Why Procurement 'doesn't need to be on the board'
A first-hand account of why, at Lloyds Banking Group, when Procurement was tasked with finding $870.7 million of savings, being on the board would have been a waste of time.
The value a company places on procurement clearly reflects the latter’s performance, and vice versa.
A positive relationship with senior executives and board members will allow and encourage procurement to play a full strategic role in adding value. But that level of communication is not necessarily best achieved by seating procurement at the boardroom table, explains Michael Whitby, Group Sourcing Director at Lloyds Banking Group.
Whitby joined the bank in 2011, a month before a new CEO. He was told that the entire $15.9 billion budget was ‘in scope’ and, of that, $7 billion was expenditure with third parties – “in other words, half the cost of running the bank could be addressed by cost management and sourcing.”
Finding the balance
Lloyds were looking for $2.9 billion of savings, of which sourcing would deliver more than $870.7 million. However, Whitby, who does not sit on the board, says that it is “a complete misnomer” that procurement needs a place in the boardroom.
“In most of the businesses I’ve worked for, procurement is a key function that adds value, but it’s never going to sit on the board.”
Whitby argues procurement has the right role at Lloyds. “We give and gain visibility each month at the Group Executive. I have interaction and clarity with each business director and we are delivering the numbers.
Clarity of delivery and significant influence on how goods and services are acquired has led to the Group making significant further investment in sourcing, at a time of pressure on budgets.
“Clarity of delivery and significant influence on how goods and services are acquired has led to the Group making significant further investment in sourcing, at a time of pressure on budgets.
“From the start it was clear that a major part of the savings would be reinvested in new opportunities and the reduced cost base. Each of the businesses is trying to take out bad cost and reinvest in new channels and new capabilities.”
But would it be helpful to Whitby to be on the board? “It would probably be a hindrance, spending time on stuff I don’t need to. I’ve not lacked any sponsorship, and the quality of the team has opened the doors we need to walk through.”