How to Transform Procurement From Cost Center to Profit Center

Omid Ghamami, CEO of the Procurement and Supply Chain Management Institute, says it is time for the entire procurement community to “wake up” and rethink their approach to cost savings. 

Procurement’s default strategy is – and has always been – to look externally for savings either by pressuring current suppliers or putting a contract out to bid. But, says Omid, while this is one approach in procurement’s toolkit, procurement can often deliver better, more sustainable savings results over the long-term by looking internally at specifications, requirements, and project demand.  

With over 30 years of procurement experience, Omid works with Fortune 500 companies across 29 countries to help them transform their procurement organizations from a cost center to a value-adding center of profit. Omid is one of the leading voices calling for a paradigm shift in how procurement manages internal and external expectations and relationships to provide value to the business. 

Transforming from cost center to profit center

Here are a few of the reminders Omid shared as part of his recent interview on The Sourcing Hero podcast - ways to challenge traditional procurement thinking and redefine what it means to be a sourcing hero.

The supplier isn’t procurement’s only source of savings

Procurement instinctively looks to supplier negotiations for cost reductions, but Omid says that the business itself represents the most potential for untapped savings and value creation, particularly in how they approach demand. 

“We have been hammering suppliers for better deals since the invention of currency, but how many times can you keep going back to the same supplier year after year to say, ‘Make less money so we can report more savings’? We should always do that, but it is not where the money is. In fact, we have found, working with clients, on average 18 percent savings by focusing on the articulation of the demand” inside the business, he said.

Procurement is so much more than a ‘policy enforcer’

To unlock these internal savings opportunities, how the business perceives procurement and the way procurement interacts with other business units can make all the difference. According to Omid, procurement needs to shift from being perceived as policy enforcers and instead aspire to be recognized as trusted strategic advisors that can help each department achieve its own objectives while simultaneously aligning with the wider goals of the business. 

“Instead of talking about [procurement policy], we need to focus on business unit objectives and business unit problems. If we put our focus on that... then the business unit will start to engage us early – not because they have to due to policy but because they want to, because it makes them better."

Stop undervaluing your suppliers' expertise

Many people in procurement assume that all solutions or answers must come from within the organization: problem-solving inside of a vacuum. Instead, Omid says, procurement should recognize the expertise, experience, and market knowledge that suppliers have and regularly and proactively tap into their knowledge. 

"There is no problem that a business unit is trying to solve that has not already been solved outside of that company 10,000 times already. There is no reason to try and invent the solution in-house – absolutely none. But guess who has the greatest insight to how these problems have been solved before? Suppliers. Instead of paying the big four consultants a million dollars to go and research this for you, just ask your suppliers,” he said. 

Soliciting ideas from suppliers who most likely have broader and deeper market exposure than your own internal team can allow procurement to tap into new knowledge and potentially shift performance accountability to the suppliers.

Supplier relationship management is never the goal

Performance is exactly the end goal procurement should be focusing on when it comes to suppliers, says Omid, not relationship management. 

Supplier relationships are important, he says, but they’re just a means to an end – the “end” being improved supplier performance and value delivery. Procurement needs to move away from an overemphasis on Supplier Relationship Management (SRM) as a stand-alone pursuit and focus their attention on Supplier Performance Management (SPM).

"If the wheels are falling off the bus in procurement, you can't tell the COO or chief procurement officer, 'Don't worry! We have a great relationship with our suppliers.' That is not the goal." The goal, says Omid, is supplier performance, and while strong, transparent, and collaborative relationships can help get you there, they should only be prioritized and measured as one subset out of many that will lead to strong supplier performance.

Sourcing "losers" versus sourcing "heroes" - what's the difference?

When procurement is thinking about the best strategies and practices to grow their influence and impact within the business – to become sourcing heroes – it’s just as important, says Omid, to contemplate what not to do. He names two specific pitfalls that hold procurement leaders back from becoming true heroes within their organizations: 

1. Only having “one-year experiences 20 times,” or repeating the same processes learned early in your career year after year without evolving or innovating. 
2. Constantly seeking approval for new ideas and over-relying on management review committees or teams for buy-in before taking action. 

“The sourcing loser is someone who waits for someone to crown them,” said Omid, “while the sourcing hero is the one who is unafraid to crown themselves. A sourcing hero finds innovation, talks to people outside of their company and has found that they’re able to achieve something by doing X or Y or Z, and then they just go do it.”

According to Omid, sourcing heroes also excel at influencing without relying on financial leverage: “The ability to influence is the most important skill that defines the success or failure of procurement professionals.” 

The path to becoming a sourcing hero lies not in waiting for approval, but in taking bold, innovative action that delivers measurable results for the entire organization. 

By embracing these paradigm shifts – from internal savings to supplier expertise, from policy enforcement to strategic partnership, and from relationship management to performance focus – procurement can truly transform into a value-driving powerhouse.

For more of this conversation, listen to Omid's full episode of The Sourcing Hero here: