How Procurement Transformation Can Help You Enjoy A Competitive Advantage

Procurement is no longer just about cost savings. While cost reduction is still an important objective, it is not the most important by any means. In the modern business environment, it is understood that procurement must balance a range of priorities.

Although traditionally focused on operating as a necessary, albeit back-office function that facilitates the outward-facing function of a business; procurement should no longer be viewed in such limited light.

In the current context, procurement is not a tactical cost centre, but a strategic, value-adding profit centre.

This shift in expectations and perspective is where the need for transformation arises. In most organisations, however, expectations have changed, but infrastructure and strategic framework have not.

Procurement transformation is not an overnight process and requires a lot of groundwork and planning for it to succeed. With successful transformation, an organisation can generate competitive advantages in more ways than one.

How procurement generates a competitive advantage

Procurement sits at the nexus between finance, operations and the supply chain while also coming into contact with multiple touchpoints across your organisation.

A competitive advantage in procurement can look like the following:

Effective spend management requires an ability to look across the overall functions and costs of your business. If focus is only channelled to cutting costs in a specific area, like bulk buying at low prices, it is quite possible that unforeseen costs can balloon in a different area, like storage or transportation.

Getting value for money in this context requires striking a balance between quality and price. Cost-effective pricing matters, but the costs you may incur as a result of using low-quality materials or sub-standard machinery can be just as extensive, if not more so. A drop in quality will also harm your reputation, which can be difficult to recover from.

Leveraging supplier innovation requires initiating a focused business dialogue with suppliers in order to gain the most out of their capabilities and creativity. Relying solely on internal processes can blind a business to the opportunities and resources available in the wider market and result in setbacks that allow competitors to gain an upper hand.

When your procurement department acquires the capability to optimise spend management, balance quality and cost, and leverage supplier innovation simultaneously, it generates competitive advantages for your company.

It is to achieve this that companies should drive their transformation.

The roadmap to successful procurement transformation

A procurement strategy

The road to transformation begins with defining the need for it; start by identifying key operational goals, at least for the next five years, alongside potential barriers.

When your organisation is trying to drive behavioural change or introduce spend consolidation into your operations, having a clear understanding of what you are trying to achieve is key.

It is also important to decide what your priorities are, whether it is improving customer/stakeholder relationships, financial performance, supply chain, or risk management.

Procurement maturity assessments

The next step is understanding the maturity level of your procurement operations and the changes required across people, processes, and technology. The insights you gain from this procurement maturity model assessment will drive the strategy for your procurement transformation.

Scope of transformation

By defining the scope of your proposed transformation clearly, you gain a clear vision of what it will and will not do in the process. You can also create a clear timeline during which your framework can be implemented.

Digitalisation

The role technology plays in every aspect of modern businesses cannot be understated.

Once your transformation strategy and objectives are identified, you can decide how to approach the deployment of technology. Whether it is on upstream applications focused on driving efficiency and productivity or downstream applications focused on customer experience.

Executive buy-in

With the endorsement of key executives and clearly defined timelines and objectives, your organisation can be on its way to procurement transformation and the competitive advantage it brings.

The aftermath of a procurement transformation

Once the goal of a high-performance procurement function is realised, it will have the framework and tools to implement efficient procurement practices such as:

● A detailed spend map for every quarter that monitors organisational spending; details who is authorising purchases and what is being purchased, and key suppliers and secondary suppliers who represent smaller transactions.

● Organisation-wide savings

● Cost reduction across the value chain

● Optimised contract and supplier relationship management that aligns effort, risk, and reward

● A clearly defined procurement model

Use your procurement function as a way to stay ahead of the curve

Though this transformation will not take place overnight, the results will be long-lasting. It will leave you with many strategic and operational advantages that allow you to gain an edge over your competition and stand out in the market.

The need for companies to transform is greater than ever — procurement may be the way to do it.