Where Does Procurement Belong in the Organizational Hierarchy?
Does it make a difference if procurement reports to the CEO, CFO, or COO? Find out where it belongs in the organizational hierarchy – and why it matters.
By Hugo Britt | November 24, 2020
Does it matter if procurement reports to the CEO, the CFO or the COO? What if it landed somewhere else entirely within the organizational hierarchy? The role of sourcing is the same, no matter who your CPO’s boss is, right?
Not necessarily as various executives in your organization will have subtle (or not-so-subtle) differences in focus. Certain individuals prioritize reducing expenses, while others prioritize minimizing risk or enhancing the reputation of the brand.
For decades, procurement has been perceived as a back-office function. It performed a largely transactional role within the business, and didn’t appear to be delivering value to the organization.
Fast forward to the present day, and procurement has a much more significant influence on the organization. No longer solely focussed on cost savings, it has become a strategic function. It now supports long-term business goals, drives sustainability, ensures supply chain transparency, and mitigates risk.
Procurement and the organizational hierarchy
As procurement’s status within the organization grows, its reporting alignment becomes all the more important. This is a key indicator of how the organization perceives the profession. It also plays a role in how the function will influence major procurement decisions and the strategic direction of the business.
Procurement is no longer a back-office function. It has a much more significant influence on the organization. The organizational hierarchy determines how much procurement can support long-term business goals, drive sustainability, ensure supply chain transparency, and mitigate risk.
Where does it belong?
Typically, procurement leaders will report to one of three C-suite executives:
- Chief Financial Officer (CFO)
- Chief Executive Officer (CEO)
- Chief Operations Officer (COO).
Several factors determine reporting lines, including:
- Overall business strategy and priorities
- Workplace culture and the perception of procurement
- The level of spend procurement manages
- Whether the company is service-based
There is no overall consensus as to whom procurement should be reporting, though. It varies across organizations and industries and there isn’t necessarily a right or wrong answer. This shows that procurement’s growing influence reaches across operations, finance, and even into the CEO’s office.
Reporting to the CEO
The CEO expects the sourcing function to achieve sustained cost-reduction, drive supplier relationships and innovation, and effective risk mitigation. When reporting to the CEO, a procurement leader can also expect an increased focus on meeting overall long-term business goals.
They will understand how the organization works, have a say in important decisions, and improve procurement’s services beyond just saving money. There will also be more opportunities for collaborating alongside other departments.
CEOs are ultimately responsible for brand reputation. This means two things for procurement:
- Lowering the risk of a supply chain scandal or ethical breach, and
- Finding ways to positively impact the brand through socially responsible and sustainable sourcing decisions.
CEOs tend to be time-poor, which means procurement can help by keeping their communications and reporting as concise as possible. Consider developing a simple, at-a-glance dashboard showing key metrics for the CEO.
Reporting to the CFO
Procurement professionals are often viewed as experts in reducing costs. As a result, it is common for them to report directly to the Chief Financial Officer (CFO). However, this reporting structure is often seen as limiting or restrictive.
When procurement is aligned with finance, the overriding focus will be on driving savings for the organization. For procurement teams managing a large amount of spend spend, this enables comprehensive spend management strategies to be established. It also allows for increased efficiency and compliance across the organization.
However, reporting to the CFO might constrain procurement when it comes to adding value in other areas. A focus on short-term saving can distance the profession from the company’s long-term business goals.
A team that reports directly to the CFO will be expected to understand and communicate in financial metrics.
Reporting to the COO
Chief Operations Officers are laser-focused on business continuity and efficiency. If it comes down to a decision between the lowest cost and a stronger supply chain, they will choose the latter.
A COO will ask procurement:
- What does this decision mean in terms of risk?
- How will it strengthen or weaken the supply chain?
- How will this help assure continuity of supply?
In organizations where supply chain continuity is a major priority, procurement may find itself reporting to the Head of Supply Chain. This person typically reports to the COO. This reporting line is significantly less influential than other organizations where procurement reports directly to the CFO or CEO.
How is your organization aligned? In any scenario, the top priorities of the sourcing function will always be to save money, time, and effort. Learn more about Una and contact us to discuss how a group purchasing organization can help you meet these goals.