The three strategic challenges faced by procurement departments

June 2nd, 2020
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Natacha Tréhan is an academic expert on purchasing management. Her latest publication [1] links procurement's strategic roadmap with what she describes as the new challenges faced by companies.

In her opinion, general management sets procurement directors and managers three strategic challenges that they must respond to in order to play their part in the company's transformation:

Procurement strategic challenge no. 1: Creating value

Agility is the common thread that runs through all winning strategies implemented to handle unexpected situations and their consequences. Of course, the current period is only reinforcing the idea that, like the supply chain architecture, the economic model must be reinvented.

Therefore, companies need their procurement departments to prioritise value creation. The business' strategy must be implemented in concrete ways:

  • Promoting the spread of innovation throughout the company, for example by building a stronger relationship with suppliers
  • Helping to bring new products to the market more quickly, for example by sourcing latest-generation components
  • Getting more involved in the expansion into new markets, particularly by working more closely with sales teams

After all, companies' non-financial ratings are becoming an increasingly important factor in their ability to influence their markets. Therefore, procurement departments are expected to meet high standards across all ESG criteria [2].

Procurement strategic challenge no. 2: Risk management

For some years now, the term VUCA has been used to describe the business environment:

  • Volatility
  • Uncertainty
  • Complexity
  • Ambiguity

In line with this, the second strategic challenge set for procurement departments is to prevent risks, in particular those concerning reputation.

In her article, Natacha Tréhan points out the correlation between the company's stock price and, for example, supplier behaviour. Seen in this light, procurement departments are responsible for preserving the integrity of the company's reputation.

They must continually assess and, where necessary, mitigate risks such as:

  • A break in the supply chain
  • Failure to meet specifications
  • Non-compliance with prescriptive requirements
  • The violation of principles intended to protect the environment and human rights

According to the author, another aspect of preventing reputational risks is the procurement department's ability to provide other departments with agile ordering and validation procedures. Therefore, digitalising procurement indicates that the department is moving with the times and has a knock-on effect throughout the company. 

Procurement strategic challenge no. 3: Economic performance

Though winning new business and defending their company's reputation are priorities, procurement departments are still expected to excel in their traditional role.

Quite rightly, Natacha Tréhan points out that the will to win business and innovate draws on a sound and solid financial base and stakeholder support. General management therefore expects the procurement department to have a positive impact on the operating income and on cash flow.

Reducing TCO [3] remains a key responsibility of procurement departments. Indeed, the field of procurement has justified its existence based on its expertise in this area, and its level of strategic influence is still determined by its contribution to the company's economic performance.

In conclusion, procurement departments are strongly encouraged to go beyond their traditional role to better assist in the necessary transformation of the company. Procurement must combine reliability and agility in order to have a real influence at a strategic level. For this reason, procurement teams must adopt the best practices implemented to cope with COVID-19 for the long term.

However, to achieve optimal strategic performance, procurement departments must also consider the societal dimension of their role. To find out more about this topic, read the latest analysis by Pierre-Olivier Brial, Managing Director of the Manutan Group, in which he outlines three procurement best practices for contributing to CSR.

[1] Libérer le plein potentiel de la fonction achat par la digitalisation (Unleashing the full potential of procurement through digitalisation) – Natacha Tréhan/ivalua – 2020

[2] Environmental, Social, Governance

[3] Total Cost of Ownership

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