Misconceptions CEO/CFOs have about procurement

I have frequently discussed procurement optimisation issues with CEOs and CFOs. Here I have put together some of the most common stereotypes/ideas that top management in Russia have about the procurement function and role in a company.

1. I believe raw materials, marketing and logistics to be part of strategic procurement and as such they need to be the main focus. All the other indirect categories are not important and they have hardly any influence on P&L. I don’t want to be involved in micro-management.

2. Indirect procurement is up to the requestors (budget holders). We do not need any specifically assigned people for procurement management and spend optimisation for those categories.

3. A budget holder (internal client / requestor) always knows what exactly he or she needs to purchase and knows their procurement category in every technical details.

4. Why do we need to move procurement from the requestors’ departments to a separate unit? Our tender management (tender committee / security services / finance department) are there to make sure that the selection of suppliers is competitive and fair and that the costs are reasonable.

5. Procurement means running sourcing events and ensuring suppliers quote lowest prices.

6. The procurement manager should be responsible for the whole procurement cycle, including contract release orders and logistics.

7. Procurement is not one of the most important functions in our company, the key areas for me are production, marketing and sales.

8. Procurement optimisation/reengineering is a responsibility of the procurement director (supply chain director / CFO) – a CEO should not be involved in it.

9. We have no need to automate procurement processes because we are already using 1С software (or SAP ERP/SRM)! We sometimes also use an electronic trading platform for e-auctions.

10. We need to set up a procurement department first and only then think about automating procurement processes.

11. Our procurement is fine. We have strong brand recognition, large volumes and we tender everything ourselves, therefore we’ve got great prices.

12. We can manage spend optimisation on our own, we don’t need any external experts/consultants or outsourced services.

13. We need to develop our own procurement expertise and manage all categories ourselves.

14. A procurement department should be a part of the finance or supply chain unit.

15. Procurement? That’s what the global function is for. It is not directly relevant to the CEO/CFO (in regional business units of multinational companies).

16. I am not particularly interested in what is happening in procurement and how it is happening, as long as the budget is not exceeded.

17. Procurement is back office; it is a service/support/control function.

18. Procurement holds back business functions, it slows down processes and it is just a hindrance.

19. Our procurement requirements are very specific (automobile, pharmaceutical), I don’t think there is anything to be optimised.

20. If we outsource an internal process, the quality will go down. How can the quality control be ensured? We’d better keep it as an internal process.

21. Reducing costs means reducing volumes which unavoidably leads to decreased quality. For example, saving on corporate medical insurance, car fleet spend or mobile phones service reduces the appeal of employee benefits, affecting employee loyalty.

22. I’ve got my KPIs: market share, sales and business development and expansion. I want procurement to support these areas. Everything else is supplementary.

23. Procurement is not a difficult task. Anybody can organise a sourcing project, it’s a piece of cake.

24. The most important thing is to get good commercial terms and choose the right supplier. What follows are operational activities; we are not too worried about them, we’ve got no problems with them.

25. Procurement is not a function of choice, but rather a necessary evil.

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