Interview with Rico van Veenendaal - Vendor Manager at ING Investment Management
We asked Rico, a senior Procurement professional based in the Netherlands for his views on the key trends, issues and challenges facing the European Procurement function today.
How has the procurement function evolved over the past ten years?
Initially, many companies decided to establish Procurement departments to gain cost efficiencies. Once the departments were embedded into the business, managers and stakeholders then began to see the value that Procurement could add in other areas, not purely as a money saver.
In business, many departments have 'professionalised' over the years and become more recognised at senior level. This is starting to happen with Procurement, but there is still a long way to go.
What are the core objectives of the Procurement function?
Procurement in its most basic form comes down to these three elements:
1) Sourcing the right products or services,
2) with the right terms and conditions,
3) using the right suppliers – those who allow us to create a sustainable supple chain for our core processes.
For any procurement professional, the ability to be able to do these three things requires a full understanding of all the requirements; what the customer's (stakeholder's) expectations are, what the desired outcomes are and being able to work out how best to meet these objectives.
How important is the sustainability of the supply chain?
Procurement as a function takes a long term view. Yes, the focus in the short term may be on the immediate contract, but longer term sustainability needs to be a priority too. Often, suppliers and clients change their processes to set up arrangements that are mutually beneficial to both. If you do this, then the supplier turns out to be unreliable, the result will be wasted time and money. Worse, the quality of your end product may be compromised, leading to irreparable reputation damage to the brand.
Procurement departments are constantly evaluating suppliers - and the business's dependency on them - in order to ensure the long term security of the business.
How are Procurement departments perceived internally, and how can they extend their influence further?
Procurement managers have been viewed as contract managers or negotiators for a long time; the people you call on when you have already decided which supplier to use just to tie up the loose ends like price, terms and conditions and contract performance indicators.
In actual fact, in order to add maximum value, Procurement needs to be involved at the very beginning of an initiative. The business needs to understand that we are here to actively assist the stakeholders in achieving their goals, not ours. Personally, I would like to be involved even sooner, and have discussions about our strategic supplier position even before any projects have been defined.
The perception that Procurement is just there to 'get me a better price' lingers on. It's easy for stakeholders to get stuck in their day to day roles, and involve Procurement at the end of the process, when opportunities to make a difference may have already been lost. Instead, everyone involved in the value chain should understand the strategic importance of properly taking the time to ensure that the Procurement function has a full understanding of the objectives and requirements for a project.
The only way to combat this perception and elevate the Procurement function to play a more strategic role is for Procurement managers to work more closely with senior management. The good news is that this is slowly starting to happen, at least in my experience, although there is still work to be done. And it also depends on the sector. Some large multinationals operating in Holland have very mature procurement departments that rationalise the function across the globe with obvious benefits. If the role of procurement is less clear, other people often think they can do the procurement job better.
How do Sales representatives help or hinder you?
The Sales people I meet are generally very professional. As with Procurement, their job should actually be to listen, develop a thorough understanding of the requirements and see the bigger picture. If they are well prepared, have researched the competitive landscape and have a strong grasp of our requirements, the chances of reaching agreement are much higher. Then, they can be extremely helpful and actually help you to raise your own game. If they just come in wanting to increase their revenue and beat their targets, they are looking at it from the wrong perspective. Unfortunately this attitude is still common.
It all comes down to understanding and developing a long term, mutually beneficial relationship rather than Sales people focusing purely on their own agenda.
How does the role vary between regions and sectors?
Some industries have much more mature Procurement functions. Large multinationals have highly skilled departments with experience in complex sourcing issues involving supply chains spanning off-shore factories and shipping resources from all areas of the world. However, even now, some organisations that should be more developed are surprisingly out of date. The dynamics of a sector or industry can therefore dictate their supply chain management.
In your opinion, what are the key challenges for Procurement in the next few years?
1) To become a strategic function:
For as long as companies need to reduce costs, Procurement will be in demand, but we need to prove our worth beyond price negotiation and contract drafting. Although good progress has been made, the function needs to continue to evolve into a recognised strategic function. A key part of this is working with Senior Management, so development of Procurement Managers' influencing skills and internal PR is essential.
2) Move to 'supplier development' mode
We also need to start viewing Procurement less as supplier management and more as supplier development. The sustainability of suppliers is essential to the long term performance of companies. External political, economic and environmental factors can have a significant impact, and these are impossible to predict. In order to create stability, businesses need to focus on sustainability more and more to mitigate risk.
3) Embrace technology and 'Big Data'
Data and systems also have to evolve. Procurement is traditionally an area where companies are reluctant to spend, yet technology can add tremendous value to the function. Procurement also now has access to more data than ever before, so professionals need to be adept at analysing and drawing information from 'Big Data' as much as any other department.
4) Adapt to the changing economic landscape
For the past few years, we have been operating against a backdrop of recession. Things are now picking up, and new challenges will be created as businesses may not necessarily be as cost focused. This will hopefully create more opportunities for Procurement to demonstrate its worth and become more strategic.
The outlook is positive for the Procurement function as it seeks to raise its profile and become a trusted strategic advisor to Senior Management teams. However, work is still needed to educate internal departments and external stakeholders about the benefits of working together and sharing information. Once these barriers have been overcome, companies can focus on achieving a mutually beneficial partnership that can help to secure the future of both supplier and client.