A procurement department plays a crucial role in the successful operation of any organization, ensuring that the necessary goods and services are acquired in a cost-effective, timely, and efficient manner. To accomplish these objectives, procurement professionals must work closely with various stakeholders, both internal and external. This blogpost will have the Procurement stakeholders defined and explore their significance in driving effective procurement processes. Let’s find your key stakeholders.

Definition of Stakeholder

A stakeholder is an individual, group, or organization that has a direct or indirect interest in a project, company, or decision-making process. Stakeholders can be internal or external to an organization and have varying degrees of influence, depending on their level of involvement, interest, or the impact of the outcome on their interests.

Stakeholders may include employees, customers, suppliers, shareholders, investors, regulators, and the local community, among others. Understanding and managing stakeholders’ expectations, concerns, and needs is essential to the success of any project or business, as it promotes collaboration, reduces potential conflicts, and fosters long-term relationships. Effective stakeholder engagement strategies involve clear communication, active listening, and addressing stakeholder concerns to ensure a successful outcome for all parties involved.

Internal Procurement Stakeholders

Management (KEY): Senior management sets the strategic direction and overall goals of the organization, which directly impacts procurement objectives. The procurement department must collaborate with management to align their strategies and ensure that procurement initiatives contribute to the organization’s overall success. Management should of course be considered as a key stakeholder.

Finance (KEY): The finance department plays a critical role in budgeting, cost management, and financial reporting. Procurement professionals must work closely with finance to develop budgets, monitor expenditure, and optimize cost-saving opportunities while ensuring compliance with financial policies and regulations. As a CPO is it crucial to have creditability when it comes to cost reduction and cost avoidance activities and well as cash flow improvements. Finance, and the controller, is key when it comes to verifying the procurement activities hit both the balance and profit/loss sheets. 

Operations: The operations department relies on procurement to acquire the necessary resources to maintain smooth functioning. Procurement must understand the operational needs and collaborate effectively to ensure the timely delivery of goods and services, minimizing disruptions and enhancing overall efficiency.

Legal: The legal department is responsible for ensuring compliance with relevant laws, regulations, and contractual obligations. Procurement professionals must work closely with the legal team to review contracts, manage risks, and resolve disputes to safeguard the organization’s interests.

End-Users: End-users of the procured goods and services are essential internal stakeholders, as their needs and requirements must be met to ensure their satisfaction. Procurement professionals must involve end-users in the decision-making process, solicit feedback, and address their concerns to deliver the best value.

External Procurement Stakeholders

Suppliers: Suppliers are key external stakeholders in the procurement process, as they provide the goods and services required by the organization. Procurement professionals must establish strong relationships with suppliers, negotiate favorable terms, and monitor performance to ensure high-quality and cost-effective procurement. Suppliers positioned in the upper right corner of Kraljic’s Matrix are key to organization success and close management attention is required to assure continued competitiveness. 

Regulatory Authorities: Procurement activities must comply with the regulations and standards set by relevant authorities, such as industry-specific regulators, tax authorities, and customs agencies. Procurement professionals must stay informed of regulatory requirements and ensure that the organization remains compliant.

Industry Associations: Industry associations and professional organizations provide valuable resources, networking opportunities, and best practices for procurement professionals. Engaging with these stakeholders can enhance the procurement department’s knowledge and contribute to continuous improvement.

Local Community: The local community is an important external stakeholder, as procurement activities can have a direct or indirect impact on the community’s well-being, environment, and economy. Procurement professionals should consider sustainable and socially responsible practices to promote positive community relations and enhance the organization’s reputation.

Conclusion – find your key stakeholders.

Understanding and engaging with key stakeholders is essential for a procurement department’s success. By establishing effective communication channels, fostering collaboration, and addressing stakeholder concerns, procurement professionals can drive efficiency, cost savings, and overall organizational success.

Key stakeholders for a CPO are management, finance and management of strategic suppliers. Keeping this persons close will assure the road to success. 

