Procurement Myths are what make purchase managers squirm with embarrassment. With the rise of procurement’s demand among professionals, many myths have also evolved that tend to create a picture different from reality.
In order to be a successful procurement professional, it is important to get knowledgeable about prevailing myths and unleash the hidden reality behind them to undertake wise decisions with no attached pre-conceived notions. Let’s know them:
Myth 1: The optimum organizational structure is integral to Procurement’s overall success
Reality: Procurement’s organizational structure has almost no effect on its performance. Instead connective mechanisms like, data flow, decision rules, informal forums, incentives and co-operative measures have far more effect on performance.
Fact: According to CEB analysis, organizational structure observed only 7% of variance in Procurement’s performance, pointing no correlation between organizational structure and performance. While firms that have utilized over four connective mechanisms reported 32.8% higher savings per full-time employee.
Myth 2: Procurement has negligible effect on Profits
Reality: Procurement plays an imperative role in managing enterprise profitability; its involvement in indirect spending has a direct impact on profits.
Fact: Procurement’s indirect disbursement initiatives can potentially increase enterprise profitability by up to 30% undoubtedly.
Myth 3: Procurement people do not communicate effectively with other levels of the organization
Reality: Procurement face resistance against creating changes across vertical and horizontal levels of the business.
Fact: Communication is not troublesome, however it’s the message, reasons and impacts of communication.
Myth 4: Procurement must invest in processes, systems and people to enhance performance
Reality: After initial investment, procurement starts experiencing a diminishing rate of return on these investments. Although, maintaining a well-balanced project portfolio can substantially increase procurement’s performance, resulting in higher returns.
Fact: Magnified focus on portfolio maturity yields 55% higher savings than a comparable focus on functional maturity.
Myth 5: Most of the people end up in procurement as a career choice
Reality: Only new generation opts procurement as their career choice.
Fact: New programs have been developed specifically for procurement in the education & training sector.
Myth 6: ‘Key Customers’ enjoy advantageous treatment from vendors
Reality: Customers with the highest spending are titled as “key customer”, but most of these key accounts are denied advantageous treatment. Suppliers often like customers that collaborate closely along with spending plenty amount of money.
Fact: On an average only one out of every three companies that receives a key account status really enjoys consistent competitive preference from vendors.
Myth 7: A good chief financial officer can do procurement tasks similarly well.
Reality: A financial manager can do purchase tasks well if weighed against other business needs such as service, risk and innovation.
Fact: Purchase needs a wide outlook in decision making and is a job for purchase professionals.
Myth 8: Low – cost country sourcing always delivers massive savings
Reality: Most procurement organizations struggle to understand the full extent of potential savings from low-priced country sourcing activities. Unforeseen prices arising due to business partner non-cooperation and in-country risks can cause a significant drop in actual estimated savings.
Fact: Internal obstacles and hidden supply chain costs can cause erosion of more than 80% of the potential savings from low-cost country sourcing, mostly leaving procurement with only 6% in real savings.
Myths are creation of humans, solutions are also the creation of human, so, break the shackles of procurement myths and follow effective MUST DO actions to bring back the reality in your vision:
- Purchase professionals must play a massive role in managing the company’s spending and drive overall cost reduction to positively impact profit.
- Purchase must place collaborative planning and joint innovation opportunities on priority for every quarterly business review agenda.
- Purchase must diagnose the limitations of its current structure (not by perfection) & take measures to overcome them.
- Purchase heads must help their team to improve stakeholder – engagement skills, and be bolder in their project selection
- Purchase teams must get maximum number of internal stakeholders to plan low-cost-country sourcing at the start to make sure that the company goes to market with the maximum spending volume.
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