It goes without saying that companies look to optimising their procurement capability for better cost savings and management of supply chains, which is why we created this guide. We’ll look into how you can define and create procurement capability, as well as the step-by-step process of building it.
What is procurement capability?
Procurement capability refers to the collective procurement skills, behaviours, tools, processes, systems and knowledge an organisation requires to fulfil its goals. These are commonly centralised within the procurement function.
3 steps to define procurement capabilities
Developing the capability of your procurement professionals depends on outlining the right capabilities to begin with.
Step 1: Define the landscape
We start by understanding the business environment that informs procurement capability. Ask:
- What is the organisation’s greater mission, purpose and values?
- How does the procurement department help achieve that mission?
- What value does procurement generate right now? What is the future value?
When you understand the broader why, you’re in a better position to define how work gets done within procurement.
Step 2: Define the purpose
But before you can get into the how, you need to understand the what. Here, we’re talking about defining the purpose of this capability in your organisation.
Again, we need to ask some more questions to answer this all-encompassing query.
- How will the capability help your organisation achieve its long-term goals?
- Is there market demand or need for the capability?
- Do you have the necessary resources to sustain it?
- Will it compete with any existing business capabilities?
- Are there any risks involved with building the capability?
Step 3: Define the outcome
Alright, now we can talk about the how. The name for a capability should describe what is being done. At a high level for procurement, it can be more helpful to think about the desired outcome of a process or task.
So, as an example:
We know that this can be a daunting task, so don’t worry, we’ve got you. We’ve created an in-depth capability directory full of procurement capabilities that you can find here, all for free. Each capability is decked out with a description and three competency levels, so you can copy and paste them directly into your professional development program. We recommend you change the wording, though. That way you can be sure that they fit with your brand voice and strategy, and make the most sense to your employees.
Strategies for building procurement capability
The specifics of building procurement capability are unique to the organisation’s procurement function. But that doesn’t mean there’s no foundation to base your capability development practices on. Generally, there are six steps to follow in building capability.
- Engage leadership buy-in
- Establish co-owned accountability
- Evaluate capability gaps
- Assess capability maturity
- Create methods for building capability
- Review and track progress.
Engaging leadership
Your first point of call is to secure leadership buy-in. This is especially important, because leaders are essential to securing employee engagement in learning, and, therefore, learning effectiveness. Without the involvement of leaders in the mix, the majority of change programs fall apart.
The difficulty here is that leaders aren’t necessarily interested in the same outcomes as you are. They have their own KPIs and pain points that they’re worried about, so it’s best if you take the time to frame capability building in terms that matter to them. Are they concerned with supply chain management, the organisation’s sourcing process, or the systems in place to enable their procurement strategy?
Demonstrate to leaders how inaction on a capability development plan for procurement roadblocks significant improvement in the business. (Perhaps it even forces a company to fall behind on its business objectives and competitive advantage). Then you can show them how developing capability does improve the organisation and its outcomes.
The bottom line is that you need to make leaders see your procurement capability-building program as a worthy investment. This means showing off its significant return to the business in terms of strategic value.
Co-ownership between HR and business units
Getting leadership support is just the first step. The next step (always the hardest) is to make sure your training is on the same page as desired development goals. Don’t make the mistake of viewing the business as one singular entity here. It’s tracking towards its specific goals, yes, but it’s also made up multiple moving parts.
This is all to say that HR and individual business units don’t necessarily have the same immediate focus. HR has a deep understanding of business strategy, while procurement leaders are well-versed in the needs of the procurement function as they relate to procurement activities and role requirements.
Marrying the two agendas to create a well-rounded and strategically aligned training program is as simple as establishing co-ownership between HR and procurement teams. Preventing accountability from becoming siloed means that all L&D decisions are made with all the necessary information to address needs.
Understanding procurement capability gaps
As new technology, processes and industry standards change the landscape, the current capabilities of a business’s workforce become out-of-date, creating a gap between current and required capability levels. A few capability gaps in individual procurement professionals won’t cause critical risks to the business, but a lot of them at once are detrimental to business performance.
The obvious solution is to close those gaps, but first you need to understand what and where they are. This is where capability assessments come in. Competency, or proficiency, is the levelled scale that capabilities are measured against. You might have your own naming system for each level of competence which fits your brand voice and mission, but they’ll generally follow the same guidelines.
