Back to Hub

Procurement’s New Reality: A Business Case Blueprint for Innovation

11/30/2018 By

Spend Matters welcomes this guest post from Stan Garber, Scout RFP’s president and co-founder.

Procurement is a critical function, yet it has challenges being seen as a strategic and transformative player, despite its enormous potential to drive enterprise cost savings and growth. However, forward-thinking procurement professionals are radically transforming business as usual and sitting alongside other key changemakers within the enterprise. Many of these forward-thinking procurement leaders have taken note of the huge digital transformation effected by sales over the last 20 years and have applied many of these operational tactics to sourcing. By emulating the sales framework and approach, procurement executives can usher in a new era where they can better establish priorities, allocate resources, engage stakeholders and react to changing directives. In the process, procurement will also deliver maximum business impact, with a new respect there for the taking.

Breaking down the complex state of procurement

Procurement has a difficult and complex mandate and must address nuts and bolts deliverables, like cost savings, risk and compliance, while continuously innovating to meet ever-changing strategic goals. Yet, it’s challenging for procurement to get the job done, given the numerous obstacles currently standing in the way. Procurement professionals often have only limited visibility into stakeholder projects, timelines or workflows, and are more often than not working with manual processes. With procurement organizations routinely understaffed and underequipped with legacy solutions, inefficiency and bottlenecks are commonplace. In addition, many procurement professionals worry about disruption to their way of doing business and resist the very changes that could make their lives easier and provide real value to their organization. With all the looming challenges, what can the new breed of procurement managers do to turn things around?

Acquiring a blueprint to transform procurement

When cloud-based customer relationship management (CRM) platforms were first introduced in 1999, only a small number of sales organizations initially got on board. But within four years, a major transformation to CRM was well underway, with the vast majority of companies planning to deploy CRM tools. Now, Gartner predicts that CRM will be the single largest revenue area of spending in enterprise software by 2021. Just as innovative vendors and technologies revolutionized sales organizations with CRM solutions, innovative vendors can also help procurement achieve a similar transformation in an equally short period of time. The key is to manage procurement as a pipeline.

Sales leaders view opportunities as belonging to a progressive funnel, with discrete stages that can be viewed, measured and analyzed. By emulating the sales model, procurement can also establish a unified framework to identify, qualify, manage and follow up on opportunities. This new, pipeline-based way of approaching procurement can help organizations become more transparent, collaborative and efficient.

By embracing this new way to facilitate informed decision-making and processes, procurement professionals can increase transparency, communicate more consistently and reap myriad other benefits. Selecting the right technology, tools and platforms will further enable and automate this procurement pipeline approach. In the sales realm, leaders buoyed by hardcore improvements in organizational performance are looking to automate every function possible. Procurement should take note: It can do the same.

Building a case for transformation with pipeline-based KPIs

Professionals looking to transform their procurement organization can track key performance indicators (KPIs) to make a business case for change and accelerate the adoption and progress of new solutions. For example, measuring and assessing performance in real time against KPIs can help establish benchmarks, uncover bottlenecks and validate new market opportunities. To go beyond assessing performance and instead drive continuous improvement, procurement can also measure pipeline-based KPIs, such as stage-to-stage conversion rates and timelines, employee efficiency and dollars saved. These critical KPIs will provide metrics that indicate an overall direction of progress for operational efficiency.

To best track progress, procurement should identify and measure the following seven operational KPIs:

1.     Rate of opportunity creation
2.     Percent of purchases in budget
3.     Project inbound versus complete/cancelation date
4.     Project duration by state (from input through close to review/renewal)
5.     Efficiency per employee and group
6.     Supplier volume/percent of contractual commitments
7.     Financial impact:

  • Addressable spend under influence
  • Savings versus addressable spend
  • Percent savings on sourced spend

In order for procurement teams to measure and assess performance against pipeline-based KPIs, innovative tools and platforms are required to define and optimize processes, strategies and improvements that make sense for the business. When operational KPIs are in place, teams will step up and start measuring strategic KPIs. Once they do this, the sky’s the limit when it comes to driving innovation.

Affirming procurement’s new reality as a strategic player

As procurement adopts — and adapts — the pipeline model that so successfully transformed sales organizations in the early 2000s, it will be able to provide more efficient, effective and measurable value than ever before. With a new mindset and the right tools to support it, procurement is headed for an exciting transformation. But as scary as that might sound to some, moving beyond the traditional goal of cost savings to enable far-reaching initiatives and benefits will ultimately help procurement drive company-wide success and occupy a more strategic and consultative role in the broader organization. And who can argue with that?