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Vital steps for strategic procurement

How can your enterprise become smarter? There may appear to be no quick fix — but when key people put their heads together you can begin to transform the way you buy and pay for goods and services.

Just out of reach
A Proactis survey of decision-makers at a range of organisations hit upon an interesting statistic: Almost a third of all recipients identified that improving their analytical capabilities was their best opportunity for realising rapid and direct cost savings.

In other words, fast returns were possible...but just out of reach.

Aside from quick wins, decision-makers were also aware that other gains more generally were there for the taking too: 77% of survey recipients felt that there were either 'significant' or 'many' opportunities for improvement within their Strategic Procurement.

It's no surprise. Many people working in Finance and Procurement are only too aware that improvements could be made within supplier relationship management, sourcing and contract management activities — but they lack the tools not only to enforce key changes in an effective way, but even to find the evidence in the first place.

Working in the dark?
Strategic procurement can be fiendishly complex, especially when essential information is trapped in silos across the business, on spreadsheets and in paper records.

This can prevent even the simplest of questions from being answered: How much do we spend on product A? Which of our suppliers provides the best service levels? And which areas are most vulnerable to risk and compliance failures?

It's only by getting clear, up-to-the-minute answers to questions like these that organisations can make more intelligent decisions, boost their agility and thrive within the digital economy.

Further analysis shows procurement surplus
Analysis of over 3,200 procurement exercises by Proactis customers also revealed that Procurement teams typically run a surplus of around 7% of their annual budget, and the average procurement exercise yields contracts worth 93% of the original budget allocated. Over one in ten procurement processes (13%) don’t yield contracts at all. This analysis suggests a valuable ‘secondary surplus’ now exists within Procurement teams, which are increasingly tasked with driving cost reductions and adding strategic value to organisations.

The drivers affecting decision making clearly differ between teams, but many can be determined by a combined company strategy. Is preserving cash the focus or are there opportunities to invest in the business? This is just one example of why Procurement and Finance leaders can benefit from close collaboration.

Meeting of minds
The Proactis research stumbled on a startling fact — many organisations have yet to see full engagement between department leaders. CFOs are failing to work hand-in-hand with senior procurement people at 46% of enterprises.

Without the purchasing knowledge of the Head of Procurement combining effectively with the spend control acumen of the CFO, organisations aren't thinking straight. There's a risk they lose perspective and then repeat the same mistakes in the Purchase-to-Pay (P2P) process.

However, when CFOs work closely with their Procurement counterparts, then purchasing policies become smarter (greatly helping the down-stream AP process too), contract negotiations take on extra rigour and supplier management can become a finely-grained process. Positive changes boost the bottom-line in a direct way.

Putting great ideas into practice
It's also vital that CFOs use their sphere of influence to gain organisational support for strategic procurement initiatives. Unfortunately, this is only happening in the fullest sense in less than one third (32%) of enterprises, according to the Proactis research.

In particular, CFOs need to join Procurement in the sourcing and championing of the right systems to drive spend intelligence. Without highly-responsive, web-enabled tools and processes, neither department will have the tools required to identify areas for improvement and deliver exceptional outcomes. A lop-sided choice of system is a guaranteed lose/lose for everyone.

However, with the right solutions, Finance and Procurement can succeed in automating routine activities, eliminating redundant effort, empowering people with key information and ensuring compliance with policies. Trustworthy business insight that they need becomes available — and so do the tools for optimising the P2P and AP processes.

Collaboration pays off
Getting Finance and Procurement working closely together at a strategic level can provide the spark that leads to ultra efficiencies, deeper insights and astute policies that give you the edge. A joined-up approach to strategic procurement is the smart thing to do.

​Joining Forces Research: Why Procurement and Finance must work together to thrive in the digital economy.