What’s the secret to great procurement?
There’ll be many answers to this question, but I’m betting ‘cost control’ features often for many executives. The truth is, however, that while savings are important to good procurement practices, there are other, much more crucial elements. The companies that do it best view procurement as being about building real partnerships with their suppliers and shaping strategies collaboratively to drive big decisions and inspire innovation. Great procurement isn’t simply a necessity of business, it’s a strategic differentiator that can help companies thrive.
Having worked with hundreds of Chief Procurement Officers, Chief Financial Officers and other C-suite leaders to understand the elements behind exceptional procurement practices, we have identified six key distinctions of those that do it well. Compare your procurement practices against this list; it provides a good starting point from which your business can transform into a procurement leader.
Distinction #1: Great procurement has a measurable effect on finances
The best procurement officers strategically influence the majority of spend. This is because for every 10 percent more spend influenced by procurement, 20 percent more value is generated for the business. What’s more, these officers are focused on value rather than cost. Instead of buying the least expensive solution, they buy the one that best meets their needs and then look to decrease costs by eliminating wasteful spending and reducing demand. Measurement is vital throughout, and we’ve seen that the best procurement professionals harness real-time market intelligence and benchmarks to achieve the best price/value balance.
Distinction #2: Great procurement enables strategic business objectives
By focusing on strategic business objectives, procurement can become a critical contributor to business growth. There are three areas in which successful procurement officers will look to add value. First, the best businesses engage the voice of procurement at the outset of merger and acquisition analysis, as this helps identify and exploit unseen opportunities to consolidate facilities, reduce costs and raise service levels. Second, leading organizations ensure procurement has a seat at the table when it comes to sustainability initiatives. Providing category-specific data and insight helps shape ambitious business goals, and introduces metrics that encourage sustainability initiatives. Third, the best organizations drive innovation by engaging suppliers in co-creation and co-innovation, tapping industry best-practices, and working together to develop industry-leading capabilities.
Distinction #3: Great procurement protects the organization from risk
By restructuring and re-evaluating risk, CPOs can enhance security while transforming challenges into real-time opportunities. Segmentation is important in achieving this: companies that proactively segment risks gain the insight to prioritize those that matter most and identify the suppliers and components that are critical to effectively and efficiently protect the business. Managing risk is not a one-time exercise – it requires a robust plan and an ongoing process. In our highly digitized, high-speed world, spreadsheets and surveys are not up to this task. Advanced technology allows you to reduce the complexity surrounding risk monitoring and assessment and visually represent data in ways executives can quickly understand and accept.
Distinction #4: Great procurement is proactively embraced by business functions
By sharing and collaborating across the business, the value of procurement is proven and trust grows. But how best to build these relationships? There are three main ways. First, develop a deeper understanding of the challenges facing each function by using data analysis. This approach will help you establish a rapport built on sound advice, timely insight and, above all, freedom of choice. Second, expand your value. By proactively sharing your insights you can help others determine the most efficient organizational structures. Third, embrace the new. By working across multiple units and regions, and treating suppliers like partners, you can maintain a long-sighted understanding of the opportunities and challenges ahead, and become the go-to source for best practice.
Distinction #5: Great procurement harnesses powerful insights to inform decisions
For procurement, the field of data analytics is rapidly advancing and offers numerous applications to drive value. This ranges from entry-level applications — such as using descriptive analysis to deliver fresh insights into consumption and spending patterns, value opportunities and determine levels of compliance and efficiency — all the way up to advanced prescriptive analytics applications. Prescriptive analytics harnesses lessons from multiple sources and enable CPOs to progress critical business functions from reactive to proactive/predictive and develop specific action plans based on more detailed and more intuitive predictive models. Whatever your business, there’ll be a role for analytics in your procurement activities. Take the time to understand the various types of analytics at hand and then turn your attention to how to apply analytics in a procurement context to capitalize on your data to inform decisions.
Distinction #6: Great procurement drives automation, efficiency, agility and speed
As with all business functions, digital technology is transforming procurement. The modern procurement organization doesn’t look like the traditional back office; it helps to leverage the latest advances in process automation, deliver relevant analytics, delivered through a seamless user experience. For example, leading procurement teams use ‘bots’ to automate transactions and eliminate unnecessary human touches, allowing colleagues to focus on more strategic analysis and making better, faster decisions. Meanwhile, procurement leaders are using advanced technologies to put context-relevant market intelligence, and decision support, in the hands of stakeholders throughout the buying process. Some organizations already leverage bots to perform primary and secondary market research, prepare recommendation reports and eliminate process steps. Significantly, digital tools are also helping procurement take back control. By connecting digital platforms from beginning to end, catalogs and contracts are digitally enabled; and approved buying channels are designed to present supplier products and services to the buyer, with the right prices, terms and conditions.
In our highly competitive markets, businesses need to put in place every competitive differentiator they can. It’s now clear that by transforming your procurement into an agile, data-driven operation you can enhance your strategic capabilities and help your business achieve its goals.
To read more about Accenture’s Six Distinctions of Procurement, click here.