After multiple years of transformation (first procurement, then digital), most of us have accepted the idea that we work in a state of perpetual change and self-examination. What are my company’s current practices? What am I doing to advance myself or my team to the next level? How does that compare to what my competition is doing? Isn’t this striving for growth what “procurement maturity” is all about?
Despite procurement’s evolution to this point, savings continues to be a critical measure of our effectiveness. And yet, it is no longer quite as prominent as it once was. In this two-part series, we’ll examine how procurement technology is (or should be) adding value across the enterprise. We’ll also touch on how incorporating data and analytics tools can enhance processes, providing procurement professionals with increased oversight for the sake of compliance, risk management and collaboration.
Stage one: Deciphering Savings
Savings tends to be the initial driver behind a company’s decision to invest in formal procurement. Our job is then to make sure the operation has what it needs when and where it is needed — and pays a reasonable price to do so. Having materials and services in the right place at the right time is a binary measure: you either accomplish it or you don’t. The price that is paid and the contract terms that are put in place are where procurement’s performance can be evaluated more subjectively.
Procurement’s relationship with savings has changed as additional priorities have hit our desks, making savings one of many critical objectives. In fact, in the 2018 CPO Rising report, titled The Age of Intelligence, savings was ranked second in two important categories:
- In The CPO’s Top Business Pressures in 2018, savings ranked behind “Better communicate value and performance” by 2%, and
- In The CPO’s Top Priorities for 2018-2020, it ranked behind “Utilize advanced analytics” by the same margin.
While a singular focus on savings may seem passé in today’s complex and value-oriented business environment, allowing the corporate bottom line to grow by generating savings remains a primary procurement motivation. This does not mean, however, that our efforts are confined to a rudimentary leveraged volume approach. Skilled procurement teams can apply existing skills and tools in new ways and to new categories of spend — with significant results that can be measured in terms of savings as well as in their contribution to competitive advantage.
Stage two: Getting More at the Same Cost
We’re lucky that an emphasis on savings doesn’t lock procurement into a race to the bottom, where we must compromise quality or functionality to shave off a few pennies. As procurement matures and enterprise spend becomes better managed, increasingly strategic approaches can be applied to continue generating comparable levels of efficiency: switching to more innovative supply partners, introducing alternative materials, automating tactical processes, or adopting more appropriate commercial models.
What procurement really needs to do is find a way to get more for less. We can sustainably alter that value equation by collaborating to get more out of supply partnerships: negotiating to get more rather than negotiating to pay less The best place to start in a ‘negotiate more’ procurement model is in understanding what you get today and what it costs — in other words, building a contextualized awareness of current costs. To accomplish this, procurement needs the ability to dig deep into the details of actual spend and supplier profiles to find value. (Click here to read more about advanced procurement functionality.) Then we can leverage process automation to influence the mix of goods and services demanded in support of evolving business objectives.
That is exactly what we’ll start to look at in post two of this series. We’ll dig deeper into the increasingly important role that technology (and our commitment to it) plays in making procurement more efficient and more influential.
*Spend management is increasingly complex. If you want to learn just how much more valuable and effective your company’s P2P process can be, schedule a personalized demonstration of our modular, integrated Procurement Solution on the Determine Cloud Platform, or contact us with your questions anytime.