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Jennifer Engel is a Senior Supply Chain Project Analyst at Source One Management Services, responsible for executing strategic sourcing and process improvement initiatives for Fortune 1000 clients. Working directly with clients and their respective suppliers, Engel supports all stages of the strategic sourcing process, from data collection, through... selecting and conducting go-to-market strategies, to negotiation and contracting and implementation.  More

Transforming the Perception of Procurement in your Organization

While the strategic vision of an organization is usually consistent across departments, each function’s strategies to achieve that vision do not always align.  Just as legal and HR are there to ensure that all actions and hires are made in the best interest of the organization and its people, procurement exists to ensure that all purchasing decisions are made in the best interest of the organization. 

As a strategic sourcing consultant, one of the biggest challenges I face on a daily basis is convincing the stakeholders in a particular category that we are not there to be an unnecessary roadblock to them securing goods and services.  As more and more companies are transforming the way they purchase, it is critical that internal perception of procurement shifts for the better.  It is time for procurement to become its own PR department. 

Below are some common perceptions of procurement and the truths we need to communicate to unite everyone in pursuit of overall organizational goals.

 

The Perception: Procurement is a necessary evil that delays the purchase of goods and services

The Spin: Procurement is a help desk function, similar to IT

The most common reason stakeholders avoid working with procurement is because they want to avoid a long, drawn out sourcing process that requires them to do a lot of heavy lifting. Procurement provides purchasing expertise to support the decision making process in any scenario. Stakeholders should feel comfortable reaching out for ad-hoc advice on supplier searches, negotiation tactics, service level agreement development, and supplier management. If stakeholders are able to tailor the level of involvement that procurement has, they are more likely to reach out and ask for advice and support.  This is a win/win for the organization as the stakeholders are less constricted and decisions are made in line with a strategic procurement mindset.

 

The Perception: Procurement only goes after lowest cost and does not know enough about the product or service to identify quality

The Spin: Procurement is a stakeholder liaison with expertise in negotiation and relationship building.  All final decisions are based on collaboration with and acceptance from the stakeholder team.

Procurement should not be positioned as an absolute expert in all areas of operation or categories of spend.  Engineering and quality departments often distrust procurement as they seem to exist just to cut costs. Procurement should emphasize their expertise in building mutually beneficial supplier relationships and best-in-class contracts. While the sourcing process does (and must) evaluate cost, it also looks at qualitative aspects of supplier capabilities and aims to align those with stakeholder needs.  Quality and competitive pricing can coexist.

 

The Perception: Procurement still runs lengthy RFPs when I already know which vendor I want

The Spin: Procurement can ensure best in class pricing with any vendor, and can assist in building a business case to warrant an award or a switch

There are plenty of justifications for switching and selecting suppliers that go beyond price, from increased service levels to superior reporting capabilities and product mix. Procurement is actually focused on the total cost of ownership within each category. When a stakeholder receives a proposal from a prospective supplier and does not engage procurement, the result may be an increase in cost beyond the unit price of the product.  By bringing procurement into the conversation, they can evaluate soft cost savings and value adds outside of price, and assist in building a business case to justify the transition. If the total cost of ownership is above market, procurement can take the lead in negotiating better pricing, leading to a win for the stakeholder and the organization’s bottom line.

 

The Perception:  Engaging procurement will only hurt my future budget allocation

The Spin: Procurement exists to stretch your budget dollars

The final perception needs to be tackled by procurement, stakeholders, the finance team, and enterprise leadership. Reducing costs should allow for the creation of emergency funds to be used throughout the year, and reinvested back into the department.  Procurement should be engaged in the annual budget planning process and optimize all spending.

The key to addressing all of these perceptions is exposure, consistency and familiarity.  Procurement needs to be proactive in establishing their value proposition and communicating it to other departments.  Once traction is gained, success stories should be communicated via newsletters and case studies to further drive engagement and reinforce improved perceptions. Alignment across all teams is critical to organizational success, and procurement can play a huge role in increasing the bottom line.

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Setting the Foundation: Preparing Spend Data for a Procurement Metrics Program

Metrics are a critical aspect of measuring the success of any business function. The importance of quantifying progress against goals and objectives cannot be overstated. Without a metrics program, underperforming organizations are unable to target functional areas that require improvement, and growing organizations are unable to set goals or scale resources to align with the changing state.

Because procurement organizations are often challenged by stakeholder resistance and a lack of executive-level sponsorship, metrics are key to demonstrating value. Sourcing efficiencies, cost savings, stakeholder satisfaction, and overall procurement ROI are just the starting point for capturing bottom line impact. While these are often viewed as the foundation for a metrics program, the final structure can’t be established without being certain of data quality and availability.

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Sourcing Custom and Secondary Packaging: Considerations for Optimal Results

Each purchasing category, whether indirect or direct, has a unique set of parameters that can be optimized to take full advantage the savings opportunities in the market. The packaging category is no exception, offering major opportunities for cost savings beyond the basic volume leverage approach.

Packaging, which may be considered either a direct or indirect product depending on the use and company, can be particularly complex to take to market. Many organizations strive to find a supply base that can support the company’s needs while generating value. Taking into consideration the upfront investment of time and resources (without a guaranteed ROI), running a competitive bid process can be an intimidating endeavor for many companies. However, with the proper expertise, packaging is an area of spend with major cost reduction and value added opportunities.

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Optimizing the Value of Trilateral Manufacturer Distributor Purchasing Relationships

When you just look at a purchase from a pricing perspective, it would be reasonable to think that purchasing products directly from the manufacturer be an effective way to reduce unnecessary overhead and markup costs.  While I generally find this to be true in practice, if it were that black and white the large number of distributors thriving in today’s markets would cease to exist.  Manufacturers and distributors each have strengths and weaknesses, but in a strategic purchasing landscape you do not always need to choose between the two. In fact, developing a balanced relationship with manufacturers AND distributors often proves to yield the most value, particularly with high volume purchases.

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Making the Case for a More Diverse Supply Chain Part II – Supplier Evaluation

In the first part of this two-part series, I established the reasoning behind establishing a diverse supply chain in the nontraditional sense. Emphasis on maintaining a supply chain that is diverse in geographical location, capabilities, and overall corporate values is vital in maintaining supply chain resiliency, sustainability, and adaptability.  To achieve a supplier mix that fits these goals, the right questions must be asked during an internal supplier rationalization process, overtaking the traditional values of an RFx.

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Making the Case for a More Diverse Supply Chain

Supplier diversity is a concept with multiple definitions.  Most commonly, a supplier diversity program focuses on the utilization of women owned, minority owned, and else certified diverse businesses within your supply base.  There is, however, another interpretation of supplier diversity – a diversity of geographical location, sourcing practices, and overall organizational structure.  Evaluating these factors in a meaningful way when evaluating suppliers can be an important factor in managing supply chain resiliency, sustainability, and adaptability.

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