Cultivating Procurement Value

Explore Benefit of Cultivating Procurement Value

PurchTips Edition #431

Cultivating Procurement Value
Procurement Functions are a critical part of Supply Chain Mechanisms. They will continue to be, despite serious trending challenges posed by the Modern Business Environment. With that said procurement leaders are mandated to cultivate a culture of value in the procurement function.

For matters of expediency, I will define the Procurement Function as the process of translating customer requirements into the selection of highly capable suppliers, to timely, accurately, cost-effectively deliver high quality, mission critical inputs and raw materials to internal customers. As well as assuring the accurate receipt and timely payment of all accrued invoices.

For further clarification, we will define “Value” with respect to its place in business activities. Value has three components:

  • All activities in an organization are done right the first time.
  • There is a physical transformation of inputs from one stage to another to useful products and services.
  • The customers (end users) are willing to pay for the said outputs.

The great benefit of Cultivating Procurement Value lies in the following areas:

1.) Laser Focused Understanding of Customer Requirements: This is the most critical aspect of the procurement function, as it is the underpinning of the function itself. Procurement leaders must understand and align their activities to customer requirements and value creation. Procurement Department Performance Metrics must also be aligned to customer requirements. This alignment with ensures customer loyalty and profitability.

2.) Alignment with Stakeholder and Strategic Business: Procurement leadership must assure the alignment of their processes, activities, and metrics to their respective corporate objectives. Special care must be taken to understand, collaborate and support the interests and goals of key business stakeholders. Synergies must be identified and shaped into effective business models. The realization of these synergies can create tremendous value for businesses if they are aligned with customer requirements.

3.) Effective Cost Reduction Mechanisms and Best Practices: Procurement Cost Reduction Mechanism is a profound topic, but we will address this briefly in this article. Utilizing a robust Annual Strategic Buying Plan is the most critical element of cost-effective processes. Essential elements of a good buying plan are, alignment to corporate strategy, stakeholder buy-in to the plan, supplier performance management, total cost of ownership tracking, risk management processes, robust innovative technology and benchmarking.

4.) Assurance of the Ontime Delivery of High-Quality goods and services: This is probably the Holy Grail of the procurement function. The continuous and timely acquisition of inputs to the be converted into useful products and services is the fundamental purpose or mission of the procurement function. Failure to rise to this challenge will spell certain doom and loss of value and respect for procurement departments.

5.) A Culture of Continuous Improvement: This is a powerful method to cultivate a procurement value. All aspects of procurement systems must be continuously monitored and improved. This means that the technology, processes, skills sets, workflows, metrics, suppliers, must be defined, evaluated, analyzed, improved continuously.

Caveat: The rise of Artificial Intelligence, Robotics, Blockchain are all technology that can be leveraged to realize procurement value. Procurement leaders can add even greater value to their initiatives if they assure that all the goods and services procured, are Eco-Friendly and derived from Socially Responsible means.

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Procurement Value Creation Workbook

Procurement has an incredible capability for creating value and can do so in many ways. Unfortunately, many senior executives – and, admittedly, even some procurement professionals – do not understand all of the ways that procurement can create value.

In this workbook, you’ll learn 10 ways that procurement can create value and be challenged to formulate your own ideas on how you can create procurement value for your organization. Download a free copy of the Procurement Value Creation Workbook

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Copyright 2019. This article is the property of the Next Level Purchasing Association and may not be copied or republished in any form without the express written consent of the Next Level Purchasing Association. Click here to request republishing permission.

By David Millington, SPSM, SPSM2, SPSM3 - Director of Education (Next Level Purchasing Association)

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