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Monday, March 19, 2012

Organizational Structure: Procurement must report to the CEO!

As Head of a Global Procurement Organization for high-tech company… I’m writing with the hopes of helping the numerous executives and HR staff who are confused on where their Procurement Department should fall in the org chart.
Like many other procurement leaders have experienced, my department (despite the astronomical success we’ve had: 25% y/y increase in bottom line savings and a 6:1 ROI) – has been shuffled around from one exec to another until landing back under the CFO for the 6th time! And in all honesty, reporting to the CFO is the worst possible place to put the procurement department. Despite contrary belief that procurement needs to drive savings to the bottom line and the CFO is responsible for “capturing the savings” on the financials… the truth is, finance has no intention of giving procurement the credit they deserve nor reporting the savings on the financials. Not only does the CFO and Finance have a huge amount of problems to solve as it is… they struggle everyday with how to paint the picture to the Board... if they have to go on record and add figures showing money was saved by procurement only to yet again be spent in other places vs. driven to the bottom line... Finance once again looks like the bad guy. Most Finance people are not interested in fighting the battles with the stakeholders that are necessary to drive the savings home in real time. Instead, they wait submissively to report the financials.

Truth be told, Procurement is a great mechanism to keep Finance and the office of the CFO on their toes and doing their job. Once Procurement is outside the CFO’s office, Finance is held accountable for outlining the savings on the financials and actually delivering those savings. The Procurement department is essential to making the organization more profitable… they must have a seat at the table and report to the CEO. Without that link, everything will break down and you’ll never see or realize the actual savings achieved by your procurement team!