Before streamlining your procurement process – ask yourself these critical questions
A well-oiled procurement process is a critical component to organizations large and small, local or international. But, as companies involved in procurement already know, achieving an efficient streamlined procurement takes hard work, time and resources.
Streamlining a procurement function – an often complicated and nuanced mechanism – isn’t an off-the-side-of-your-desk task, to be sure. Streamlining procurement is an easy thing to say, not necessarily an easy thing to accomplish.
But assuming the key factors of time and resources are in place – how does an organization begin streamlining its procurement process? What questions need to be asked to achieve this goal?
According to a report published by consulting giant PwC about streamlining procurement, there are a number of important questions a firm must answer before attempting to streamline procurement.
First things first – at what stage of maturity is your company’s procurement function?
1) The Informal Stage
- Your focus is on purchase transactions
- Your primary measures are purchasing budget and price variance
- Procurement is still a backroom function
- The primary role is buyer
- There are limited systems
- Distributed organization throughout the business
2) The Control Stage – Global Leverage
- You have streamlined the basic procurement practices
- You are reducing your supply base
- You leverage common suppliers for basic commodities
- Most of your service management is based locally
- You believe the primary skill of purchasing is negotiating
3) Integration – Commodity Management
- You have cross functional commodity teams
- You have designed global coordination of your procurement function
- You view procurement as a strategic function
- You use a wide variety of sourcing levers
- Your procurement function is systems-enabled
4) Optimization – World Class
- You have established tight linkages with R&D and service departments
- You have established active supplier management programs to drive continued improvement
- You use highly automated systems
- You employ continuous supply market research and testing
- You routinely use the best cost sources of supply
So, then what?
Once you have established the phase of procurement your business is in, it’s time to decide how you wish to improve it. And once again, PwC provides excellent guidance on how a firm can proceed in streamlining procurement.
And just as there are myriad questions to be answered initially, there are also a number of potential routes on which one can proceed.
Options to businesses include:
- Maturity assessments
- Cost reduction and opportunity identification
- Procurement organization design
- Specific category sourcing
- Business case development
- Target operating model design
Because a procurement function is an important part of a company’s day to day, PwC recommends asking a series of question about your procurement department on a regular basis to ensure its working at an optimal level.
Those questions are:
- Is procurement working effectively with the business units to support the company’s strategy?
- Can we report on spending by category (materials, technology, services) in an accurate and timely manner?
- Do we have a 12-month plan to reduce our addressable operational expenditure significantly?
- Do we manage our third party suppliers strategically and do we measure the value they add to our business?
- Do we negotiate effectively with our suppliers with a focus on value?
- Do we have different buying regimes for everyday items and specialized, cross-functional equipment?
- Does Procurement have a seat at the table for important investment and design conversations?
- Do we have a business risk recovery strategy in place to ensure business continuity?
Clearly, streamlining procurement is a complex procedure that requires a lot of work even before a business chooses on its preferred methods for optimization.
But procurement is a critical aspect of any striving business. By choosing to not streamline a procurement function, a business runs the risk of losing money and time.
“Without a mature, strategic procurement function to influence, control and report on organizational spending, it is impossible for a business to fully leverage its total purchasing power and create the value and service levels required from third party suppliers,” reads the PwC report.
Can you risk it?