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The Procurement Evolution is Coming

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Spend Matters welcomes this sponsored article from Brian Miller, vice president of services at Intesource, a PROACTIS Company.

The procurement function is changing, and fast. The pressure to deliver more value and savings across the entire business — while managing constantly evolving risks and market dynamics — is making procurement more competitive, scrutinized and important than ever before.

Over the next few years, the result, according to Deloitte, will be a procurement function that looks vastly different than it does today. The procurement teams that best embrace the new model, and come to grips with the limits inherent in their internal teams and traditional, technology-only approaches to procurement, will have the advantage.

The Procurement Gap: Technology, People or Capacity?

A technology suite is not enough to meet procurement’s evolving needs. To really be successful, procurement teams need to put people at the center of their strategy. While technology will always have a valuable place within the procurement department, without capable and smart practitioners that have enough time to dedicate to the tool and process, the return will be limited.

The last point — having a team that not only has the talent, but also the time — is very important. Most procurement departments are equipped with smart employees and the technology and processes to deliver value and results. Where they often come up short: capacity and extended expertise.

Mature organizations understand they need additional support. Most CPOs and CFOs would agree that there is rarely a time when there aren’t more categories to source, spend to manage and new markets, risks and suppliers to analyze. The problem, of course, is finding the time to do more with less, and extending the procurement team’s reach beyond its internal comfort level and experience.

This is where outside procurement partners come into play. Organizations need a partner that can act as an extension of their team — scaling up and down when necessary and providing the guidance, strategies, new-age skills and category expertise that the internal team lacks. While the gap is different for every organization, few procurement teams have all of the experience they need to fully take advantage of every opportunity.

Whether procurement needs help defining product specifications for a new category, turning complex categories into productive sourcing events or finding new categories to take to auction, investing in a consultative approach to sourcing extends internal buying expertise. By complementing in-house tools and staffing with managed services, procurement overcomes the capacity and skills gap and regains control — positioning the team to drive meaningful improvements and increased value.

Managed Sourcing Services in Action

After incorporating managed services into their procurement strategy, a nationwide drugstore chain with around 4,500 stores quickly saw the value it had been missing. While the drugstore chain had always been recognized for its procurement and supply chain success, through a new partnership that extended its in-house expertise, experience and capacity, the organization was able to secure more than $25 million in additional savings.

Managed services providers have a unique visibility to vendors and suppliers throughout the entire supply base and can pass that knowledge on to the internal team, allowing them the opportunity to create healthy and mutually beneficial relationships with suppliers they may not have known about otherwise. These extended relationships can help procurement teams collect information that will bring deficiencies in their current supply base to light, and provide a clear line of sight into qualified backup suppliers should any problems arise, including sourcing disruptions or sustainability issues that could harm the organization’s brand reputation.

A managed sourcing partner can also deliver results more efficiently when running events for non-routine categories. In this specific case, the nationwide drugstore chain realized that when it comes to taking on sourcing events that need to be turned around very quickly, namely those that require a lengthy executive-level approval process, the managed sourcing partner is able to deliver an effective event immediately following the green light.

A Holistic Approach is a Customized Approach

A sourcing approach should be holistic in nature, tackling direct and indirect spend, simple and complex categories, and should be aligned with the overall strategy of an organization’s business. The drugstore chain mentioned earlier leverages in-house tools for simple categories in non-volatile markets, such as printer ink, and complements this with a customized sourcing plan that covers complex events.

The last element of their sourcing plan, the managed sourcing provider, scales their team, allowing the drugstore to run as many sourcing events as they need, as often as they need. The drugstore chain has found that the flexibility of working with a live partner who can truly understand their needs and complements what they do well internally allows them to affect spend efficiently across their entire sourcing program.

A managed services partner helps integrate the sourcing strategy into current business processes, so it’s aligned with the unique priorities of the organization. This customized approach facilitates faster transformation and delivers results that fit the organization’s specific needs. As business processes and needs change, the partner can take those factors into consideration and adjust to challenges as they come. The program plan can be modified as needed, unlike working with solely a tool or technology.

Successfully navigating today’s market pressures requires more than just a tool. By complementing your suite and adopting a consultative approach to sourcing, you can drive real value for your organization, protect your brand reputation, retain customer loyalty and make each step of the procurement process more efficient and effective.

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