Understanding the Business Context: The Foundation of Procurement Strategy

In my new series about Procurement Excellence, we've discussed last time the importance of a robust Procurement Area Strategy. Today, let's dive deeper into the crucial first step of developing such a strategy: understanding the business context.

As procurement professionals, we often get caught up in the day-to-day tasks of sourcing, negotiating, managing suppliers and our teams. But to truly add value to our organizations, we need to take a step back and look at the bigger picture. Understanding the business context is like having a bird's-eye view of the landscape before planning a journey. It's essential, and here's why.

Why Business Context Matters in Procurement

Imagine trying to navigate a ship without knowing the destination or the weather conditions. That's essentially what we're doing when we make procurement decisions without understanding the broader business context. Here's why it's so crucial:

1. Alignment with Organizational Goals: By understanding the business context, we ensure that our procurement strategies are in sync with the company's overall objectives. Are we aiming for growth? Cost reduction? Innovation? Market share? Our procurement strategies should reflect these goals and very often it doesn't have to be the savings.
2. Anticipating Future Needs: A clear view of the our business landscape allows us to anticipate future needs and challenges. This foresight is invaluable in procurement, enabling us to prepare for upcoming projects or potential supply chain disruptions. Yes, I know it is often difficult to get long-term plans from different areas that cover a longer perspective than 1 year. But this is also very important information for our strategy.
3. Identifying Value Creation Opportunities: When we understand the business context, we can spot opportunities where procurement can create value beyond just cost savings. This could be through fostering innovation, improving sustainability, or enhancing operational efficiency.
4. Risk Management: A thorough understanding of the business context helps us identify and mitigate risks more effectively. And that is essential these days. Whether it's geopolitical issues affecting our supply chain or market trends impacting our suppliers, being aware of the broader context is key to proactive risk management.

How to Gain Business Context

Now that we've established why business context is crucial, let's explore how we can gain this understanding:

1. Engage with Stakeholders: Don't be shy about reaching out to key stakeholders across the organization. Schedule regular meetings with department heads, project managers, and executives. Ask about their goals, challenges, and upcoming initiatives. Remember, procurement should be a strategic partner, not just a service provider. Yes, I know, it's not easy. Meetings often exceed our capacities. So focus on the most important topics and areas.
2. Stay Informed About Industry Trends: Subscribe to industry publications, attend conferences, and participate in webinars. The procurement landscape is evolving rapidly, especially with the advent of AI and other technologies. Staying informed helps you anticipate changes and adapt your strategies accordingly. That's often what we simply miss. And again - it's mostly linked to our time capacities. But it's really worth trying to maintain our interaction with the outside world.
3. Analyze Company Reports and Strategy Documents: Take the time to read and understand your company's annual reports, strategic plans, and financial statements. These documents provide valuable insights into the company's direction and priorities.
4. Conduct Market Research: Keep an eye on market trends, competitor activities, and economic indicators that could impact your organization. This broader perspective can help you make more informed procurement decisions.
5. Leverage Data Analytics: Use data analytics tools to gain insights from your procurement data. Look for patterns and trends that align with or diverge from the overall business context. These analyses will also quickly show you where your focus should be. With the help of AI, you can even handle the data much more effectively.

Translating Business Context into Procurement Strategy

Once you've gained a solid understanding of the business context, the next step is to translate this knowledge into your procurement strategy. Here's how:

1. Prioritize Categories: Based on the business goals and market conditions, determine which procurement categories are most critical and deserve more attention and resources. This is where our Category Strategies come into play. An extremely important tool that should show the joint approach and planning of Procurement and Business Areas.
2. Align KPIs: Ensure that your procurement key performance indicators (KPIs) reflect the broader business objectives. If the company is focusing on sustainability, for instance, include supplier sustainability metrics in your KPIs. If the company's goal is to bring your products to market as quickly as possible, the time-to-market aspect will be included in your KPIs, etc.
3. Develop Scenario Plans: Use your understanding of the business context to develop different scenario plans. This prepares you to quickly adapt your procurement strategy as business conditions change. These scenarios can certainly be part of a category strategy. Their effect should not be underestimated. Showing scenarios clearly demonstrates to the organisation that you take risks seriously and can deal with almost any situation. This further reinforces the strategic approach of Procurement.
4. Communicate Strategically: When presenting procurement initiatives to stakeholders, frame them in the context of broader business goals. This helps demonstrate the strategic value of procurement to the organization.

Conclusion: Context is King

Understanding the business context is not a one-time exercise but an ongoing process. As procurement professionals, we need to continuously update our knowledge and adjust our strategies accordingly. By doing so, we position procurement not just as a support function, but as a strategic driver of business success.

Remember, in the world of procurement, context is king. It's the foundation upon which we build our strategies, make our decisions, and demonstrate our value to the organization.

What challenges do you face in aligning procurement with broader business goals?

I'd love to hear your thoughts and experiences in the comments. Let's continue to learn from each other!