It’s a familiar conundrum for procurement professionals. Your company has invested in a new project or transaction and the senior team want results fast. With companies on 90-day results cycles and pressured to deliver, should you focus on quick wins? Or do you focus on the strategic priorities that deliver long-term value? Or do you do both?
This challenge has been put into focus by the extraordinary market dislocation created by the Covid-19 pandemic; as companies come under pressure to repurpose operations and just-in-time supply chains, so procurement professionals are under pressure not only to secure supplies and manage supply chain risk, but also to deliver savings and working capital improvements fast. According to a recent ONS poll, over one quarter of businesses have temporarily closed and 38% of companies reported substantively lower revenue.
But is there a risk that by focussing on immediate priorities and requirements, businesses lose perspective on delivering long term value?
This was an issue debated recently by leading corporate procurement and private equity operating partners at Ayming’s “Let’s talk procurement and value creation” event in London. We deliberately brought together these differing perspectives – corporate procurement managers must operate under strict reporting calendars while private equity operating partners have stringent financial and operating targets to meet.
One of the key points agreed upon was that a key challenge for procurement professionals is to be involved in the objective and goal setting stages. This is a powerful means of ensuring that procurement objectives are closely aligned with delivering value that supports the overall business goals. It also prevents short-termism at the expense of meeting strategic objectives that may be the drivers of real value.
The impact of COVID-19
There is a risk that now, with increased pressure driven by Covid-19, that the long-term objective setting process may go out the window. Then again, short term urgent actions may be needed to ensure the organisation’s future survival.
The reality is that, in the current global context, procurement professionals will likely have to deliver “quick wins” and rapid improvements not so much to get the buy-in of senior management but to deliver against contingency budgets. However, getting the “points on the board” by ensuring that the function excels during this challenging time will help open further investment and support for strategic initiatives – where even greater value can be delivered down the line.
This buy-in, and ultimately, the repositioning of the function as a critical value adding contributor in the eyes senior management teams is vital to push through strategic projects. And this is one area where often procurement professionals in private equity owned businesses vs. other corporations diverge.
What about private equity?
The strategic value of procurement is very apparent to most private equity investment managers who see this as a vital part of their toolkit in the value creation plan. At other public or privately-owned businesses, we tend to see that if the value of the function is understood, investment will flow, alternatively the focus is mostly transactional.
Moreover, private equity owned businesses may not face the same quarterly reporting pressures as listed businesses, allowing them to focus on strategic priorities rather than immediate support for earnings announcements.
With the significant growth in private equity investment over the past decade, there has been real focus from asset managers in the strategic value of procurement and operational effectiveness as a whole. This has been a welcomed development for all of us in procurement.
In other words, there may be many structural factors which support strategic procurement in private equity owned firms. That said, in today’s remarkable environment, private equity procurement professionals are not immune from the immediate pressures to deliver rapid cost savings and other improvements.
Ultimately, both private equity and corporate experts agree that procurement professionals will always face a balancing act between quick wins and strategic initiatives to meet senior management goals and expectations. As we have seen recently, this balance can be dictated very much by the priorities of the day.
With the world facing one of the greatest challenges it has faced in living memory, procurement has never been more important for ensuring the adaptation, success and resilience of companies and their supply chains; this in turn puts procurement at the heart of organisations, both in delivering today and transforming tomorrow.
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