Where Does Procurement Belong in the Organizational Hierarchy?
By Hugo Britt | November 24, 2020
Why does it matter whether procurement reports to the Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operations Officer (COO), or somewhere else within the organizational hierarchy?
Surely the role of procurement is the same, no matter who your Chief Procurement Officer’s (CPO’s) boss is, right?
Not quite. Executives in your organization will have subtle (or not-so-subtle) differences in focus – whether it’s cost reduction, risk mitigation, or brand reputation.
For decades, procurement was perceived as a back-office function and performed a largely transactional role within the business. The organization at large wouldn’t trouble itself too much with the profession because it didn’t appear to be delivering a huge amount of value.
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 player by supporting long-term business goals, driving sustainability, ensuring supply chain transparency, and mitigating risk.
As procurement’s status within the organization grows, its reporting alignment becomes all the more important. Not only is this a key indicator of how the organization perceives the profession, but the person (or department) to whom a procurement leader reports will influence major procurement decision-making and the strategic direction of the business.
Where does procurement belong in the organizational hierarchy?
Typically, procurement leaders will report to one of three C-suite executives:
- Chief Financial Officer (CFO)
- Chief Executive Officer (CEO)
- Chief Operations Officer (COO).
Reporting lines are determined by several factors, 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. The fact that the matter is up for debate just goes to show that procurement’s growing influence reaches across operations, finance, and even into the CEO’s office.
Reporting to the CEO
The CEO expects the procurement function to achieve sustained cost-reduction, drive supplier innovation, and effectively mitigate risk. When a procurement leader reports directly to the CEO, they can expect an increased focus on meeting overall long-term business goals and risk mitigation.
As a result, they’ll gain greater insights into the inner workings of the organization, have an influence on major decisions, and expand procurement’s offering way beyond cost savings. 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 procurement 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
Given the perception of procurement professionals as expert cost-cutters, it’s unsurprising that the profession often reports to the CFO. This reporting line is sometimes considered the most limiting, however.
When procurement is aligned with finance, the overriding focus will be on driving savings for the organization. This might make sense for procurement teams that are managing a huge spend, for example, because it enables comprehensive spend management strategies to be established, driving procurement 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 organization’s long-term business goals.
A procurement 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. This means that 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 (and we can expect to see more of this after the Covid-19 supply shock), procurement may find itself reporting to the head of Supply Chain (who reports in turn to the COO).
In terms of organizational hierarchy, this reporting line is significantly less influential than other organizations where procurement reports directly to the CFO or CEO.
How is your organization aligned? No matter who you report to, the top priorities of procurement 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.
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