in trouble. We would be at risk of hiring the worst buyer in the world and firing the best buyer in the world.
In this context (much like today’s economic situation), the best buyer in the world could not have procured those goods any more cheaply. They procured impeccably. However, they still delivered cost increases to the business.
If we only look at savings as a measure of success without any additional context (such as economic environment, business demands, legislative change, supply chain issues), then we risk making very poor strategic decisions.
Procurement as a multifaceted function
It is paramount that organisations move away from the caricature of procurement solely being defined by savings. Procurement must be seen as having more than a single string to its bow and instead seen as the entire orchestra… a multifaceted function delivering a range of benefits.
These benefits should be broad and reflective of the organisation’s own strategic aims and objectives.
Of course, savings will always be a fundamental aspect of these benefits. However, savings alone are no longer an accurate or effective measure of procurement success. The world has moved on, organisational demands have morphed and grown, and procurement functions should be reflective of that if they are to be effective within their own organisations.
Procurement isn’t about contracts
If procurement functions want to increase their profile or reputation within their organisations, they must be relevant. This means being relatable to their organisations and its stakeholders and colleagues.
One of the most compelling ways to do this is through communication: ensure that any benefits engendered by procurement are communicated in a meaningful and relatable manner. Percentage savings, or numbers in a spreadsheet, are abstract and meaningless to many people. However, translate that to something more relatable for the colleagues you are talking to and you will be far more effective.
And that is critical.
For me, procurement isn’t about contracts, suppliers, spreadsheets or supply chain problems. It’s about people. It’s about roofs over heads, it’s about shelter for those who need it, beds in hospitals, desks in schools. That is procurement.