Procurement needs to be familiar with their company’s spend and purchasing habits on a very detailed level. This requires a combination of spend analysis, contract reviews and stakeholder interviews. What they must remember, however, is that procurement does not just need to increase visibility for the sake of their own understanding, but rather to increase the understanding of all decision makers in the organization.
This might include helping the CFO see past savings to appreciate the value of process improvements, or speaking to the COO about opportunities to put aside enough of their budget for the coming year to invest in an equipment upgrade. And the case examples are not limited to those with an internal point of view. In the case of collaborative supplier relationships, helping partners understand the spend trajectory or habits by business units could create new opportunities for them to optimize the services they provide or the inventory they keep on hand.
For procurement, however, all of the opportunities listed above require a different kind of relationship with spend itself. They must be familiar enough with the company’s purchasing and spend management to digest spend, give voice to contracts and create cross-product intelligence.
1. Digesting Spend
It is one thing to look at spend data and be able to report the facts; i.e., “We spent $2.1M with 4 suppliers in the digital marketing category last year.” It is another thing entirely to know why that is an important fact and what it might mean to the organization. Was that expenditure up or down? Was it due to a change in the company’s strategy or in response to pressures from outside of the organization? Being able to engage in these kinds of conversations opens the door to greater C-suite access for procurement if there is not already a CPO in place.
Of course, before procurement can sufficiently digest the spend data to offer the kind of insight executives would be interested to hear, they must understand the mindset of the execs enough to anticipate their questions. The best way to do this is to gather as much information about what issues are being addressed by the C-suite at any given time, including growth plans or major changes foreseen in the company’s industry. Anyone with access to spend can combine constraints and define a fact. Only value-oriented procurement professionals can translate the facts into something that has directional meaning for the company.
2. Giving Voice to Contracts
The transition from metal filing cabinets to cloud-based contract lifecycle management (CLM) solutions has not had as much of an impact on how companies interact with their contracts as it should have. Contracts contain within them the potential to contribute to continuous improvement – as long as someone is willing to keep them front and center during their term. Once again, procurement is in a position to take something factual (the contract) and draw out opportunities to improve resource efficiency and value creation with suppliers.
Just as with spend, the first step is reading and knowing what is in the organization’s most important contracts. The second step is bringing the contract to bear on how the company operates at the right times and in the right ways. Follow how the company is tracking against estimated volumes to see if discounts or rebates are due. Take full advantage of the service levels and support offerings outlined by the supplier. At the end of the contract term, procurement – and the rest of the organization — should be so familiar with the contract content and how effective it was in achieving the desired results that they can renew it by recapitulating its details or fix any glaring issues in the next contract.
3. Creating Cross-Product Intelligence
Procurement’s third opportunity to increase visibility and therefore build understanding is in the cross- product intelligence of all the information they are privy to in the course of routine activities. Procurement always has the chance to learn more than just what is laid out in the sourcing plan – it is what they choose to do with the information they gather that presents an opportunity.
Procurement may discover that two business units, departments, or functions are starting to look at an area of technology that another is interested in or just started to implement. Procurement may gain insight into an area of investment that one executive wants to make and can be split-funded with another. Depending upon the size of the company, procurement may even find themselves in the position to make introductions or share critical updates internally. The key to making this possible is that all of procurement needs to talk openly. There is no sense in procurement being a microcosm of the company, siloed along spend category lines. Every piece of information or insight that anyone in procurement picks up should be shared and leveraged to its full advantage internally for the good of procurement and the good of the company as a whole.
The real message about visibility and understanding is that both are active pursuits. Procurement has to constantly re-examine the information and insight they have access to and to find more ways to leverage them.