The procurement organizations continue to evolve as a core function within the top 500 Fortune companies and as world trade dynamics continue to challenge the supply chain, companies will need to focus on enterprise cost management to create added value that will contribute to the bottom line. As a result, companies announce transformation initiatives across organizational boundaries at all levels of their business as a reaction to market conditions, cost pressures, and regulatory requirements. A wide array of terms are used to describe change – transformation, optimization, lean, operational excellence, restructure, re-engineer, re-organization – however, inevitably most companies would agree that the ultimate goal is to gain business efficiency and improve operational effectiveness. Having achieved this, it will naturally yield sustainable cost reductions throughout the business operations lifecycle.
To this effect, the procurement function plays a key role in any organization transformation initiative, as cross-functional core processes are redesigned to link activities, functions, and policies in ways that will achieve breakthrough improvements in cost, quality, and timeliness. Together, these three forces represent the fit-to-purpose that the company must achieve to be successful. Nothing new under the sun, however, the question remains how to embark on a transformational journey that will balance and integrate these three forces into a cohesive transformation program. Hence, enterprise cost-management techniques can be applied to align corporate strategy and functional area execution to reap additional benefits such as: enhanced spend analytics to accelerate analysis, category-based sourcing strategies to leverage spend, risk-sharing to promote partnership, the total cost of ownership (TCO)-based decisions making and supplier network rationalization. Furthermore, as companies use hybrid systems to support the day-to-day procurement process, it becomes increasingly important to align people, process and technology to formalize goals, establish accountability metrics and drive external collaboration with partners and suppliers.
Among the external factors impacting the business are the nature of the market and supplier competency. This creates an opportunity to identify a supplier base that can become a strategic asset to the business and integral to achieving business goals. Suppliers are becoming a driving force behind innovation, capable of identifying innovative solutions through their broader business network across multiple industries. New ways of collaboration with suppliers are needed to develop suppliers into better future relationships. Therefore, categorizing the supplier base and establishing a Supplier Relationship Management (SRM) program is critical to a sourcing strategy that ensures continuous business alignment throughout the relationship life cycle. It also drives a disciplined approach and consistent way of interacting and managing suppliers which results in continuous improvement from the supply base.
As companies seek to transform their procurement function to radically improve the benefits to their organization, an integrated business strategy in a structured manner must be designed to optimize the acquisition of goods and services. This can be accomplished by an initial assessment of the organization purchasing maturity to design a tailored program that will deliver a competitive advantage by eliminating waste and inefficiency through detailed analysis, careful planning, strategy implementation, and continuous improvement. A transformation program needs to address fundamental issues related to internal processes, technology and spend data while conducting an evaluation of the procurement staff’s knowledge, capability, and capacity. Using this coordinated approach will revolutionize the procurement function and allow companies to capture untapped value.
A new vision for procurement organizations will make them become a major driving force within their companies. But this is just a starting point, a comprehensive approach coupled with intelligent spend engines and advanced analytics solutions are key to successfully transform the procurement function.