Pain Points in Procurement Series
Focusing Beyond Cost in Procurement to Drive Value
Practitioners who are focusing beyond cost in procurement are shifting stakeholder mindsets about the value the function can bring to the organization.
By Hugo Britt | March 30, 2023
Welcome to Una’s Pain Points in Procurement series. Each week, the Una team will explore one of ten common pain points impacting procurement today, and put forth actionable solutions to each of these challenges.
In episode 100 of The Sourcing Hero podcast, our host Kelly Barner reels off a list of not-so-flattering nicknames for procurement she’s encountered that would make any purchasing professional wince. Two that really stood out were “bean-counters” and “penny-pinchers”.
Ouch.
But is it the profession’s own fault that we’ve gained this reputation due to an over-focus on cost reduction?
There will always be stakeholders who are miffed that they have been blocked from purchasing the most expensive product or service, but placing the entire blame on grumpy colleagues would be a mistake. The truth is, sourcing heroes can do more to shift stakeholder and supplier mindsets about the value the profession can bring to the organization.
Wait – so we shouldn’t focus on cost?
Cost is, and should always be, a foundational part of procurement’s raison d’être. After all, the reason most organizations decide to create a procurement function in the first place is to bring control and order to the costs of doing business.
That’s why we’re urging the profession to expand the focus beyond cost to unearth other sources of value. And remember, there’s a very good reason to keep a firm grip on cost control while expanding procurement’s activity – those cost savings will be needed to pay for all the exciting new projects you’re planning to undertake.
Cost is, and should always be, a foundational part of procurement’s purpose but expanding its focus beyond cost will unearth other sources of value.
My CFO only cares about cost reduction
This is a common excuse for procurement teams who are struggling to move the needle beyond cost reduction. Reporting lines make a difference: if your function happens to report to the CFO, it’s likely that the overriding focus will be on driving savings for the organization through procurement efficiencies and spend compliance.
On the other hand, a CPO who reports directly to the CEO is more likely to align their team’s activities with a wider array of business goals such as risk reduction, sustainability, and diversity targets.
This situation demonstrates the importance of driving change from the top – progressive procurement teams will always find themselves swimming against the tide unless they can first convince the C-suite of their potential to bring new types of value to the organization. Create a business case for change, and remember to speak the language of your audience – CFOs will be unimpressed with vague promises but will pay attention if you can put a dollar figure on long-term value creation.
What should we focus on beyond cost?
Great question! We can suggest several areas that will bring exciting new sources of value to your organization, but it’s important that you choose to focus on goals that align with overall business objectives.
How? Start by keeping close track of changing business goals and priorities. These may shift more often than you realize; often in response to changing economic environments, customer expectations, or when there’s a change in leadership. Regularly review procurement KPIs to ensure each reflects not just a procurement goal, but an organizational goal as well, and conduct regular and ongoing “alignment checks” to ensure the team remains focused on the right things.
That being said, here are some areas for procurement to consider focusing upon beyond cost reduction:
Supplier relationship management (SRM)
Procurement can focus on building strong relationships with suppliers to improve communication, collaboration, and transparency. This can lead to better quality, faster delivery times, and more innovative solutions.
Additional resource: How to Prioritize SRM Activities
Risk management
Procurement can also focus on identifying and mitigating supply chain risks such as disruptions, delays, and quality issues. This can involve diversifying suppliers, developing contingency plans, and implementing quality control measures.
Additional resource: How to Manage Procurement Risk with a GPO
Sustainability
Procurement can prioritize sustainable sourcing practices to reduce the environmental impact of the supply chain. This can involve sourcing from suppliers with strong environmental policies, reducing packaging waste, and improving energy efficiency.
Additional resource: How to Put Sustainability at the Center of Your Procurement Strategy
Compliance
Procurement can reduce risk and improve the organization’s reputation by ensuring that all suppliers are complying with regulatory requirements, ethical standards, and social responsibility commitments. This can involve conducting audits, monitoring supplier performance, and enforcing contracts.
Additional resource: How GPOs Can Help Improve Procurement Compliance
Diversity and inclusion
Procurement can focus on promoting diversity and inclusion within the supply chain by sourcing from diverse suppliers. This can help support underrepresented businesses and create a more inclusive supply chain. Procurement can also work with suppliers to ensure that their workforce is diverse and that they have policies in place to support D&I.
Additional resource: Building a Business Case for Supplier Diversity
Innovation
Procurement can work with suppliers to develop innovative products and services that can drive top-line growth. By fostering a culture of innovation, procurement can help create new revenue streams and improve business performance.
Additional resource: 5 Ways to Drive Innovation in Procurement
Collaboration
Procurement can focus on collaborating with other departments within the organization to drive top-line growth. By working with marketing and sales teams, procurement can help identify new markets and opportunities to grow the business.
Additional resource: The Importance of Cross-Functional Collaboration
Market intelligence
Procurement can provide market intelligence and insights to other departments to help inform strategic decisions. By leveraging data and analytics, procurement can help identify trends and opportunities that can drive top-line growth.
Additional resource: Why Your Procurement Team Needs Supply Market Intelligence
There are several areas of focus that will bring exciting new sources of value to your organization. Choose to focus on the strategies that align with your company's goals and objectives.
Looking beyond cost motivates your team
By focusing on areas such as diversity and sustainability, the procurement team can feel a sense of purpose and meaning in their work beyond cost savings. They can feel like they are contributing to a larger goal of creating positive social impact, which can be a powerful motivator. A more motivated team can be a game-changer in terms of productivity and retention.
Focusing on new areas of value can also provide opportunities for professional development and growth. Sourcing heroes can gain new skills and knowledge in areas such as sustainability, risk management, and supplier diversity, which can help them advance their careers.
Joining a group purchasing organization will help you save money, time, and effort, allowing you to focus on uncovering additional sources of value for the organization. Contact us to discuss how a GPO can help you meet your goals.
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