Chapter 4

Changing Role of
Procurement Function

Chapter 4 – Changing Role of Procurement Function 1

Learning Objective

 Understand the global developments and

evolving role of the Global Sourcing Manager
 Role and Responsibility of the sourcing manager
 Gain a high level view of the procurement
Function
 Understand the various levels of maturity of a
global sourcing function
 Understand the emergence of a CXO Role- Chief
Procurement Officer (CPO)

Chapter 4 – Changing Role of Procurement Function 2

Learning Objective

 Understand how the supply chain analytics can

be deployed by the global sourcing manager
 Understand the process of performing health
check of the procurement function
 Identify and understand the factors to be
considered by Global Sourcing Manager while
pursuing the procurement
 Understand the key difference between the
traditional role and the emerging new role of the
global sourcing manager

Chapter 4 – Changing Role of Procurement Function 3

Internal Duties of Global Sourcing Manager

• Collaboration with the internal network

• Making operating purchasing decisions

• Definition of purchasing strategies

• Formulate and organise the boundary interaction

Chapter 4 – Changing Role of Procurement Function 4

External Duties of Global Sourcing Manager

• Ensure collaboration with the external network

• Effective management of supplier relationships

• Coordination of joint activities

• Periodically monitor, evaluate and develop suppliers

Chapter 4 – Changing Role of Procurement Function 5

Trends impacting evolution of role of
Procurement Manager
• Increasing strategic role of purchasing in corporate
policy across number of multi-national organisations

• Shift towards more centralized control and

establishment of global procurement companies /
business set ups

• Continual effort towards decreasing number of

suppliers

Chapter 4 – Changing Role of Procurement Function 6

Trends impacting evolution of role of
Procurement Manager
• Focus over entering into long term contracts instead
of transaction based procurement

• Use of category management / functional

management in the process of global procurement -
Buying groups organized around end items rather
than commodities

Chapter 4 – Changing Role of Procurement Function 7

Emergence of New Roles in Global
Procurement Function

Role Key Responsibilities

Corporate  Responsible for development of corporate
Procurement purchasing strategies, systems, reporting
Officer (CPO)  Provides overall guidance to various buyers
Corporate  Manages Strategic commodities – large volumes,
Buyer high investment projects and services
 Responsible for developing sourcing strategy for key
commodities.
 Focus on Long range planning horizon

Chapter 4 – Changing Role of Procurement Function 8

Emergence of New Roles in Global
Procurement Function
Role Key Responsibilities
Purchasing  Explores new materials and components.
Engineer /  Identifies and supports development of new
Technical Expert suppliers
 Discusses and evolves new specifications
 Performs market research, assists in selection of
suppliers, negotiations.
 Often work on a decentralized level.
 Important single point of contact of liaison between
purchasing and R&D function.
Project  The Project Buyer holds similar responsibilities
Purchaser / except that the key focus of buying is on equipment
Buyer and capital goods

Chapter 4 – Changing Role of Procurement Function 9

Emergence of New Roles in Global
Procurement Function
Role Key Responsibilities
Material  Role involves materials planning and ordering
Management /  Order handling – ensuring material supply, calling off
Planner materials against annual agreements
 Vendor rating ‐ monitor and control suppliers quality
and delivery performance.

Chapter 4 – Changing Role of Procurement Function 10

High Level Responsibilities of Procurement
Function
• Spend Map and its visibility - Mapping spend and
periodically updating the map will provide the
procurement function invaluable insights

• Driver of savings – Procurement function is seen to

be a driver of sustainable savings

• Cost reduction across value chain

• Realisation of value

Chapter 4 – Changing Role of Procurement Function 11

High Level Responsibilities of Procurement
Function
• Optimising commercial and technical capability

• Formulation and Implementation of robust Contract

and Supplier relationship management framework

Chapter 4 – Changing Role of Procurement Function 12

Insights that Spend Visibility Mapping can
generate
• Total quantum and what total spend of the
organisation is

• Who is spending and on what activities / purposes

• Identification of vendors supply multiple business

units

• Identification of business units that buy the same or

similar goods and services across the globe

Chapter 4 – Changing Role of Procurement Function 13

Insights that Spend Visibility Mapping can
generate
• What portion of organisation’s spend is with the core
top 10 suppliers)

• Information about the total number of one–off and

small value transactions suppliers

• Number of transactions organisation processes and

what is the associated administrative cost of such
transactions

Chapter 4 – Changing Role of Procurement Function 14

Opportunities for Cost Reduction in Global
Supply Chain
• Eliminating demand where applicable and opportunity
exists,

