Procurement Strategy Results in Increased Efficiency
Having a detailed plan can streamline any process, including procurement. Here’s how a smart procurement strategy can result in increased efficiency.
The role of a procurement director includes a variety of duties and skills necessary to ensure departmental success. Responsibilities commonly include planning and coordinating buyers and purchasing agents, securing purchasing deals, evaluating suppliers, managing and reviewing relevant data, and overseeing staff and pertinent activities in your department to operate according to schedule.
Efficiency is a top-tier ingredient for measuring your strategy’s effectiveness. If your procurement strategy lacks efficiency, there are bound to be gaps in its effectiveness as well.
For a procurement department to maintain professional value it must consistently meet expectations. These expectations are largely dependent on optimizing timely production.
A smart procurement strategy centers around maximum efficiency.
Is your procurement strategy suffering when it could be thriving?
Creating a plan for increased efficiency could bolster your procurement strategy and create powerful results.
The Path to an Improved Procurement Strategy
Today’s companies are in constant pursuit of perfecting their procurement strategy. To do this, many professionals look at what has worked historically and then attempt to capitalize on past efforts that have resulted in success. Others narrow down their focus to include key elements where improvements might offer substantial benefits.
Neither of these approaches should be discounted when it comes to developing an optimal strategy.
But, both approaches can and should be geared towards increased efficiency.
Another area that could benefit procurement’s efficiency is that of digital technology.
A recent report released by Accenture maintains that the procurement industry while seeking to modernize, has still fallen short in embracing the digital revolution. Meanwhile, other industries have reaped extensive gains from using digitization to improve their strategies.
The report theorizes a couple of reasons that this department has lagged. This includes failure to resourcefully grasp and use tools for such advances. Also suggested is a lack of attention or investment by procurement professionals needed to take advantage of digital perks available.
So, how can your procurement strategy make the best use the methods already in place?
In addition, how can we draw on the areas that have been largely ignored, such as digitization, to form the most efficient approach?
And, where could the implementation of altogether new ideas and techniques best serve this industry’s strategic approach?
The emergence of procurement in the 1990’s was usually best known for purchasing and maintaining inventory. At that time, it served as a business’s tactical unit, responsible for submitting purchasing orders and identifying ways to cut costs. The primary role of procurement a quarter century ago was purchasing, and duties that fell under this same category.
Today, a business’s procurement strategy typically encompasses a much larger scope than its early days.
The departmental role has since been modified to include highly skilled functions such as forecasting, inventory management, strategic sourcing, diversity spending and risk modeling.
The typical responsibilities of modern procurement specialists are far more complicated than they once were. That’s why it is crucial that businesses redefine their approach to maintain their professional fitness.
Industry experts warn that despite the availability of new tools, products, and professional procurement consulting services, most businesses have remained content with the status quo. As a result, they are sacrificing effectiveness and efficiency in this area that has become increasingly vital to a company’s overall productivity.
In other words, building the most efficient approach for today’s procurement departments might not be best served by following models that were successful in the not so distant past. The most effective approach must be redefined to include a modern-day definition of what a successful procurement strategy looks like.
The Hackett Group, a research firm dedicated to studies related to effectiveness and efficiency, performed a recent study to identify the strategies of world-class procurement performers. They found that those who met these strategical benchmarks enjoyed “The World-Class Performance Advantage”.
The study found that world-class performers had a procurement cost that averaged 18% less and 28% fewer FTEs than others. This could potentially result in an average savings of $5 million dollars for a company whose typical revenue was a total of $10 billion dollars.
Researchers claimed that five major strategies could be used to mark effectiveness and efficiency in procurement: Adoption of a Formal Delivery Model, Application of New Digital Technologies, Advanced Analytics, Customer-centric Design Services and Processes, and finally, Staff Dedicated to Performing Strategic Rather Than Transactional, Compliance-focused Activities
For many businesses, however, measuring their personal progress towards these strategic goals may be complicated.
If you are looking to further simplify the necessary steps to achieving “world-class” procurement, you may be interested in detailed suggestions for improving your strategy.
These tips will help guide you to actions that produce real progress.
Many more professionals would be willing to take the steps towards an improved approach if they were given clear direction. That’s why we’ve put together these suggestions to help you know exactly what steps to take for improved efficiency.
