All private sector organisations seek cost savings to increase economic profit. Public sector and not-for-profit organisations seek cost savings to increase value for money for their customers. In all cases, external spend is a high proportion of total costs, and procurement is the natural focus of cost reduction initiatives.
However, procurement initiatives are perceived to deliver disappointing results. A recent study of the views and experiences of directors and heads of procurement of leading UK companies and public sector bodies showed they had very high expectations: organisations believed that they could more than double the savings achieved by their procurement initiatives if specific barriers could be overcome.
Most procurement organisations have already invested in strategy development, process re-engineering and systems implementation. The critical constraints are now found to be people-related and organisational. However, no single procurement organisational structure is responsible for delivering successful procurement initiatives.
Moves to centralise and moves to decentralise procurement responsibility both deliver benefits. Indeed many procurement organisations have been driven round a cycle of centralisation and decentralisation by external forces, which they have been unable to resist. These organisational changes have not been the drivers of procurement improvement, but the symptoms of failure.
To deliver and then sustain benefits, procurement must focus on the people issues necessary to deliver and sustain the full range of benefits both centrally and locally at the same time, as the other conditions for rapid and sustainable improvements usually already exist. To do this, companies should:
- confirm that the necessary strategy, processes and IT actually exist
- remove the people related barriers to success: perceptions, relationships, and boundaries
- drive rapid improvement in the necessary competencies and working practices
- implement recognition and reward systems to incentivise both achievement and sustainability of benefits.
In most organisations, much of the necessary investment has already been made. The focus must now be on delivering benefits through developing the necessary competencies to implement strategies at both corporate and business unit level, gaining adherence to agreed processes and making effective use of the enabling information technology.
