Introduction
Have you ever felt there’s untapped potential in procurement to propel the business to new heights? What if procurement wasn’t just about cutting costs and securing deals?
What if it could be the driving force behind the company’s growth – an epicenter of value creation?
Makes sense, right? It also probably sounds a little overwhelming. But don’t worry, we’ve got you covered. This playbook provides a guide to moving beyond old-school perceptions of procurement and becoming one of your organization’s most important sources of value.
Ready to boost business growth a goal? Let’s do it.
What Exactly *Is* Value Creation?
Fair question!
Value creation in business refers to the process of generating additional worth or benefits for stakeholders beyond the initial inputs or investments. It goes beyond mere profit generation and involves providing value to customers, employees, investors, and other key players in the business ecosystem.
The concept is fundamental to sustainable growth, competitive advantage, and long-term success.
Why does procurement need to move beyond cost-cutting to value creation? In a word: relevancy.
The business landscape is changing, and procurement isn’t the only profession witnessing the nature of their role transform. We’re seeing the tactical, day-to-day aspects of procurement increasingly automated as artificial intelligence gets smarter, meaning an old-school purchasing manager risks obsolescence.
Here’s what we mean by “old school”:
The old-school procurement approach was about cutting costs and not much else. But hey, times are changing, and more businesses are realizing that there’s a whole world of value creation waiting to be explored.
The exciting news is that the obsolescence of the old-school procurement pro has made room for a new type of Sourcing Hero: The Value Creator.
The Value Creator knows how to align procurement with business objectives and get the best possible impact from their procurement strategy. They know how to discover niches in the business where they can best add targeted value, and they see supplier relationships as a value-creating goldmine rich with the potential for innovation and competitive advantage.
Understanding Cost vs. Value
You’re not alone if you’re struggling to get a handle on the difference between cost and value in procurement.
Here are some examples of how a Cost-First Crusader and a Value-Creation Maestro might approach the same purchasing needs in different ways:
Office Printers
Cost-First Crusader
You're on a mission to save on printers. You snag a bunch of budget-friendly printers without considering the long game. Fast forward a few months, and the printers are gasping for breath.
Maintenance costs skyrocket, and the frustration level in the office hits an all-time high. Turns out, those cheap printers weren't such a bargain after all.
Value-Creation Maestro
Now, imagine investing a bit more in high-quality printers with a longer lifespan. These printers are not just speed demons; they come with a service plan that ensures minimal downtime.
When it's finally time to bid them farewell, they are recyclable, contributing to a greener planet. The initial investment pays off not just in the quality of prints but in lower servicing costs and a nod to sustainability.
Company Vehicles
Cost-First Crusader
As the fleet manager, decide to go for the cheapest company vehicles available. Sure, they get you from point A to B, but the maintenance costs start piling up faster than you can say "oil change."
Not to mention, they're guzzlers, and your fuel budget is through the roof. The initial savings pale in comparison to the ongoing expenses.
Value-Creation Maestro
You invest a bit more in fuel-efficient, low-maintenance vehicles with a longer lifespan. These vehicles not only serve the company well but also have lower emissions, contributing to your company's sustainability goals. When it's time to retire them, the core materials can be reused, closing the loop on their life-cycle.
The value here isn't just held in the initial cost but in the total cost of ownership, environmental impact, and overall efficiency.
Office Furniture
Cost-First Crusader
You decide to pinch pennies on office furniture. You go for the cheapest desks and chairs, and they look like a bargain at first.
Cut to a year later, and your team is groaning about uncomfortable chairs and wobbly desks. Not to mention, they're starting to resemble a jigsaw puzzle that's missing a few pieces. The initial savings turn into an ongoing headache.
Value-Creation Maestro
Picture investing a bit more in ergonomic, durable furniture that not only looks good but also stands the test of time. These pieces are not just comfortable; they contribute to the well-being of your team, reducing discomfort and improving productivity.
When it's time to bid farewell, they're easily recyclable. The value here isn't just in the aesthetics but in the overall comfort, productivity, and eco-friendliness.
