I procurement function strategic?

Filed in archive Point of view on August 31, 2008

I hear this question a lot that: "Is procurement a strategic function?"

I looked around here and there beside my personal opinion to see what experts think about it and liked one answer from Steve Wilson, director of logistics in RoadLink USA...In his view:

Procurement is very broad term, but my thoughts are that the strategic importance of procurement is directly related to the % of overall value a firm's suppliers bring to the equation. Example, in retailing, the procurement function (normally called merchanising in the US) is considered the foremost function of the organization. What they buy is the primary component of their strategy. On the other hand, it would be difficult to justify procurement as a core strategic function for a company that writes software.

One trend that continues to grow is the use of suppliers to do more and more of the value-add. In automotive, suppliers are not simply providing individual parts, but entire assemblies, ready to for installation at the factory floor. Witness Boeing's issues with their 787 Dreamliner - they have contracted more of the manufacturing process out to suppliers than ever before in their history, and as you read in the papers, more subject to supplier performance issues than ever before.

So in the end, given the trend to become more, not less dependent on the capabilities and performance of suppliers, I would state that for most industries, the procurement function is becoming more and more strategically important. In these situations, low price is useless without performance.

What o you think?