By Christopher Stacy
Far too often, procurement organizations have a reputation among their constituent business units as a low-value control function that exists for two purposes – cost reduction and policy enforcement. This narrow perspective often creates dubious working relationships and, moreover, marginalizes Procurement's value to the broader organization. So how can Procurement change this perception? The department should proactively study the business units it serves as well as work to help them understand the value Procurement provides – particularly through its most "leverageable" service, strategic sourcing.
Going Beyond Controls: How Procurement Can Add Business Value
A procurement organization's primary goals include reducing or containing costs, driving quality standards and mitigating risks associated with external suppliers. The department meets these goals by developing and disseminating controls, such as requisitioning processes, which ensure that appropriate processes and people are identified to review expenditures. While controls are arguably among Procurement's first principles, they would hardly be perceived as a "high value-add" by the company's business units. Accordingly, Procurement has sought other avenues for adding value, such as rapid purchasing, contract management and – perhaps most importantly – strategic sourcing, the process of managing suppliers through an objective transaction lifecycle, resulting in the selection of the supplier that provides the highest value to the organization.
However, sourcing projects must be conducted collaboratively to demonstrate Procurement's interest in selecting a supplier that provides the best overall value to the organization; otherwise, business units may ultimately perceive sourcing as just one more control function. Case in point: Procurement sourcing teams are often accused of rigidly applying prescribed methods that result in protracted timelines, ignoring the business unit's need for rapid transaction closure in lieu of a process that may yield marginal, noncritical benefits. Or Procurement may promote hard-dollar savings as the chief sourcing benefit, causing concern in the business unit that a suboptimal, low-cost alternative will be selected instead of a solution that yields the highest value.
In most cases, negative perceptions of Procurement and sourcing activities arise not from sourcing itself, but from poor execution of the sourcing process and from sourcing professionals who lack the operational context necessary to drive value. As a best practice, Procurement should customize sourcing projects and partner with business units during transactions. Below are five tips for driving a successful sourcing process, including suggestions for implementation.
1. Understand Your Internal Customer: Procurement must prioritize the business unit's critical success factors, including timeframes and schedule restraints. This will ensure that both the business unit and Procurement are on the same page regarding decisions such as whether to renegotiate an existing contract versus conducting a competitive procurement. Procurement should also study the operations of the business unit to glean additional insight into the value of the goods and services being sourced, as this helps sourcing staff understand how the goods or services will support corporate and functional objectives.
How to implement: Procurement should have a firm grasp of the business unit's budgetary goals, mission within the overall company and timeframes for key initiatives. Procurement might participate in collaborative planning and budgeting sessions and actively prioritize what should be sourced to meet business needs. Procurement should also maintain a supplier contract database to stay a step ahead in identifying timeframes for upcoming sourcing transactions. To indoctrinate staff into the business unit's culture and operations, Procurement leadership might rotate staff into physical locations shared with the business unit, or it may allow Procurement staff to assume some responsibilities related to the business unit's operations.