Over the past four years, the relationship between procurement and the rest of the business has changed. Procurement teams have faced a series of increasingly common complex challenges, starting with the COVID-19 pandemic and progressing to armed conflict, genocide, droughts, rising energy prices, and runaway inflation. Now, a pivotal year in many democratic countries threatens to rewrite the core tenets governing global trade.
Maintaining cost containment and supply chain continuity in the face of these challenges, and more, is changing the role of procurement within the wider business, according to a new report from SAP and Economist Impact.
“Historically, procurement teams have not been granted the same access to strategic decision-making as other departments,” writes SAP’s Baber Farooq. “They’ve been limited within the scope of the supply chain and forced to make choices based on company policy. That is finally shifting as procurement executives have more input in long-term company planning.”
Indispensable procurement
CPOs are having to contend with an environment of “permanent crisis”, as dirsuption becoems the norm rather than the exception. As a result, procurement teams are increasingly being seen as a “key value function” as opposed to a “simple support function”, according to Klaus Staubitzer, CPO and head of supply chain at Siemens.
A key indicator of procurement’s increasing importance as a business enabler is the function’s ongoing shift from the finance department and into the purview of the COO.
CPO reporting is pivoting towards COOs. This year, 44% of the procurement teams surveyed by Economist Impact resported to their company’s COO. This is compared with just 26% in 2023 and 34% in 2022. Just 23% still report to the company’s CFO.
Friction with stakeholders
Procurement is generally becoming more strategic in the way it relates to and works with stakeholders. However, the report argues that procurement teams have “considerable room to improve” when collaborating with other departments. Three quarters of executives agreed that procurement collaborates effectively with the business on issues of strategic importance. This is a 53% jump over last year. However, a much smaller portion of those surveyed (18%) have high confidence in procurement doing so — a 10% drop. Just 14% had high levels of confidence in the application of procurement insights across the organisation. “Procurement has yet to gain the full trust of stakeholders in this area,” the report notes.
“Procurement has often operated in this bubble that was in service of its own goals as opposed to in service of the goals of the wider business,” Philip Ideson, founder of Art of Procurement, told Economist Impact, adding that he believes this is one of the biggest issues preventing procurement from bringing more value to the organisation.
