Economic turmoil tends to force businesses to scrutinise their growth strategies and pull back on major investment. The question is: are procurement leaders the key to influencing at board level, driving strategic investment and facilitating productivity improvements? Our recent transformational leadership found that UK senior leaders expected the rate and scale of transformation to increase over the next 5 years. This highlights the critical opportunity for procurement leaders to play a key role in driving growth and optimising long-term investment.
We sat down with Karsten Kinzig, Chief Procurement Officer for a renewable energy startup, and David Wylie, Commercial and Procurement Director at Thames Water, to discuss ways that procurement can optimise long-term investment in an organisation.
Portfolio based approach
To optimise investment in an organisation, procurement leaders must take a long-term view of the organisation’s objectives and strategy, rather than getting sucked into short-term requirements and needs from others in the business.
This can be difficult but will set an organisation up for success in the long term. As David Wylie explains: “The challenge is that organisations tend to look at procuring suppliers on a project-by-project basis. The procurement function can look at this from a portfolio basis – meaning they can look at what capacity they’ve got in the supply chain to deliver each project.”
Karsten Kinzig agreed with this and stressed that procurement leaders need to take a much more strategic approach to finding suppliers and developing relationships with them: “It’s important to have a long-term view and not just release a tender every time certain services or supplies are needed.”
Engaging with our wider procurement leadership network, the feedback is that if procurement leaders can understand the entire spectrum of targeted benefits across a multi-year investment portfolio while also leveraging the latest supplier market intelligence and key financial metrics to test various scenarios, they can more accurately assess probability of success. This approach often uncovers new optimisation opportunities and risks across the supply chain and investment prioritisation that can be incorporated into the investment planning process at a portfolio level. As a result, capital investment, suppliers and contracts can be more accurately targeted, enhancing overall investment efficiency.
Fostering cross-functional collaboration
Procurement leaders and their teams must trade in currency of value creation, being able to effectively pivot between growth vs cost-saving strategies. Deloitte’s 2023 Global Chief Procurement Officer (CPO) Survey highlights that strong cross-functional collaboration contributes significantly to achieving procurement goals and overall business performance.
The first challenge for procurement leaders is ensuring they are delivering results for different stakeholders and departments across the business. Karsten summarises this well: “Procurement leaders must secure supply that is profitable for everybody and delivers on lead times. It is their role to identify the risks in the processes and then prioritise developing the right supplier partnerships to deliver long-term growth and negate risks. This must be done in partnership with other parts of the organisation such as the technology function.”
David builds on this, stressing the importance of procurement sitting at the heart of long-term strategy and collaboration: “Procurement’s role is to join up the dots to show the collaboration across departments and governance that ensures programmes are set up to deliver over the long term.”
However, it’s important to not become a ‘yes’ person and be able to make difficult decisions when required. As David says: “If you don’t have a strong independent procurement function, you end up doing what the business wants you do, rather than what it needs you to do.” Striking the correct balance is the challenge for procurement leaders.
Building on this perspective, our broader network of procurement leaders noted that organisations are actively addressing well-known process problems that have plagued capital investment project delivery in the past by adopting more flexible, iterative approaches that involve regular reviews of what works and what doesn’t.
While this shift introduces additional complexity for procurement, it also offers an opportunity to design or refine inefficient procurement processes and governance. This ensures they add value and facilitate the management of key metrics across the company, capital portfolio and project. It also provides early identification of risks and potential failure points. When executed well, this approach can foster strong partnerships with executive stakeholders and position procurement to play a pivotal problem-solving role.
Cultivating strategic supplier partnerships
Procurement’s ability to build relationships with suppliers so that it is a true partnership, and not simply run an RFP process when required, will determine the success of long-term investment projects.
Karsten outlines the way procurement leaders can do this: “Build up trust with suppliers over time, by being very open on your business strategy. Create a true partnership where they are effectively an extension of your team. You should look at mistakes together, find solutions together, as a first point of failure don’t just fall back to the contract terms. You should also understand their cost structures, you want to keep the supplier stable so adjust how you negotiate based on this.”
These relationships need to go much further than simply providing services, and become a collaboration that drives innovation through new product development, identifying cost efficiencies and partnering with other organisations to problem solve.
“Create a supplier environment where people can contribute early and bring optionality to the table. Bring transparency to any choice that is made regarding suppliers. If you’ve got them involved in this decision-making process then they will feel listened to and involved. Ask suppliers where they are seeing things done better across the world and explore how can you drive more efficiency,” says David.
Karsten builds further on this: “Ask suppliers how they can bring down costs by providing different solutions. Getting your organisation to sit down with suppliers and come up with new products or new processes that drive the best solution will add the most value.”
Our wider procurement network noted that, given the impossibility of maintaining strategic partnerships with every supplier, a highly focussed supplier-relationship-management strategy is paramount. A strategy that is laser focussed on sustaining value adding partnerships and swiftly pivoting away from those that fall short is beneficial, especially within the time-constrained, delivery-driven context of capital investment portfolios and projects. As John Doerr aptly put it: “Ideas are easy. Execution is everything. It takes a team to win.” Suppliers that fail to deliver on promised benefits and innovation will hinder a high performing team.
Prioritising people management and innovation
Ultimately, to be effective in procurement and help organisations maximise their long-term investments, leaders in the function need to be fantastic collaborators and have an ability to build strong relationships. Put simply by David: “It’s a people-focused, join the dots kind of role.”
Building relationships and being able to communicate effectively are key. “Gain and retain trust, both inside organisation and outside organisation. Translate the business needs and then speak in the right language so that others across the business understand it and engage with it,” Karsten explains.
As well as having strong people skills, the procurement function must fully understand the business strategy, and the market they are operating in, to drive innovation.
David summarises this well: “You have to bring something new to the table. As a leader you should always encourage your team to understand the high-level business challenges and how it feeds into capital delivery. Procurement needs to be a challenging change agent. But you can only do this if people trust you know what you’re talking about and you’re trying to deliver the business needs. Bring some knowledge and insight that the rest of the organisation doesn’t have – if you’re not doing this then you’re probably doing the wrong thing.”
The view from our wider procurement leadership network is that in the often time-constrained, delivery-driven, cost-focussed context of capital investment, a problem solver who is comfortable working in challenging environment and who can consistently deliver results is going to be respected. Moreover, procurement leaders who integrate value-management principles into daily practices are more likely to be recognised as trusted advisers and secure a seat at the decision-making table.
Conclusion
The challenge for procurement is to maximise the limited capital that they have to work with. By focusing on business challenges, building strong relationships with suppliers and focusing on how to build trust internally and externally, procurement will be best placed to deliver.
But remember to bring new thinking, and don’t be afraid to make the difficult decisions. As David says, procurement leaders should “aim to be respected rather than loved.”
Procurement leaders and teams should consistently seek opportunities to enhance both the value, and the quality achieved per pound spent, then take action to make it a reality and bring key stakeholders on the journey. With effective procurement leadership and a proactive team, this approach can extend the function way beyond traditional procurement practices and position procurement as a key decision maker on how to maximise long-term investments.