Transformation is a thought that most procurement professionals have on their minds. Tools and applications are evolving and getting more advanced.
More professionals are entering the workforce. This has reflected on procurement teams getting more recognition on the role that they towards the business bottom-line. It’s an exciting time and procurement will play a key role as a new corporate ear awaits.
However, is procurement transformation a realistic goal for all businesses?
There is no simple or direct answer. Procurement transformation does not have a clear and lucid definition. It could be something different for different businesses. It would be relative based on the current state of the business. The future goals of the business would also affect its importance. Some businesses may realize its potential and pour in some investment. Some might not.
It’s more about vendor management and not just creating things. We need to evaluate what things constitute an ideal IT procurement process.
Procurement needs analysis of all business requirements. It has to gauge requirements, its potential value, the future that would be needed, and the problems that need to get solved.
CIOs agree that vendor decision making criteria should include a mix of value, price, Company reputation, quality, and support.
What steps should be taken to achieve procurement maturity? We first need to what stage the is business at currently. Most businesses experience similar problems that occur at comparable stages in their development while moving towards maturity. Identification of the current stage is the first step. Current challenges can then be assessed. Businesses can invest time and effort. This will help to decisions and reach procurement maturity. accordingly.
Five Stages of Reaching Procurement Maturity:-
Does the business have ‘spend visibility’? This is about having a clear idea of what the business is buying across multiple categories of spend. Who are all the vendors shortlisted and the amount spent per party? Some businesses which have not automated their processes might not be in a position to create accurate assessments. If visibility is an issue, an exercise to identify categories needs to be done. Spend analysis and vendor fit can be derived to drive efficiency. Cloud-based spend management platforms are available to simplify this process.
After a visibility analysis, a business can sense which areas can be focused on making changes. The following actions can be considered.
- The business can implement revised spend control limits.
- It can restrict the authorization of people in the business who care permitted to purchase from selective categories.
- It may renegotiate contracts to deliver optimal value.
- There can be a preferred vendor list to be followed to achieve cost benefits or economies of scale.
The above steps might sound simple. Some businesses might get trapped in this phase. Awareness of the problem might be there. But it may lack resources to take care of it.
Any user procurement portal can help. A business could use any standard web-based spend management to gain control immediately.
A business now knows the spend levels and have also implemented controls into its procurement process. The need of the hour is maximizing their use of resources. A business must ensure it has achieved efficiencies. It can then automate business processes and enter the next phase.
In this phase, a business should be able to release procurement staff time from mundane and administrative routine. Staff should devote energy to engaging with vendors. When staff operates with more of a service-oriented mindset, it adds value to the organization.
Savings / Benefits
A business at this stage should target possible opportunities that are getting bypassed due to ineffective vendor collaboration and management. This would help maximize savings and discounts. This is the phase where the number of suppliers can be reduced. There should be a focus given to vendors who can offer the highest value to the business.
In this phase, technology plays a very crucial role. It can provide a precise intelligence report. These reports can then be utilized to create a collaborative vendor management system.
Supplier transactions need to be tracked. Suppliers must also be rated based on performance. This will enable the business to generate a vendor profile over time. This leads to effective engagement and buying decisions. Ultimately, this results in benefits and savings for the business.
Value creating is nothing but the provision of better and possibly more flexible service to customers of the business. It is also about providing a more efficient process for its employees.
The price may be an important facet before the deal gets sealed. However, many businesses are not always bargaining and settling down for reduced prices only.
Many a time, what could be more important to a customer is the overall value that their vendors bring to the table. It is also dependent on how the vendor delivers on its promise.
This is the phase that the procurement team has its focus well defined. It aims for flexibility. It needs to be in complete alignment with the business goals strategy. Most importantly, it seeks to drive value throughout the business.
In theory, every business would want to be in stage five. This is more often than not, a very tall order. It is generally not a very realistic dream for an average procurement team. A business needs to undertake a well-defined maturity assessment exercise. This will enable procurement teams to arrive at a concise understanding and state of current operational capacity and capability.