Procurement Perspectives Podcast: Where should procurement report?

It comes as no surprise that there is not one definitive answer to where procurement and supply chain should report relative to each other. What I find interesting are the variables and criteria Franca shared that help an organization make sure they have the proper reporting alignment and hierarchy.

The three variables I came away with after listening to Franca’s response are:

1. The role of cost cutting in enterprise strategy
2. The role of suppliers in the core business
3. The line between internal operations and external services/supply

The role of cost cutting is not necessarily consistent. While in small margin businesses and industries, cost cutting is procurement’s bread and butter, for other companies or industries this approach only comes up in the face of external downturns such as the ones we saw in 2008. When cost cutting is key in the long term, procurement is likely to have a higher visibility position in the enterprise. The close tie between the need to aggressively manage costs and the company’s ability to deliver a desirable product or service to the customer requires that procurement be central to planning and projections. The same is not true for cost cutting as a one time adjustment or initiative. Although procurement’s influence may rise in times of elevated concern, the executive team knows the difference between short and long term trends, and they are unlikely to give procurement a promotion in response to conditions that are not expected to last. That does not mean that there is no upside for procurement – any successful exposure to the C-suite is an opportunity for improved communication, understanding, and positioning.

The role of suppliers is the second variable Franca identified in determining where procurement should report. If there are critical, collaborative supplier relationships required to build and maintain competitive advantage, procurement needs to be close to the C-suite so they can be sure those suppliers are focusing their efforts in the right areas for current and future requirements. Just as hitting the right price point in a low margin business is mission critical, having suppliers that deliver in line with expectations and core strategy is essential for companies with a collaborative supply chain. In this case, procurement is less a lever than they are a relationship manager or facilitator: serving as the go between from the business to suppliers and making sure the right information is exchanged at the right time to enable accurate decision making.

The last variable – the line between internal operations and supplier contributions – is perhaps less of a third variable and more a re-examination of the second. All businesses rely on their suppliers in some way. This may range from only outsourcing facility maintenance at headquarters from an almost completely 3^rd party delivered business model where only sales and marketing are on the payroll. When procurement aspires to hold a seat at the executive table, they should be able to identify the line for their own organization and use that to justify their case. When only indirect spend is managed by procurement, it will be very hard to sell the idea that this necessitates a C-level procurement officer. On the other hand, when a solid percentage – or more importantly a solid but growing percentage – of the direct spend or operational effort is managed by suppliers, it is hard for the C-suite to continue insisting that procurement is an administrative or peripheral function.

Where does your organization stand on Franca’s three variables and how well does it align with procurement’s current reporting alignment and relative rank? Can you identify where on the spectrum of indirect to critical direct or operational spend procurement’s responsibility ends?

If you have any thoughts or feedback about this episode, you can reach me directly on Twitter @BuyersMeetPoint or on LinkedIn or by visiting BuyersMeetingPoint.com. Please also listen to some of my other procurement perspectives podcasts, available on Blog Talk Radio and Sound Cloud.