Procurement - Deep Thoughts

Monday, October 30, 2023

Procurement’s Value?

In general, there’s a lot of value that procurement brings to an organization, which is a subset of overall supply chain management. Not to mention, depending on the maturity level, there may be additional areas for expansion capability to “boost” existing value, raising its reputation, and movement of increased spend under management. Procurement is an ecosystem consisting of various underlying functions such as category management, sourcing, contract management, vendor management, purchasing, data analytics, market analyst, etc. They all play a vital role in building the value of Procurement.??

It boils down to partnering with the business and the supply market to ensure you get the “right product, at the right time, at a fair price”, and track or quantify everything you do in an organized fashion. Often Procurement fails to capture many important KPIs and showcase its value only to be on the offense” fighting fires” in a tactical mode vs. focusing upstream where the real magic happens..? There is a saying “upstream focus delivers downstream value”.?

Procurement Benefits

The overall goal should entail, reducing spend, mitigating risk, and implementing or improving policies, procedures, and processes to ensure success while driving automation seeking out efficiencies, boosting the profitability of the business.?

Leadership, Relationships, and Resource Management

As a leader, It’s important to make sure you have the right people, processes, and technology to support a procurement organization with an emphasis on those category management and sourcing managers, which I like to call the “knights of the round table”, responsible for building, developing, and managing relationships both within the business and understanding market conditions, and trends. For example, some of these categories may be segmented by areas of expertise and focus such as IT, Capex, Marketing and Advertising, Travel, Facilities, Professional Services, Packaging, MRO, Energy, Logistics, etc.?

It is important to have individuals which have at least a general understanding of the commodities and services in their wheelhouse to navigate discussions with the stakeholders and gain their confidence. By no means, should they be expected to be “experts” in any particular area on technical or functional capacities? (but never hurts), but have at least a general understanding of the sensitivities, risks, and nuances of products and services and how they fit into the organization.??

Supply/Demand/Utilization Strategies and Levers

On the front end of the acquisition process for products and services, there’s only so much savings you can “squeeze out”.? Much focus should be on having subject matter experts in your corner work with stakeholders in understanding the technical and functional requirements of needed goods and services and balancing against what is available on the market or what is being proposed so you don’t “leave any money on the table”. If you’re not engaged in these front-end activities, you’re nothing more than processing purchase order requests with continued aspirations of one day, “getting a seat at the table”.?

Contract Management

Opposite of the supply-side equation, it’s important to take a look at the entire total cost of ownership model as well for acquired goods, services, or subscriptions, and work with the business to understand existing utilization and future demand.? You must also understand contract renewal cycles to develop the right wave plans, sourcing strategies, and levers to help eliminate wasteful spending and understand any changes in requirements to existing products or services.?

It’s also important to understand terms, conditions, of existing contract, as well as service, level agreements, and penalties for non-performance, which many unfortunately miss to capitalize upon which keeps the relationship with your vendors “honest“.

Procurement Technology

Procurement technology has continued to evolve over the years to increased functionality and capability, including automating certain processes “freeing up” category management teams to focus on relationships and decision-making vs. being bogged down in tactical day-to-day activities. It also is very helpful to the end users when you implement guided buying and catalogs to help with easy point, click, and purchase capability with defined criteria in advance.?

If you are thinking about embarking on a journey to acquire an implement some of the new “cool“ technology on the market, it is important to do your homework first in conducting a careful diagnostics of you current ecosystem by collecting and analyzing all of your supplier, spend, contracts, processes, procedures, and existing technology for analysis and optimization planning in the effort of developing “content” and integration planning. Technology is not a “silver bullet” to fix all your problems despite what some may sell you. Having a trusted unbiased advisor in your corner guiding you through your journey to help achieve your vision, can be very valuable. Let’s just call this role “the King’s Hand”.

You should also consider building a committee of individuals from each impact group in the requirements gathering phase and selection process.? This is something I cannot stress enough, so that you are not making a selection and purchasing decision “in a vacuum”, without empowering users (and those from technical teams)to be engaged in the selection, customization, and implementation phases, which helps in adaptation across the organization post go-live.