• Reviewing volume requirements of the organisation,

• Achieving reduction in the demand frequency,

• Evaluating alternatives to filling need,

Chapter 4 – Changing Role of Procurement Function 15

Opportunities for Cost Reduction in Global
Supply Chain
• Encouraging re–use,

• Simplifying and/or standardising the product / service

specification and

• Reducing portfolio range and complexity

Chapter 4 – Changing Role of Procurement Function 16

Reasons for failure in Global Supply Chain
Management Framework
• Excessive focus and time spent in managing
transactional suppliers and inadequate attention to
suppliers of strategic importance

• Issue based management for key suppliers and

informal mechanism

• Late involvement of legal team. Only after an legal

issue arises

• Lack of continuous improvement program as a part of

supplier management framework
Chapter 4 – Changing Role of Procurement Function 17
Reasons for failure in Global Supply Chain
Management Framework
• Lack of periodic conversations with strategic suppliers
on various aspects related to procurement

• Inability to identify supplier and assess on various

aspects like financial stability, performance on ethics,
quality control standards, technical capabilities,
experience in the business value chain

Chapter 4 – Changing Role of Procurement Function 18

Level of Maturity of Global Procurement
Function – Key Four Stages
• Passive

• Independent

• Supportive

• Integrative

Chapter 4 – Changing Role of Procurement Function 19

Features of “Passive” Procurement
Function
• Lack of strategic direction
• Acts as a reaction to the requests of other
Departments
• Time spent on quick fix, routine, trivial and transaction
oriented operations
• Selection of supplier is purely based on price and
material / service availability
• More focussed on efficiency and timely purchasing
• Very limited amount of inter-functional communication
• Very low visibility of the procurement Function in an
organisation

Chapter 4 – Changing Role of Procurement Function 20

Features of “Independent” Procurement
Function
• The Procurement Function deploys latest purchasing
techniques and practices
• Strategic direction is however independent of the
firm’s competitive business strategy
• Performance of the function is largely evaluated on
the basis of cost reduction achieved and efficiencies
gained
• Good level of coordination links exist between
purchasing and technical Departments.

Chapter 4 – Changing Role of Procurement Function 21

Features of “Independent” Procurement
Function
• Top management of the organisation fully aware and
recognizes the importance of professional
development and opportunities that exist in the
procurement function which contribute to the
profitability of the organisation

Chapter 4 – Changing Role of Procurement Function 22

Features of “Supportive” Procurement
Function
• The procurement departments provide active support
to the organisation’s competitive strategy by
implementing innovative purchasing techniques and
practices

• The actions of procurement function strengthen the

competitive positioning of the organisation

• Representatives from the purchasing team often are

part of the sales / proposal teams

Chapter 4 – Changing Role of Procurement Function 23

Features of “Supportive” Procurement
Function
• Suppliers / vendors are looked at from the
perspective as a business resource / partner. Those
vendors are carefully selected and continually
motivated to excel

• The procurement function continuously monitors the

markets, products, vendors and other clues from the
business

Chapter 4 – Changing Role of Procurement Function 24

Features of “Integrative” Procurement
Function
• The Procurement Function is completely integrated
into the organisation’s competitive strategy

• The procurement Function is one of the key

contributor to the strategy development process

• Permanent lines of communication exist between

other key functions and the Procurement Function

• Performance of the Procurement Function is clearly

linked to the strategic outcome and contributing factor
to the organisation’s success
Chapter 4 – Changing Role of Procurement Function 25
Emerging Role of Chief Procurement
Officer(CPO)
• Achieving financial objectives through cost reduction,
purchase price variance, sourcing from low cost
markets

• Reengineering business process and supply chain to

increase efficiency and effectiveness

• Satisfying business needs in delivery time and quality

thereby meeting the business objectives

Chapter 4 – Changing Role of Procurement Function 26

Emerging Role of Chief Procurement
Officer(CPO)
• Managing outsourcing activity and delivering
contracts, identify and develop new avenues for
sourcing

• Managing and enhancing the purchasing system,

organisation and policy, promote deployment of
technology

• Guaranteeing quality of purchase at all times

Chapter 4 – Changing Role of Procurement Function 27

Competencies that CPO should possess

• Information Management and Technology

Enablement

• Task and Process management

• Interpersonal skills

• People management

Chapter 4 – Changing Role of Procurement Function 28

Desirable Traits of the Chief Procurement
Officer
• Trading skills and street smartness
• High level of logical thinking capability
• Attention to details
• Thought leadership
• Ability to share and socialise ideas
• Self confidence
• Charismatic personality
• Ability to look at leverage, often useful for
negotiations
• Extrovert
• Appreciation of simplicity and common sense

