Taking a fresh look at Procurement’s Value

Having worked in procurement for a long time (20+ years), I’ve seen first hand frustration from executives, internal stakeholders, and suppliers that do not “understand” what Procurement actually does; on the flip side I’ve also seen a lot of growth at the individual level and within procurement organizations as a whole delivering value and innovation that had never before been achieved.

Procurement is no longer a team of tactical buyers and penny pinchers. They understand value and collaboration just as well as they do sourcing strategy and negotiation. Staying away from technical jargon remains a bit of a challenge, but most procurement teams are now making a conscious effort to use terminology that resonates with the business as a whole.

Procurement is also working to become more proactive and far more strategic than they have been in the past. When you think of procurement, if you think of purchasing and purchase orders, maybe it is time to take another look. For instance, did you know…

Procurement offers the greatest value long before a negotiation.

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If decision makers don’t pull in procurement until they are ready to negotiate with a supplier, they may be leaving 80% of the value on the table. The sooner procurement has an opportunity to get involved the better, not because they are looking to control or direct the process, but because they can suggest additional ways to drive ROI from the project. Many people see this as a ‘pause’ in their efforts, but most procurement teams are aware of this pain point and have made a concerted effort to accelerate rather than delay the process. If procurement understands the business’ objectives and priorities, they can effectively articulate them to the marketplace and do research to identify additional suppliers or further qualify the ones that are already on the list. Procurement has been working to earn recognition as a trusted advisor, and that drive guides their involvement and engagement in every sourcing project.

Procurement can help you separate true supplier potential from brand recognition.

In many cases, the hardest question to answer after a sourcing project is not ‘Which supplier should we contract?” but rather, “Why this supplier?” The reasons for selecting a specific supplier are many, but one that should NOT dominate the list is brand recognition. Companies that make ‘safe’ supplier decisions based upon the size and reputation of a supplier rather than digging deeper into capabilities and cultural fit often end up regretting their choice. The risk of going down this path is particularly great in the biotech space, when everything is moving quickly, and every need has to be satisfied ‘yesterday.’ Evaluating suppliers in a nuanced, information-driven way is one of procurement’s specialties, and since they are neutral and objective, you can trust that their advice is not driven by any other motivating factors.

Procurement can deliver a lot more than just cost savings.

Beyond the time required to execute a sourcing process, an overemphasis on savings is the most common reason cited for not engaging procurement sooner. But this concern is based on evidence from the past. There is so much more that procurement can deliver, goals such as ensuring supply continuity, achieving diversity or sustainability objectives, collaborating with suppliers to fuel top line growth, and monitoring the value chain as a whole for risks and opportunities. Each category plays a specific role in the business, and procurement understands that. In addition, they have experience working with third parties to aid in growing the business, improve resource utilization, and derive more from third party providers. The benefit of squeezing suppliers for every last cent dried up years ago, and procurement has been driving expansive value ever since.

As procurement teams have grown and matured, they have invested in the ‘business savvy’ of new and existing talent. CEOs, CFOs, COO’s, quality control, and process improvement professionals should stop and take notice of new opportunities to leverage the value of procurement – many of which are already right in front of them.

If you are interested in learning more about the benefits of the ‘new procurement,’ send me a message – I’ll be glad to share the good news and help you see where it can have the greatest impact on your business.