Managing Risk – Increase Your Focus on the Value of Procurement Capabilities (Part 2)

This is the second in a three-part series of articles by Jeremy Smith, Director at management procurement consultancy 4C Associates on the changing role of procurement, supplier management and how accurate data can optimise value from the supply chain.

The article ‘Why Data Driven Supplier Management programmes are important’ explained how we can’t evolve the role of Procurement without data. We are now assuming we have the suitable data so now we aim to move the role of Procurement from merely tactical to more strategic.

The common barrier to new Procurement functions is that they are seen as administrative, as blockers to delivery. One way to respond to this is to take small steps forward by beginning with giving the operations teams what they want and making small, incremental improvements as we go. This works, we’ve seen it, but it isn’t quick, nor particularly impactful.

Rather than going for a large-scale Procurement transformation consider a hybrid approach which will allow Procurement to deliver quicker and bring more benefits, but in a way that Procurement functions may be less enthusiastic about. It will also introduce moving towards Supplier Relationship Management (SRM) or Category Management as a next step.

On the assumption that the organisation wants to have low risk, high performance and are less worried about reducing costs in the first instance, we find that collaborative, cross-functional sourcing works best to ensure that value is improved without the organisation feeling it is being ‘done to them’ more than ‘done with them’. It is an important differentiator as this cultural change helps build the acceptance of procurement activities without them feeling that this is something different from what they would have done.

The argument of upskilling the operations teams so they are able to undertake procurement activity in a more enlightened manner themselves, using Procurement as subject matter experts in an internal consultancy role, is one that often works well in the early days of procurement transformation. It is also something that can continue to deliver greater value in high-risk or high-value categories as the Procurement function takes over more transactional and routine spend areas. This also opens up the conversations about how to enable more innovation from the supply chain, often of concern in Goods for Resale (GFR) or in companies in a high-growth phase, which leads us on to the topic of the next article – supplier relationship management.

We all have stories of where stakeholders tell us that they already have good value and we can’t possibly improve on what they have done, yet no-one can quantify why that is so. For Procurement to then try to prove, using the aforementioned data, why they are not doing as well as they think they are, only sets the relationship up for an adversarial footing. This can take time to recover from and actually slows down acceptance of Procurement as a function which is why the initial deployment of Procurement works on a hybrid model of centralised subject matter expertise - a commercial awareness training programme for the entire organisation covering Procurement and supplier management, supplemented by processes and policies to utilise the improved data and provide tracking and KPIs as required. This will also help improve staff retention rates as people are able to know their specific role, work in a collaborative and supportive environment, rather than an adversarial workplace, which will in turn improve recruitment opportunities across the organisation.

Once procurement skills are accepted, benefits can be tracked using the improved data, and more demand for Procurement capability can be pulled from the organisation, then the model can change. This will allow more routine, tactical, purchases to be automated and supported by a central Procurement function, cross-functional category management can be implemented on the core spend and the more collaborative, innovative, cross-functional approaches on the strategic spend areas can continue using the internal consultant, subject matter expert, approach.

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