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 6^th 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! 

Organizational Structure- Where does the procurement department fit?

How many of you have struggled with the looming question – where does the procurement department belong in the org chart – under the CFO, the COO, or directly reporting to the CEO?

Personally, I think procurement professionals should take this question very seriously as it is the key to their department’s ability to drive cost savings, strategic initiatives with the supply chain and most importantly the value of their department.

Unlike previous years, the focus of rebuilding competitive advantage in 2011 heightens the opportunity for procurement to snag a seat at the executive table. Are you prepared to make the leap? Have you initiated the conversation with the executive team?

Please share your stories… as procurement professionals, we must work together to elevate our profession and the strategic value of our departments!   

Procurement Professionas are really Salespeople!

I completely agree with Pal Tegue’s article (http://blog.procurementleaders.com/procurement-blog/2010/12/10/paul-teague-face-it-youre-a-salesman.html) regarding the truth about procurement professionals and the importance of inside-selling. More often than not, internal business leaders view procurement as a threat to their kingdom. Let’s face it, money is power! Business leaders in charge of spending millions and millions of dollars of their organization’s money feel on top of the world… not to mention the salespeople following them around with game tickets, executive briefings in Honolulu and other luxuries and incentives. Who wants procurement policing the spending…  NO ONE… not even Finance (believe me?!?!?). For that reason, salesmanship is the key to procurement professional’s ability to succeed and rise within the organization. So if you’re interested in going into procurement… make sure you’re ready for a lifetime full of internal selling, regardless of how much value you bring to the business!

Is the Sales World in Denial?

I'm not sure why sales and marketing people make comments like the ones in this blog (http://www.thebeat.travel/blog/node/3099)?

It's this type of attitude "Do not agree to respond until you can get a two hour meeting with the appropriate decision makers so you can identify the reason for the issuance of the RFP and the measurable outcomes the issuer would like to achieve. If the corporation won't agree, chances are they already have a winner selected and you should spend your time on more profitable ventures." that results in incumbents loosing substantial business when they could have easily met the requirements and successfully retained valuable business.

Sales people have to understand the dilemma organizations are faced with... CUT COST... INCREASE VALUE.

Procurement is the department tasked with producing this value and creating a competitive advantage for the business... fighting the RFP process or demanding a meeting to explain the organizational intent behind strategy is foolish. Unless the sales world can adjust, they'll continue to loose business to the suppliers who've learned the process and adopted value propositions to sell to procurement. Just my two cents..

"HELP... How do I get passed Procurement?"

“HELP... How do I get passed Procurement? was the title of an inter-company email sent to our CEO by one of  the organization's top VP's of Sales. The email was tossed around to several executives as they hustled to try and answer this question that could potentially lose the business several millions of dollars in annual revenue. They came up blank – how do sales people effectively sell to procurement leaders who are looking to significantly cut cost without jeopardizing a substantial amount of profit?

Out of desperation, one of the executives reached out to me, the organization’s internal Head of Procurement,  in search of advice and "secrets of the trade" to help the sales group successfully retain the business in jeopardy.

TO MY SURPRISE... boy did they need the help! The sales group was doing all the WRONG things like 1. Pushing for face-to-face time 2. Not offering substantial value-add propositions 3. Pretending the customer’s new Procurement Dept was going to just "go away" 4. No real plan or strategy in place, just a “let’s get thru this mentality” 5. Backdoor selling

I was horrified, so I jumped right in and helped develop talking points, a plan to conduct a TCO analysis for the customer and, most importantly, tips on how to build the relationship with procurement that will ultimately be the key to winning the business.

Seriously...think about it... procurement can be the best thing in the world to sales organizations if the sales professional actually sees the big picture.

5 KEYS Procurement Holds:

1.      Key to all company funds spent with suppliers across all departments across the entire organization (many suppliers truly don’t understand the opportunity this opens up for them)   

2.      Key to the office of the CFO (which ultimately is the decision influencer: MONEY)

3.      Key to shaping your image as a supplier within the org

4.      Key to awarding business

5.      Key to taking business away

Not to mention, procurement professionals are huge on industry networking and sharing supplier information that can, and will, generate additional leads for suppliers who have strong relationships with procurement.

I guess I never stopped to think how the information I use every day to save millions and millions of dollars could also help retain millions of dollars for the business as well as win new business by helping the sales department successfully navigate through external procurement processes.

My purpose for starting this blog is to assess the demand for this type of information for Sales Professionals and to try and bridge the gap by offering free advice from a successful Procurement Professional’s point of view.

Please feel free to ask questions, make comments, or share your story.