1. Examine Expenditures
Digital automation has made many tasks easier, improving cost and time effectiveness. But, there are times when it could be causing you to spend in areas that you shouldn’t.
Regular examination of your spending can curb unnecessary costs, and although this may seem like a time-consuming task, in the long run, it can save your company both time and money.
For example, are certain supplies that were once considered essential now being stockpiled? Have certain items on an automated purchase order list been replaced by with a more efficient, modern method?
This is often the case when a company transitions to check image or digital document storage. The mother load of paper, copier ink, and file cabinet storage is no longer necessary. But, sometimes the orders never make the switch to the updated way of doing things and as a result, money continues to be spent on items that are no longer needed.
A successful spend analysis may be necessary to “trim the fat” and achieve the greatest gain.
Once you have examined expenditures and inventory, then you should have a good, clearer idea of those items that can be automated.
Automation is an obvious time saver, but it’s only effective when it is used wisely. For items that you know must be ordered according to schedule, automation is a given.
Review your inventory. Note these must-have items and put them on auto. It saves time from making monthly individual orders, but it also ensures that you don’t run out of stock of your most-critical supplies or merchandise.
One of the most underused, yet valuable tools of modern-day procurement is the digital resources that are available for today’s procurement professionals.
For a procurement strategy that reaps the benefits of digital procurement, industry experts recommend following these three steps:
Companies must first record why decisions are made during transaction processing.
Then, they must record transactions using these new, digital technologies.
Third, companies must look outside their own “data ecosystem” to guide “business decisions” rather than transactions alone.
While this may seem simple enough, the process relies on forming an intelligent procedure. This can only be acquired by professionals’ willingness to focus on their company’s data capacity, technology toolbox, standard policies and procedures, digital user experience and labor department’s talents.
When these steps are combined with the proper focus, the process will flow naturally and seamlessly. However, like all new ideas and procedures, one must maintain open to learning through action. Once the process is repeated several times, it will soon become integrated into your procurement strategy mindlessly.
Unfortunately, some professionals let the idea of learning a new method scare them away from digitization. But, learning the technology “tricks of the trade” will make the job easier once you grow accustomed to the steps. And, keeping up with the technological advances is a necessity if you wish to maintain a competitive level of efficiency.
In order to get the best deal, procurement managers who think outside of the box win the prize.
Chances are the “old way” of doing things has changed drastically in virtually every area of your department.
Often, we maintain the status quo far too long and only develop new approaches once we have little to no choice but to admit that the old way is no longer working for us.
The relationships that buyers may have settled into for years might not be the most rewarding, even if they do seem the most simple.
Global and internet trade opportunities often provide a much more reasonable cost and many times, a faster delivery, than our local or national providers. Sometimes, all it takes is some research matched with using negotiation skills to convince these providers to offer a better deal.
However, even when they cannot match a better deal that you find elsewhere, don’t be lured into staying when the relationship no longer benefits your company. Most suppliers understand your role and position and while they may be disappointed, they realize that securing deals is part of your job requirements.
If you have been in the procurement industry for much time, there is a good chance that your role has weathered a major shift. While resisting change is only natural for many of us, this mindset may prevent you from reaching your potential.
Not only that but whether we like it or not, change is bound to occur.
Today’s procurement strategy should be in line with the overall business theme. The department should operate with a customer-centric goal.
Cost reduction is still a major part of your position, but the most effective procurement director today maintains a well-rounded knowledge of the business goals and works to align their departmental goals accordingly.
Acquiring new practices can often be bridged with the services of procurement consulting professionals.
If your procurement strategy needs an update, professional consulting services may be the solution.
Procurement consulting professionals can help you establish a procurement strategy in your procurement organization to increase efficiencies, meet cost reduction goals, and increase collaboration.
Together, you can form an improved procurement strategy that is highly effective and more efficient than ever before.
The changes necessary to develop optimal procurement performance may very well require an almost complete overhaul. With the rapidly-changing industry landscape, it is not uncommon that these departments undergo major transitions to achieve their best strategy.
No matter where your procurement operations are, our professional procurement consulting strategists can help you get to where you want to go. We offer a variety of services that are customized to your business. And we work as a team to develop a tailor-made strategy that will work best for your business.