- Beginner, intermediate, advanced
- Needs development, meets expectations, exceeds expectations.
The idea is to use a capability assessment to evaluate where your current individual capabilities are. You can use this information to create a development plan for employees (hint: employees have greater job satisfaction when their employer invests in their career path).
Best practice is to use two or more capability assessments to get a more objective overview of individual capabilities.
- Start by getting employees to complete a self-assessment.
- Compare that to an assessment by managers, who have more objective insights into business needs.
- In the case of specialty capability sets, compare one or both of the above with an assessment by subject matter experts.
You’ll want to run these assessments again after implementing training in order to understand learning effectiveness and the company’s progress towards continuous improvement-—but we’ll get into the nitty gritty details of that later.
Assessing procurement capability maturity
Where a capability assessment is concerned with individual capabilities, capability maturity is focused on businesses’ overall capability. It looks at how “mature” business capabilities are (in this case, your procurement maturity) and the potential risk they pose to the organisation if undeveloped.
This is where business capability heat maps come in, highlighting business-critical capabilities and identifying new opportunities for growth. Unsurprisingly, procurement capabilities that are considered high-risk if undeveloped are the ones you’ll prioritise to develop first.
But first, assessing capability maturity. Like a capability assessment, the capability maturity curve exists as a levelled scale that you can measure capability competence against. Again, what you name each level might be different, but they generally follow a 5-level structure:
- Reactive, where capability performance is unpredictable and ad hoc.
- Managed, in which capability performance is managed project to project.
- Defined, where capabilities are managed through organisation-wide guidelines.
- Qualitative, where business processes and objectives are aligned with each other.
- Optimised, in which capabilities are optimised to create long-term organisational transformation.
Again, like a capability assessment, this will need to be reassessed over time to get an understanding of how your L&D programs have fared in the long run.
Methods to build procurement capability
You don’t need to reinvent the L&D wheel here. You just need to make sure you’re embedding learning in the flow of work for maximum results. That, and that your L&D activities are aligned with business objectives.
- Use a knowledge management system or performance learning management system (PLMS), which can collate all the necessary learning materials and resources in one central place. It means employees can access what training they need, when they need it, reinforcing learning and increasing knowledge retention. A PLMS ensures that all your learning content is aligned with your business strategy for optimal results.
- On-the-job coaching allows for the faster adoption and application of new skills on the job, improving time-to-proficiency. It’s a type of informal coaching that creates a feedback loop between mentor and mentee, meaning behaviours can be corrected in the moment.
- Implement capability academies, or institutionalised learning, to allow procurement professionals to engage in best practice sharing and gain new insights. It also increases knowledge transfer among employees.
Tracking progress
We said we’d get into reassessments and tracking progress, and here we are. Regardless of whether you’re building procurement capabilities, strategic capabilities, or even marketing capabilities, you can’t just provide a capability-building course and expect it to work perfectly first try.
This is why you need to reassess on a regular and continuing basis. We don’t just mean reassessing competency or maturity (although that is definitely an important part of the process) but reassessing the training itself in order to understand its effectiveness.
There are a few methods you can try, here.
- Conduct proactive training needs analyses to determine capability needs. This helps determine your current training needs (which you can use to develop training), as well as evaluate the effectiveness of past training initiatives at closing capability gaps.
- Embed performance management in L&D efforts. Like on-the-job coaching, this creates a cycle of continuous feedback from procurement managers to other procurement roles. It ensures employees are on the right track with their procurement capability development. You can also use a PLMS here, which measures performance improvement as a result of capability-building programs.
- Use training surveys, feedback and evaluations to gauge employee engagement and satisfaction with the delivery of your training material. While it may not seem that important, measuring learning engagement can indicate learning effectiveness in procurement team.
Key takeaways
Market and industry landscape changes can influence how procurement professionals actually interact and go about managing relationships with suppliers. So, it’s important that their procurement capabilities are developed so your business isn’t taken by surprise. This doesn’t need to be hard—you just need to:
- Get buy-in from leaders
- Establish co-ownership between HR and procurement executives
- Identify procurement capability gaps
- Assess sales capability maturity and prioritise capabilities to develop
- Embed L&D with everyday work
- Monitor progress for continuous improvement.
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