The concept of “best practices” – regardless of industry – is a fluid one. The methods and practices that work during one period may not work during another. Business changes and so must our processes.
The procurement function is a perfect example of the changing nature of a corporate department and the evolution of the responsibilities expected by those working in the field.
In the past, procurement had a relatively simple mandate: focus on cost reduction and risk mitigation. Get all the necessary goods/products for cheap. Make sure everything is on hand, at all times.
Procurement today, however, has a much more nuanced role. And to match that more involved existence, a set of new procurement practices has been established. Of course, no two procurement departments are created equal, so the best practices one department uses may be slightly different or, rather, tailored differently than those used by another procurement department. New procurement processes and new procurement approaches are now needed to keep up with the way the industry is changing.
With that caveat in mind, here is a great set of new procurement best practices drafted by procurement specialists and consulting experts PwC.
- Rapid identification and prioritization of savings opportunities and improvement initiatives;
- Improved spend visibility;
- Procurement maturity profile and identification of improvement areas;
- Delivery of quick win savings (when applicable);
- Organizational alignment and integration with the business;
- Improved procurement responsiveness and agility to realize growth strategies;
- On-going value delivery by developing procurement capabilities;
- Reduction in procure-to-pay cycle time (typically 15 to 40%);
- Thorough selection, evaluation, and implementation of e-procurement applications;
- Improvement in performance management benefits tracking and risk control;
- Improvement in productivity of procurement professionals;
- Better use of IT to drive bottom-line savings;
- Reduction in contractual risk and off-contract purchases;
- On-going value delivery through supplier management;
- Optimization of operational, legal, and tax structures to align to business needs while ensuring delivery of tax benefits.
As the above list illustrates, the evolution of procurement has been wide-ranging. But although the new responsibilities and expectations may be vast, there is a unifying theme that underpins the near wholesale change: being an “active” rather than a “reactive” department.
Instead of simply ensuring the costs of required goods are as cheap as possible, procurement must be involved in all aspects of the business, and with suppliers as well. For instance, an entire organization must be aligned with procurement, and procurement must understand the needs and intricacies of other departments within an organization.
Treat your suppliers as partners
In regards to improving supplier relationship management, procurement departments along with supply chain executives and supply chain managers are now expected to have intimate knowledge of their suppliers’ business practices, and to treat them as partners aside from just suppliers. This helps businesses develop a more long-term relationship that will benefit the entire organization, and will have positive impacts on your procurement strategy.
Sustainability and social responsibility
The new era of supply chain leaders and procurement leaders should now think about ethics. Does a supplier’s business philosophy match that of the buying organization? Does the supplier engage in any less-than-desirable practices?
In addition, another thing to consider is strategic sourcing – are the service providers sourcing the materials ethically? It isn’t enough to just keep total costs low – a procurement department must be involved in many different facets. And that evolution is the basis for new procurement best practices.