Procurement Strategy - Acquiring focus to support business strategy
Procurement is a challenging role. Even as companies reduce their overall spending in other areas the pressure to find further cost savings through procurement continues. At the same time procurement is also being called upon to work on other initiatives including risk management, revenue ideation, supplier rationalization, transformation, sustainability, diversity and corporate social responsibility issues as well as financial and category management all in alignment with strategic business initiatives.
Each of these projects have project sponsorship or someone who has a vested interest to ensure that their project has been completed. Unfortunately, there are limited resources to address each initiative so initiatives need to be prioritized. Projects with the greatest potential to achieve beneficial results should top the list. Each initiative has merit and requires complete attention to ensure its success.
Why focus?
Aligns procurement resources with organizational resources
- From a one-person shop to a large multinational, there never seems to be enough money, people or time to accomplish all that needs to be done. Clear communication about requirements can facilitate the alignment of priorities and avoid wasting valuable resources on activities not aligned to strategic goals. (link to blog on resources)
- One must look to see if the services being provided by procurement offer a competitive advantage and if so, is the organization positioned to leverage the knowledge within the procurement area.
Establishes people, money and resources requirements
- The structure of the organization and its ability to assist in effective implementation may need to be reviewed.
Supports strategic focus
- Often organizations get distracted from their goals because they’re lured by the “shiny object.” The shiny object is the newest item that is the most technologically advanced and popular. While understanding the benefits of the latest and greatest may be of some value, unless it specifically supports or is aligned with a strategic initiative it’s essentially time wasted and needs to be left to the side.
Mitigates reputation risk
- Who knew that procurement would have a role in risk mitigation? Although quality is just assumed without being given a specific focus, quality levels can degrade directly impacting your business and the consumers of your products and services. If the offering is not meeting quality expectations, reputation can be irrevocably damaged.
Sets the parameters for key performance measurement
- If you are starting at ground zero, not every activity needs to be assessed and measured. Rather, place focus on the items and initiatives that support corporate objectives. Building and expanding these will inevitably lead you to additional areas where measurement is beneficial.
- Sets a course for next steps and future strategic initiatives
Once the investigation into relevant items is underway, one can consider broadening the focus of review beyond the initial boundaries extending it to cover the sourcing of future goods and services.
The operational steps to support strategic sourcing include, but are not limited to
Internal assessment of spending
- To do this fully, one would need to do a current and future state review
External assessment of supplier capabilities and limitations
- Organizations have developed supplier scorecards. The scope of the scorecard not only covers the goods and services provided but also considers factors such as a supplier’s stance on recycling and corporate social responsibility.
Total cost analysis
Sourcing strategy development
- Based on the business strategy, identification of supply opportunities and risk mitigation
- identify payment parameters
- Identification of suitable suppliers
- Implement a new supply structure
Track results
Restart assessment
Procurement is not the straightforward world it once was. The role continues to expand and procurement’s input and involvement is sought for many initiatives in areas that traditionally have been considered beyond their purview. Having a clear understanding of how various procurement activities support overall business strategy is essential and can assist in determining the priority to place on a particular initiative. An overall business viewpoint is valuable but at the end of the day keeping specific focus on those activities that directly support strategic goals will ultimately have the most impact.
