A good place to start the discussion on procurement capability assessments is to set the scene by asking the following question: “Why does what we do in procurement matter?” Both experience and literature lead us to conclude that the answer lies in the following statement: It matters because procurement influences sustainability and strategic value creation in the supply chain.
Procurement is ideally positioned to be an essential and strategic value management partner in the business. Stereotypical answers – such as “well … procurement should save money, reduce lead times, improve service levels, etc.” – while valid and individually true, undermine the more strategic nature of procurement. We must remember that those types of answers are just standalone outcomes in a complex web of inter-dependent processes and activities, whose total outcomes can be aggregated and more accurately described as ‘strategic supply chain value creation’.
Value creation itself can be represented by the following mathematical relationship:
Restated in words, this important relationship of value creation can be said to be the aggregate of all long-term supply chain utility factors (outcomes in respect of benefits, performance, quality, etc.) as inversely modified by the attendant risks and costs. In addition, it tells us that increasing utility factors, decreasing risk and decreasing cost, all combine to increase the value created.
Sadly, many organisations just focus on cost containment measures, and ignore or marginalise the potential for additional value creation through effective supply chain risk management and improving the supply chain utility factors. Failing to invest in the procurement function’s capabilities (in respect of its practices and people competencies) has a negative correlation with long-term sustainability. Thankfully, the good news is that this trend can be relatively easily reversed with critical strategic thinking and commitment.
The procurement function can only be strategically relevant and considered as a strategic business partner when it comprehensively possesses the requisite practice capabilities to sustainably deliver increased value to the organisation. This, therefore, prompts several questions such as:
· How do we know we possess all the requisite capabilities?
· How do our practices compare to leading practices used by world-class organisations, and where do we stand among our peers?
· What range of practices do we still need to employ in order to be considered a strategic business partner in the organisation?
· How do procurement practices integrate to form a coherent performing procurement function?
· What should be driving the competence pathway for procurement practitioners?
· How long would it take to progress up the capability ladder into a leading procurement function?
These critically important questions can be addressed by conducting a procurement capability assessment. This is somewhat like an audit, but instead of measuring compliance with the organisation’s governance and controls framework, it measures the extent to which practices that support long-term sustainability and strategic value creation have been deployed by the procurement function.
Unlike the outcomes of a formal audit (which has potentially negative connotations), a procurement capability assessment is about taking a snapshot of current practices, gaining insights from them, and planning for the future. It enables us to be proactive and forward-looking. It is about building and performance, and it is also about opportunity-seeking – rather than being reactive and possibly defensive, as in the case of formal audits.
A capability assessment says “this is where we are now, and this is where we’d like to be at a defined point in the future, so let’s devise the plan to get there”, and it encompasses the entire range of procurement practices. It provides objective information that paves the way for empowering the procurement function and its practitioners, for improving decision-making, and for providing a clear and logical approach to competence development among procurement practitioners.
Indeed, a procurement capability assessment paves the way for procurement to become a true strategic partner in the business, recognised for the sustainable value it delivers.
Written by: Frank Susini is an Associate Director at Bespoke
Article first appeared in Bespoke Procurement Bulletin: