The role of Procurement is ever changing and growing in importance. What are your company’s current practices? What are you doing to advance to the next level? Savings is still a primary focus and a critical measure of effectiveness, but it’s not the only one. In this two-part series, we’ll examine how procurement technology is (or should be) adding value across enterprises. We’ll also touch on how incorporating data and analytics tools can enhance processes, providing procurement professionals with increased oversight of compliance, risk management and collaboration. While there is an overall progression from one to the next, there are also opportunities for advancement and expansion within each focus area.
Stage one: Deciphering Savings
Savings is typically the core driver of a company’s decision to invest in Procurement. Our job is to make sure the operation has what it needs when and where it is needed — and is paying a reasonable price to do so. Having materials and services in the right place at the right time is the sole measure: you either accomplish it or you don’t. The price that is paid is where Procurement’s performance can be measured more subjectively. As a result, procurement and savings are inextricably linked — and likely always will be.
That being said, procurement’s relationship with savings has evolved over time. Even our working definition of savings has not stayed fixed. Procurement’s results may be expressed in terms of either identified savings or realized savings. Complicating matters is the fact that different parts of the business are interested in different measures of savings. Finance, for instance, is only concerned with impacts to the P&L and the bottom line. Operations may be interested in cost avoidance in addition to savings. For many procurement professionals, the difficulties associated with defining, tracking and measuring savings create a great deal of frustration.
While a focus on savings may seem passé in today’s relational, value-oriented business environment, allowing the corporate bottom line to grow by generating savings remains Procurement’s primary motivation. However, this does not mean efforts are confined to a rudimentary leveraged volume approach. Skilled procurement teams can apply their 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 their contribution to competitive advantage. Determine customer OfficeMax did just that, successfully, when it challenged itself to change the perception that Procurement was only focused on bottom-line savings.
Stage two: Getting More at the Same Cost
Fortunately, the high priority placed on savings doesn’t lock Procurement in a race to the lowest price 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 savings: switching to more innovative supply partners, introducing alternative materials or adopting a more appropriate commercial model.
What Procurement really needs to do is find a way to get more for less, and we can affect that overall value equation just as much by collaborating to get more out of supply partnerships as by negotiating to pay less. The best place to start in a “negotiate more” procurement model is by better understanding what you get today and what it costs — complete situational awareness. 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 the 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, request a demo to see the possibilities. Or contact us with your questions anytime.