In our previous blogs in this series, we’ve looked to understand if getting procurement right will support the business to grow in revenue, and in profit and we can see that with between 83-400% returns that there is a case for giving this some serious thought. (See “ Why Your Business Should Invest In Procurement ”). Indeed, I would put it that there would be few other areas of the business that still have so much untapped potential. So even the most sceptical CEO would be missing a trick not to explore procurement transformation.
So, what are the options? The business of procurement can be structured quite simply
at 3 levels. The base level is about getting the purchasing bit right – that is the
process of setting up a supplier, placing an order, accepting delivery of the goods
or services, accepting and processing the invoice. The second level is about
Basic Procurement - the tactics of buying – the use of standard templates, eSourcing
toolkits, RFx processes (Request For Information, Request for Quotation, Request
for Proposal), contracts, contract management, access to basic data (spend reports,
forecasting, compliance monitoring, performance monitoring) – all the stuff that
basically keeps the business functioning and that Chartered Institute of Procurement
and Supply offer courses on. Finally, the third level is about the creation
of differentiation: “strategic procurement” which is the business of shaping supply
markets to fit your needs, short and long term to create some form of competitive
advantage whether it be on cost, quality, reputation, innovation etc. Each
are vital components of a fully functioning procurement team, and all need focus.
Apple would not be where it is today if their procurement was just left at basic
– they have an enormous focus on strategic procurement – and it’s their relationships
with key vendors that keeps them ahead. Back in the day Amstrad could boast
a similar position.
The mistake most organisations make is that they focus on the purchasing to pay processes to a greater or lesser extent, mainly led by the Finance function, and leave the Procurement function to focus on Basic Procurement only. Strategic Procurement is therefore left to be done in pockets, often completed by various other senior stakeholders within the business whose primary raison d'être could be IT, or Marketing, or some other discipline. Therefore, at best, there are occasional flashes of short haul greatness, but with little long-haul consideration on different flight paths that could be taken…and at worst, inconsistency created across the supplier base with different intents displayed to different strategic vendors based on the internal stakeholder bias. And bluntly, the creation of value from supply markets is not simple, and anyone doing it would benefit hugely from having some kind of framework to work within to make sure all opportunities are explored.
Each level, has a multitude of considerations, and providers available to support – all of which is moving fast, and far too extensive for this blog. However, what is critical for any organisation is to work out precisely what its vision is for building procurement capability across the organisation, and where the function of procurement might sit, its responsibilities and its size and design. If you would like to speak further to us about how to establish a Vision, strategy and roadmap of change, and how to establish the right operating model for your organisation, please get in touch with Allison Ford-Langstaff for an initial chat.