Learn more about Procurement Management in the basic level course Introduction to Procurement Management. This course will provide you with an understanding in managing a Procurement department and what should be on the agenda for a CPO (Chief Procurement Officer).

Find your key stakeholders – example from Per-Erik

When I first stepped into the role of Chief Procurement Officer (CPO), I quickly realized that procurement isn’t just about sourcing goods and services at the best prices—it’s about aligning procurement strategies with the entire organization’s objectives. To do that effectively, I had to identify and understand the key stakeholders both inside and outside the company.

Internal Stakeholders

1. Finance Department:
My first stop was with the finance team. Procurement decisions have a direct impact on the company’s bottom line, so building a relationship with the finance department was essential. They needed to understand not just the upfront costs of purchases but also the total cost of ownership, which includes maintenance, operational costs, and the potential for future upgrades. Regular communication with finance helped ensure that every procurement decision was aligned with budgetary constraints and long-term financial planning. We collaborated to create clear financial reports that tracked the savings generated through smart procurement, helping them manage cash flow and forecast future spending more effectively.

2. Operations Team:
Next, I reached out to the operations team, as they were responsible for the day-to-day use of the products and services we were procuring. Timely deliveries and consistent quality were critical for their processes. If a supplier failed to deliver on time or a product didn’t meet quality standards, it could slow down production or impact the final output. Operations also needed flexibility in procurement contracts to adapt to sudden changes in demand, especially in industries where market conditions can shift rapidly. By collaborating with the operations team, we ensured our suppliers were reliable, flexible, and capable of scaling with the company’s growth.

3. Legal and Compliance:
Legal and compliance were also crucial internal stakeholders. Procurement involves navigating contracts, regulations, and compliance issues, especially when dealing with international suppliers. I needed the legal team to help vet supplier agreements and ensure that we complied with local laws, international trade regulations, and industry standards. They provided guidance on contract terms, especially around warranties, intellectual property, and service-level agreements. Involving legal early in the procurement process helped us avoid potential risks that could arise from poorly written contracts or non-compliance with regulations.

4. End Users and Department Heads:
While finance, operations, and legal are typically seen as key stakeholders, I learned the importance of including end users—those actually using the products and services in their daily work. Their feedback on the functionality and effectiveness of purchased items was invaluable. Engaging them early helped avoid mismatches between what was purchased and what was truly needed. Their insights also helped identify potential innovations and improvements that could be factored into future procurement decisions.

External Stakeholders

1. Suppliers and Strategic Partners:
Externally, the most obvious stakeholders were our suppliers and strategic partners. I made it a point to cultivate strong relationships with these vendors because a successful procurement strategy relies on a stable and trustworthy supply chain. I developed a vendor management process to evaluate supplier performance regularly, focusing on quality, reliability, and innovation. We looked beyond just price; a supplier might offer a great deal, but if they couldn’t meet delivery timelines or provide the necessary level of support, the costs to our operations would be much higher in the long run. Through regular check-ins and performance reviews, I ensured that our suppliers were true partners who shared in our goals.

2. Customers (Indirect External Stakeholders):
Though not directly involved in procurement, our customers indirectly became an important external stakeholder. The products and services we procured impacted our ability to meet customer expectations. Whether it was ensuring the quality of raw materials that went into production or securing efficient logistics services for faster delivery, the procurement decisions we made had a direct impact on customer satisfaction.

Why Stakeholder Engagement is Crucial

Find your key stakeholders is important and for me, my action plan allowed me to build a procurement strategy that wasn’t just about cutting costs but about delivering value across the entire organization. Each stakeholder had different priorities, but by aligning procurement objectives with their needs, we were able to create a streamlined process that improved efficiency, reduced risk, and increased overall profitability. Most importantly, this collaborative approach fostered trust and communication, ensuring that procurement was seen as a strategic partner in the company’s success rather than just a cost center.

Extra: Stakeholder management in project management

Note: Illustration to blogpost “Find your key stakeholders – learn why.” was created by Chat GPT on Sept 8, 2024.

Information about LHTS Online Procurement courses in Swedish.