Mapping The Road To Profit From Procurement
Over the last twelve months, strategic cost-cutting has climbed the C-Suite agenda, with continued economic turbulence throwing into focus the need for better business proficiency.
Organisations are realising that an effective procurement function is no longer a ‘nice to have’ back-office function, but a sole entity to add genuine and tangible value to their businesses. Companies that oppose silo mentality and work to break down departmental barriers can make far better use of the procurement function, say Efficio experts and authors of the newly launched PROFIT FROM PROCUREMENT.
So now that we’ve highlighted its importance, how can businesses get from point A to point B, moving from where they are today to a place where procurement is optimised to deliver significant year-on-year benefits to the business? Finding the right starting point can create a stalemate before the journey has even begun.
A concrete and realistic plan must be put into place before the C-Suite can even begin to think about embarking on the road to profitability. The said plan must have clear objectives and agreed actions amongst all it pertains to, and the process cannot be rushed. To drive real impact, organisations should anticipate a lead time of at least 18 months, and with this extended timeframe comes the need for the CPO to monitor the programme and ensure it delivers its intended effects, demonstrating its value to maintain stakeholder engagement from beginning to end. Only once a high impact, high visibility and cross-functional plan is resourced can the profit potential of procurement be realised.
First things first – use your ears more than your mouth
When embarking on a procurement transformation mission, getting to know the key stakeholders involved will be a crucial first step to getting the project off the ground. Whether that be the CEO, CFO, functional heads, or business unit heads – the CPO must take the time to listen and understand their expectations, needs, and requirements before a vision for the road ahead can be formed.
Suppliers are often forgotten in this mix, yet they are equally as crucial. Questions need to be asked, such as – what improvement options do they see? How could they help us to reduce costs? And how can we help them in return? What each stakeholder wants from procurement, and where they see value will likely differ, so it is important to have all cards on the table upfront. Not only should these considerations sit at the heart of your plan, but they can actually assist in making it a reality.
Eyes on the prize
Number one on the list needs to be a clear and distinct vision. Though the outcome of your endeavours may seem pre-defined – such as, to cut costs and release profitability – the scope of this can span as wide or as narrow as you’d like.
It’s time to consider how far you want to stretch this outcome, and the only way to determine this is to ask yourself, “what does the next level of procurement look like in my organisation”?
Naturally, this procurement vision must link back to the business’s overall corporate strategy. If the business is looking towards aggressive growth, for instance, procurement should help facilitate this by aiming for scalability. If the strategy is to rapidly digitise, procurement can play a part in digitising the supply chain.
As part of this vision, the CPO must also consider their desired role and remit. For example, how do you see procurement’s way of working changing? How do you see your procurement people interacting with the rest of the business? What do you want your suppliers to say about you? Once defined, a clear ambition can keep Procurement Transformation on track and aligned. Without it, and with every stakeholder having varying needs, the desired outcome can quickly become lost.
Plotting a practical, well-designed progress plan
The vision is in place; you’ve invested time into listening to your customers – you’re ready now, surely, to think about how you might get there…? Hold your horses – this is the time to consider the multiple aspects of procurement – the people, processes, and the organisation that establish where you’re currently at. Consider this your baseline, from which a roadmap can then be developed on discretion and will require set objectives along the way to keep the journey on track. “House of Procurement tools” can be particularly effective here – such frameworks break down the procurement function, marking them against a benchmark of bad, average, and good. By plotting against this framework, you can tackle transformation in chunks, setting concrete objectives as a sub-factor level.
After establishing your current condition – or position – your goals can then be plotted toward the other end of the roadmap, along with the actions necessary to get there. The activities that matter, along with what people are doing, should be reviewed by the CPO, questioning whether these tasks are having any significant or meaningful effect. This might involve reorganising the current team structure, upgrading its capability, or investing in supplementary strategic procurement resources.
What’s critical to note is that as much as this plan must be detailed and finely tuned. It must also be realistic, and it must be actionable, or else it will all be in vain. Grand ambitions without well-laid plans on how you’ll achieve them are useless after all. Transformation, high impact or otherwise, cannot and will not happen overnight, so organisations and those at their helm must be sure to build and examine their roadmap in smaller, manageable chunks, ensuring nothing falls between the cracks. Milestones to aim for at three, six, and nine months, and so on, contribute better to the overall picture than a huge, distant goal a year and a half down the line. Having the discipline to plot and execute a plan in such granular detail is no mean feat – but that’s entirely the point. Frontloading this work early on saves time, effort, money, and disappointment. A concrete and realistic plan is the basis upon which the procurement team can jumpstart transformation.
But what’s to follow? Buy in from the rest of the business of course. After all, a plan can only be successful once it has board-level approval and sufficient investment. In part two of this series, Alex Klein will explore the stages that follow, including: developing a savings execution plan, building a business case for procurement investment, and ensuring programme structure and governance.
About the author:
Alex Klein is COO at Efficio Consulting and the author of PROFIT FROM PROCUREMENT: How to add 30% to Your Bottom Line by Breaking Down Silos with Efficio colleagues Simon Whatson and Jose Oliveira, published in 2021 by Wiley.