Procurement Value – Webinar Done, Paper Now Available

Thanks  to everyone who participated in our  webinar on Tuesday with Coupa Software – Procurement Delivers Value in Eight Ways – Savings Is Only One of Them"!  (No doubt it will be available soon on the Coupa website if you want to listen / watch it and missed it on the day). We didn’t have time to answer all the delegate questions during the session so look out for an article or two here next week when we have a go at doing just that.

In the meantime, as we said during the webinar, we have a new briefing paper on the same topic, which you can download here free on registration. It is called “Procurement Value – It’s Not All About Savings”.

It looks at the concept of value, and the various ways in which procurement activity can contribute to organisational value. We reckon there are eight distinct headings that procurement leaders really need to understand. But before we get to that, the paper looks at what matters strategically to our organisations in broader terms. That comes back to the concept of competitive advantage, and also the key metrics and indicators that the owners of the business – the shareholders – really care about.

In this short extract from the paper, we look at those two concepts.

What do organisations care about?

Competitive advantage sits at the heart of business success, and is recognised as a vital concept by academics, practitioners and advisers globally.

A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage) or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself. (Wikipedia)

Organisations strive to achieve competitive advantage in different ways, through various business strategy options. Academic and business author Michael Porter talked about low cost, differentiation and segmentation strategies; operational excellence, product leadership and customary intimacy have also been proposed as core approaches to achieve advantage.

Wherever the organisation’s focus lies, it is essential that procurement understands the key drivers for success and how the organisation positions itself to compete; procurement value should as far as possible link to that. It is fairly obvious that if an organisation competes on cost, then procurement should be heavily driven by cost reduction and internal efficiency objectives. But if the organisational strategy relies on innovation or operational excellence, then a procurement function that is purely focused on cost will never be seen by the Board as strategically important.

While competitive advantage underpins success, businesses live or die by their financial results and performance. “The market never lies”, as the old adage has it, so looking at what is valued by investors, shareholders, and analysts can tell us a lot about what really matters. Reviewing commentaries on financial results therefore tells us which issues are seen as the most critical, and four stand out.

Profit is obviously vital, although it is actually made up of two distinct factors – profit margin and sales volume. In some ways, profit is less important than many people might realise in terms of valuation; so, a share price might drop even if profit is up if either results show an increase in sales but declining margins, or a high-growth firm sees sales slow suddenly.

(Download the paper here free on registration to understand the other three – and much more!)

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