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Getting the most from procurement: Part 1 - procurement as the focal point for strategic supplier management

Guest article by Simon Appleyard and Gerry Bolton, independent consultants in the Finance, Procurement and Shared Services sectors.

It is not actually that difficult to imagine the digital future of Procurement, and in this 3-part series we take you through the stages of how to get the most out of your Procurement function. In this part, we focus on Procurement as the focal point for strategic supplier management.

As organisations increase expectations around what they want from strategic procurement, they are challenging not only the role that the function plays today but also the role that will be expected of them tomorrow. In most of the organisations that we work with, Procurement operates as a subsidiary function to Finance (the notable exceptions tend to be organisations where direct Procurement is core to business activity, e.g. Retailers) and is often treated as a ‘second-class citizen’. Heads of Procurement seldom have a seat at the top table and the Finance Director seldom has a procurement background. As a result, the strategic direction of the Procurement function is often limited.

Addressing this situation involves asking questions about the value a Procurement function should really be bringing to the table in the digital world. The answer, we would propose, is that of a function that truly recognises and drives opportunities for change within the organisation and then supports enablement of third parties to add value to the organisation. In a digital world that is ever more inter-connected and where the pace of change is ever accelerating, there is a need to track and understand the additional value an organisation’s partners and suppliers can offer.

In some organisations, Partner Manager roles are created precisely to try and identify and work with those suppliers that are considered strategic and can bring additional value into the business. Where these exist, they often sit outside the Procurement function and, in fact, their presence decreases the strategic nature of Procurement as key partner interaction is removed, leaving the Procurement team merely operating as an administrative support function to those larger partnership roles.

To be truly strategic, Procurement needs to understand the solutions and capabilities that are available and how these might improve the organisation. This means staying close to the existing supplier base and working with them to understand when new products and services are available and how they can be accessed. The Procurement function therefore needs to truly understand the core functions within their own organisation and what the needs and opportunities are to enhance operational activity. Procurement functions too often sit too far away from operational delivery to achieve this aim and so are not capable of identifying when suppliers have wider offerings that could bring benefit. As a result, their value to the organisation becomes more restricted and the cycle of limited engagement continues.

We believe you can, and should, change the end-to-end culture so that Procurement and Finance leaders fully understand each other’s needs and the wider needs of the business. The aim is to create a position where strategic Procurement is proactive to the needs of the business rather than reactive to demand. This will improve cash flow management and, more importantly, position the Procurement function as strategic enabler of the business.

Read Part 2: Getting the most from procurement: Digitally-enabling the Procurement function.