Chapter 4 – Changing Role of Procurement Function 29

Supply Chain and Global Sourcing – Role of
Analytics
• Spend Analytics
• Market Analysis
• Negotiation
• Selection of supplier and sourcing
• Informed market sourcing
• Contract Management and Supplier performance
evaluation
• Procurement / Supply Chain risk management
Chapter 4 – Changing Role of Procurement Function 30
Type of Supply Chain Analytics

• Category Analysis
• Analysis of Items procured
• Analysis of Payments
• Analysis of vendors
• Contract Analysis

Chapter 4 – Changing Role of Procurement Function 31

Health Check of Global Sourcing / Supply
Chain Function
• Capturing voice of internal customer and external
supplier
• Evaluating the financial and non-financial benefits
accruing to the organisation
• Ensuring that the procurement function is
operationally effective and efficient
• Ensuring right data and information is available for
procurement decisions
• Risk Management and robust compliance framework

Chapter 4 – Changing Role of Procurement Function 32

Health Check Questionnaire
Area Particulars Key Questions
Spend Understanding how  How much is the organisation spending?
map and on what the  On what activities, services, and products is the
organisation spends organisation spending?
 Is per unit cost vary significantly?
 How much is the spend associated with strategic
suppliers or top 10 suppliers?
 How many suppliers does the organisation have
who supply same or similar products / services?
Savings Short term and long  Does the organisation evaluate the short term and
terms saving long term saving? Is the organisation striking a right
generated by the balance between the savings?
procurement function  Are potential savings part of the planning,
budgeting and forecasting cycle?
 How effective is the procurement activity?
 How the organisation is tracking the realised and
unrealised benefits / savings in the procurement
function?

Chapter 4 – Changing Role of Procurement Function 33

Health Check Questionnaire
Area Particulars Key Questions
Procure End to end  Focus of the initiatives just on saving costs
ment management of or saving on total cost of ownership?
Value procurement  Segregating between desirable or good to
Chain activity including have and what is necessary for the
demand, organisation?
inventory and not  Approach towards the suppliers- whether
just costs collaborative or just a vendor?
Contract Realisation to the  Generating the benefits as promised by the
and full potential of suppliers?
Supplier the value of  Whether the integration of strategic
relations supplier supplier with the long term planning,
hip relationship budgeting and forecasting achieved?
manage  Whether the organisation is occupied in
ment addressing the transactional issues or
looking at business partnering with
suppliers?
Chapter 4 – Changing Role of Procurement Function 34
Health Check Questionnaire
Area Particulars Key Questions
Procure Building of the  Is the vision, mission and objectives of the
ment procurement model procurement documented?
Model on the basis of  Does the organisation have all necessary team
strength, skills and with technical and commercial expertise?
expertise  Does procurement function command
credibility in the organisation?

Chapter 4 – Changing Role of Procurement Function 35

Factors impacting the Global Sourcing –
Which the CPO should be aware
• Familiarize oneself with local social and business
cultures

• Establish clear communication channels with

functional departments and management levels

• Source from within organisation’s geographic region,

first, if internal prototype and pilot production
capabilities do not exist

• Develop a working knowledge of contracts.

Chapter 4 – Changing Role of Procurement Function 36

Factors impacting the Global Sourcing –
Which the CPO should be aware
• Informed about the phases involved in the supplier
selection

• Engaging services of Local Sourcing Agents

• Getting right the quality aspects of the product

intended to be purchased

• Use of Offshore sourcing office

• Deep understanding of the International Sourcing

Chapter 4 – Changing Role of Procurement Function 37

Specific Expectations from New Role of
CPO
• Price Discovery V/s Value addition

• Providing market based solutions

• Managing Explicit V/s Implicit Contracts

• Conducting strategic discussions

• Setting up appropriate measurement for cost savings

Chapter 4 – Changing Role of Procurement Function 38

Measurement for Cost Savings – Key
Indicators
• Difference between two supplier quotes
• Comparison of procurement value / price against the
external benchmarks
• Internal savings / reductions (e.g. reduction in jobs)
• Production efficiencies gained
• Reduction in wastages across key processes
• Reduction in working capital requirements

Chapter 4 – Changing Role of Procurement Function 39

Summary
• Globalisation has brought into significant change in
the role of the Chief Procurement Officer (CPO)

• The CPO role is a C-Suite role and often CXO level

role being perceived

• The function is also increasingly deploying supply

chain analytics to facilitate procurement decisions.

Chapter 4 – Changing Role of Procurement Function 40

Summary
• There are number of differences between the
traditional and evolved role of global sourcing
manager some of which includes increase focus on
business partnering, providing dynamic procurement
solutions, driving cost reductions among other things.

• Role such as Chief Procurement Officer (CPO) is

finding its way to the C-Suite and the Boardroom.

Chapter 4 – Changing Role of Procurement Function 41