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90 8JBlZQSOPvCQZWQEjjg C2W5 Engaging Purchasing Stakeholders A Framework That Works
90 8JBlZQSOPvCQZWQEjjg C2W5 Engaging Purchasing Stakeholders A Framework That Works
The recent Deloitte Global CPO survey 2018 contained several surprising
results. Foremost among them for me was the low level of purchasing
engagement between businesses and functions, that is, the purchasing
stakeholders.
The CPO Survey revealed that only “22% of procurement leaders are excellent
business partners contributing significant strategic value.” It was also found
that only one-third have “good transparency” at levels below the Tier 1
suppliers.
This same survey further revealed that 76% of procurement leaders use only
one approach to understand stakeholder requirements: the procurement
team members who are embedded in cross-functional teams. In my view, this
reactive approach is harmful to the purchasing function. Instead, we need a
more proactive framework to define stakeholder engagement.
Organization designs for purchasing may vary, but most of them are divided
into Direct and Indirect spend. Raw Materials and Packaging (RM & Pack)
are commonly seen as part of Direct spend; Indirect spend typically includes
Maintenance, Repair, Operation (MRO), Capital Expenditure (CAPEX), and
Corporate Services. Logistics is divided between Direct (with freight costs
from Truck, Rail, or Marine in RM & Pack) and Indirect (when freight is
related to the sell side).
For RM & Pack, the primary stakeholders are the Business Director or
Marketing Director. These are the people accountable for the profitability of
the business when RM & Pack are the main input affecting the profitability.
A more traditional way to find the stakeholders has been to wait for
something to go wrong in purchasing and notice whom to point fingers at.
This failed approach underscores the importance of proactivity in stakeholder
engagement.
Following are five common concerns related to engagement (or the lack
thereof).
Framework
Approach
Purchasing leadership should identify potential Sourcing Councils according
to three criteria: significant spend, observed misalignments, and strategic
impact on the organization. For accountability purposes, purchasing
leadership should name one person to each Sourcing Council who is most
knowledgeable about that area’s main products or services.
Governance
In order to track the progress of the sourcing councils, the Steering Team
should create a quarterly mechanism to capture major implementation
milestones. These would include when the proposal was done, when the first
meeting happened, and when the dashboard became operational (as shown in
the example below for one specific quarter).
By using this tracking system, the Steering Team will know how much spend
is possible according to Sourcing Councils, and then by each quarter, the
degree of completion for proposals, first meetings, and dashboard
operationality. Once the Sourcing Councils are operational, the Steering
Team is only advised when a Sourcing Council has critical matters to report.
Take-away
It is clear from the CPO Survey 2018 that there is a lack of engagement
between purchasing and stakeholders. In order to change this picture, we
need to be proactive and create a structured mechanism that aligns with
stakeholder strategies, provides market insights, and has stakeholders
participating in the sourcing activities, so that both sides can enhance the
value delivered to the organization.
Paulo Moretti
A native of Brazil now based in the U.S., Moretti holds a Bachelor’s degree in
Chemistry and Chemical Engineering, with Master’s degrees in Industrial
Management and in Business and executive course certifications from
Kellogg, Wharton, and MIT Sloan.