How to Become a High-Performance Procurement Organization
Over the past two years, the Procurement function has undergone an evolution. Unprecedented operational disruption and economic pressures caused by the pandemic and geopolitical tensions have forced procurement organizations to rethink many aspects of doing business.
Procurement leaders have had to refocus on supporting critical business needs and operations, firming up supply chains, uncovering operational inefficiencies, and identifying opportunities to reduce spending in order to boost working capital and optimize cash flow.
The fallout of the crisis continues to shape CPO and internal stakeholder priorities. Now, at the center of any future procurement strategy roadmap has to be a serious commitment to digital transformation: Implementing advanced software solution technology and increasing automation across all procurement processes, from strategic sourcing to category management, purchase orders and invoicing, payments and more.
Measuring procurement’s performance on the maturity curve
Procurement must move up the maturity curve to become a stronger business partner, both internally and externally. Say goodbye to the tactical, reactive “pricing police” function of yesteryear, and hello to a highly proactive, influential, and high-impact organization. As Procurement moves up the curve, manual purchasing tasks quickly disappear and are replaced with a tech-oriented new procurement operating model that puts real-time data management at the center of procurement activities.
In other words, CPOs must leverage digital technologies and analytical tools to deliver holistic 360-degree visibility — and competitive advantage — for the business.
This evolution of the procurement function results in way more than just cost savings; a mature procurement methodology encompasses compliance, risk mitigation, collaboration, and shared value, too.
Procurement performance needs procurement technology
CPOs (Chief Procurement Officers) do not have the luxury of time to move up the maturity curve. Businesses are counting on the procurement function to find ways to improve cash management, eliminate wasteful spending, drive decision-making, enhance supply chain visibility (and supplier relationships), and focus on risk management — especially during periods of business disruption.
This is how Procurement teams will need to position themselves for growth during the economic recovery.
For years, procurement has focused on reducing the cost of operations and improving savings as some of their primary metrics and benchmarks. But savings is just one KPI (critical, admittedly, but limited). From identifying key suppliers to building flexible supply chains, developing creative sourcing strategies, and driving higher levels of service and faster delivery times, high-performing Procurement professionals know how to spend less while also delivering more.
The benefits of moving up the Procurement Maturity Curve
The savings achieved by Procurement can have a significant impact on a profit and loss (P&L) statement (and the bottom line), cost avoidance, and an organization’s ability to seize market opportunities.
As impressive as these total cost savings are, there is so much more that Procurement has to do to become a mature, world-class function:
- Reduce non-compliant spending by providing standardized processes and a single source of data truth into supplier information, negotiation details, contract terms, and corporate spending.
- Remove the reasons for users to stray from corporate spend policies, eliminate circumstances for non-compliant spending, and make compliant purchasing easy and intuitive.
- Centralize visibility to help the organization better understand how it is spending its money and reprioritize or consolidate spending (such as recurring contracts or support services), as needed.
Procurement also can help mitigate risk — a massive blind spot for many organizations. For each category that procurement manages, it must consider the relevant risks, the steps suppliers are taking to reduce these risks, and the steps the business should be taking independently of suppliers to reduce risks.
A by-product of risk mitigation is the ability to maintain operations uninterrupted, and as the past year demonstrated, resiliency is one of the key benefits that greater Procurement maturity can take the lead on in a company.
Reimagining the procurement function
In times of uncertainty, it’s critical that Procurement improve cross-functional internal collaboration and communication, aligning with other business units to deliver shared value to the organization and eliminate costly, inefficient fragmentation.
Strategic collaboration starts with systematic engagement to develop a culture of value creation that with an emphasis on organizational governance. This includes solution technology integration that spans procure-to-pay, contract management, supplier management, payments, etc, all leveraging the same verified master data. With the right collaborative tools, procurement can help the business not only respond to changing dynamics, but stay ahead of them.
So, what now?
Procurement (not to mention enterprises, economies, and entire societies) has undergone seismic changes over the past two years. Now is the time to assess how Procurement operates and the capabilities it needs to help the business achieve growth and success.
While the worst of the global pandemic crisis may be over, supply chain disruption is a perennial risk in today’s global business environment. This has been a wake-up call for procurement functions that still need to be better equipped to deal with operational disruption and sudden market changes. A recent EY survey of procurement leaders found that half view digital as a top priority to enable cost savings, innovation, supply certainty, and service. With the obvious subtexts being business continuity and resiliency.
The opportunity for Procurement to become truly high-performing is tremendous. Moving up the maturity curve with digital technologies delivers benefits that will not only expand Procurement’s reputation and influence, but help drive the future success of the business.
On the other hand, failing to move up the maturity curve may leave your organization and business at risk.