Over the past two decades, procurement has made great strides in transitioning from a transactional, back-office function to a strategic, value-adding organization. However, the hard work is far from over. Procurement has fought to get a seat at the table with c-level executives, but now it’s time for procurement to prove that it deserves that seat and can keep it.
Author: Mickey North Rizza
Editor’s note: This article is part of the MyPurchasingCenter content archive. It was originally published in 2015 and appears here without revision.
In order to demonstrate its strategic value, procurement needs to tie ROI calculations directly to the P&L and balance sheet. Doing so will change the perception of procurement as a tactical function, to a department that can make a financial impact on the well-being of the company as a whole.
In order to complete this transformation and unlock the full power of procurement, organizations will need to evaluate the three most important pillars of procurement: the people, the processes in place and the technology used.
Here is a quick guide to what top-performing procurement organizations need when it comes to each of these pillars:
It’s about quality – not quantity. Procurement teams will become smaller and hiring managers will have a very specific set of skills criteria. Undergraduate and graduate supply chain degrees will be an important foundation for all successful procurement professionals. Beyond a degree, hiring managers will look for deep mathematical, analytical and financial skills. The challenge will be to identify people with these number-crunching skills who also have natural relationship-management and negotiation abilities.
Procurement’s role has moved beyond transactional purchases and cost reduction to managing and deriving value from the supplier relationship lifecycle. To make this transition, procurement needs to increase its efficiency throughout the entire strategic procurement process as well as within each single step. Supplier relationship management will be taken to a new level because suppliers will be viewed as product-experts that procurement need to collaborate with – not just purchase from. This shift in focus to managing and collaborating with the suppliers will bring more value for the company and the suppliers and tie directly into the financial performance of each company. More procurement teams will also rely on consortium buying to reduce their workload and drive down prices; allowing the teams to spend more time with the suppliers. Technology will be an important factor in improving sourcing and supplier relationship efficiency and effectiveness.
Procurement will rely heavily on software that helps manage the entire strategic procurement process and realize supplier lifetime value. Using a single, integrated platform will make procurement organizations more efficient and effective by allowing teams to more effectively track and manage supplier performance, compliance and identify risks. This visibility, especially beyond tier one suppliers, can help to advise compliance and risk mitigation programs, improve supplier relationship and execute sourcing strategies.
Transformation is never easy but dividing efforts into three categories can make it more manageable. Which category do you think is the hardest to change?