It used to be that procurement was all about cost savings and driving efficiencies. While those two mandates are undoubtedly still top objectives today, the highly complex, uncertain and dynamic world in which we now operate is calling on teams to drive even more value at the highest levels.
Spend Matters welcomes this guest post from Jim Bureau, CEO of source-to-pay specialists Jaggaer, which celebrates 25 years in business this year, offering other ways in which procurement can deliver value.
For one, the Covid-19 pandemic has heightened financial pressures and caused widespread and severe supply chain disruptions for many organizations. Procurement teams have been instrumental in boosting liquidity and helping their companies successfully manage supply and demand shifts, earning their place in the organizational spotlight.
There are several other ways in which procurement can add value, strategically guide the business and meet the needs of society:
- Diversity and inclusion are rising to the top of corporate agendas, making procurement initiatives that drive supplier diversity, ethics and human equity even higher priority.
- Climate change is still a very urgent issue, putting organizations under pressure to create environmentally friendly supply chains from end to end.
- Ingenuity is at a premium as organizations seek ways to stand out from competitors, making procurement’s influence and relationships with suppliers critical for product, packaging and transport innovation.
Focus areas for lasting impact
With senior leaders’ attention now squarely on procurement, the function will increasingly be relied on to support broader causes and simultaneously address immediate business needs. Achieving that balance stems from three critical strategies.
1. Source strategically to drive tangible value and supply chain performance
While expectations of procurement are evolving, the function’s core mandates will always be – cost savings, efficiency and risk reduction. Achieving these objectives is critical for keeping the business running. Excelling in these areas provides the budget, time and executive buy-in that opens teams up to tackle impactful initiatives like diversity and sustainability.
It’s easy, especially during times of crisis, to focus on buying from suppliers that offer the best deal. While price is an important factor, the tunnel vision can lead teams to overlook high-performing supply partners that can help achieve procurement’s other goals, while optimizing costs. Evaluate your supply base holistically across both price and non-price elements. Which supplier has the capabilities to help you be agile, innovate, mitigate risk, improve speed to market and support evolving customer demands? Strategic sourcing decisions that take a variety of business criteria into account positions the organization to get tangible value out of every dollar spent, and procurement to deliver for the business in a meaningful way.
2. Build strong, collaborative supplier relationships to create real impact
Procurement’s oversight of the supplier community puts the function in a prime position to create and sustain deeper supplier partnerships that accelerate progress toward diversity, sustainability and innovation objectives. The opportunity to drive tangible change in these areas is endless when suppliers and buyers combine resources, intelligence and manpower, and hold each other accountable.
To create that level of strategic partnership, it takes open communication, trust, transparency and a shared vision of success. Identify the suppliers that hold your values and are in a position to move the needle on your broader initiatives. Share your specific goals and roadmaps and motivate those partners to join your mission by showing them what’s in it for them. It’s much harder to say no to forging a partnership when there are clear win-win opportunities on the table.
Whether it’s bringing new products to market, boosting diversity spend or rethinking packaging or supply chain design to reduce waste, supplier partnerships have undeniable business impact. McKinsey uncovered that the more than 100 large organizations across various sectors that regularly collaborated with suppliers reported high growth, lower operating costs and greater profitability than industry peers.
3. Proactively invest in data, analytics and technology to take teams into the future
The rate of industry change will arguably be faster in the next several years than in the past 25 combined. Gartner reports 23% of supply chain leaders expect to have a digital ecosystem in place by 2025, up from only 1% today.
Automation, AI and embedded intelligence are already laying the groundwork for a truly digital procurement function. Today’s procurement teams consist of digital natives who understand the power of, and are highly adept at using, these advanced tools. There’s tremendous opportunity to leverage technology to transform the function and deliver on strategic priorities, but despite a digitally skilled workforce and availability of tools, many organizations still rely on manual and outdated procurement systems and processes.
Autonomous procurement, where intelligence systems learn from humans, adapt behavior and handle situations – real-time negotiations, supplier selection, payment approval and more – without having to involve professionals, will soon be our reality. The major benefit for procurement teams is new capacity to move higher-level initiatives forward and the journey to this frictionless and efficient procurement experience starts today. The system can only ‘drive’ when an organization’s data is reliable. Taking steps now to ensure information is clean, complete, accurate and available is what will enable this proactive and predictive future where procurement’s role and impact within the organization is elevated even more.
A bright future
Procurement teams stepped up to help their organizations throughout a particularly trying year. For that commitment and performance, they’ve earned a seat at the strategic table — and will also be expected to help navigate future shifts and deliver on strategic priorities. The changes procurement makes now will set the function up for success for years to come. The time is now to invest in your team, request the budget, and make the changes to strategy, processes, technology and infrastructure needed to take your procurement function into the bright future that lies ahead.
If you’d like to hear more from Jaggaer about procurement’s future, and especially in the post-Brexit world, they are holding a webinar on March 5, which you can register for here: Brexit & Beyond: Complexity & Transparency.
Disclaimer: The opinions expressed are those of the author and not necessarily those of Spend Matters.