The real hero understands that the story doesn’t end with the purchase.
It continues through the product’s entire life-cycle, including disposal, servicing costs, and its impact on sustainability. Some of the benefits are easy to quantify (like reduced servicing costs), while others, like increased productivity or employee satisfaction, are a little harder to pin down in a balance sheet.
In the end, the pattern is clear: while the initial cost may be a little higher, long term value beats short-term savings, every time.
Types of Business Value Where Procurement Can Make an Impact
Let’s explore the different types of business value and the ways in which procurement can contribute to each.
But first, remember there’s no one-size fits all approach to strategic procurement. Some of these areas will resonate with your strategic picture, but as a value-creator you’re best-positioned to judge where to invest your energy.
Let’s start with the customer.
Creating value for customers is the heartbeat of successful businesses. It’s not just about selling stuff; it’s about offering products or services that go above and beyond customer expectations.
Think solving their problems, fulfilling their needs, and doing it in a way that makes your business stand out from the crowd.
So, how can procurement help?
By actively seeking suppliers that bring innovation, quality, and reliability to the table. Procurement can be the driving force behind ensuring that what reaches the customers is top-notch and distinguishes your business in the market.
Get it wrong, and you’ll have out-of-stocks, one-star reviews, and grumpy customers who are quick to recognize poor value when they see it.
Innovation isn’t just a buzzword; it’s a game-changer. Businesses that constantly shake things up – whether in product development, processes, or business models – stay ahead of the curve.
By fostering relationships with suppliers who are at the forefront of their industries, procurement can actively seek out partners that bring fresh ideas, cutting-edge technologies, and a mindset of continuous improvement, contributing to the overall innovative edge of the business.
There are plenty of ways to do so, including a formal Supplier Relationship Management (SRM) program, better communication, innovation workshops, and more.
Nothing hurts a business so much as running out of something essential, such as a part that’s required for an assembly line.
To prevent the whole operation from grinding to a very expensive halt, procurement needs to stay one step ahead, figuring out solutions like uncovering backup suppliers, and lessening the blow when disruptions happen.
Happy employees, happy business. A positive workplace culture, opportunities for professional growth, fair compensation – these are the ingredients for a satisfied and engaged workforce.
Procurement can promote employee value all the way down the value chain by ensuring suppliers comply with fair labor practices, ethical standards, and employee well-being. We can play a role in building a supply chain that reflects the positive workplace culture you want to foster within your organization.
Show me the money!
Financial value creation involves optimizing the moolah – revenue growth, cost management, and profitability. This is where procurement really shines through negotiating smart deals with suppliers, optimizing costs, and minimizing maverick spending.
Procurement’s strategic sourcing can be the financial wizardry that keeps the business in a healthy financial position. And every dollar saved from the bottom line can be put towards business growth and value generation.
It’s not just about profits; it’s about doing good. Social and environmental responsibility are becoming business essentials.
How can procurement help? By being the ethical compass.
Procurement can actively seek suppliers with a commitment to ethical practices and sustainability. By making socially responsible choices, procurement contributes to positive brand perceptions, attracts conscious consumers, and plays a role in the well-being of communities and the planet.
There are hundreds of ways procurement can help the business go green, such as working with suppliers to reduce plastic packaging, carbon emissions, or water usage.
Efficiency is the name of the game. Efficient supply chains and streamlined operations reduce costs, improve quality, and make everything run like a well-oiled machine.
Procurement can generate value by stepping up and becoming the efficiency guru. We can optimize processes, choose suppliers strategically, and help ensure that the supply chain operates seamlessly. This efficiency doesn’t just cut costs; it enhances the overall productivity of the business.
And remember, every dollar saved by procurement can be put towards business growth opportunities like software investment or hiring top people.
A strong brand and a good reputation are like gold in the business world. They attract customers, keep clients loyal, and set the stage for growth.
How can procurement help? By being the guardian of quality, ethics, and compliance.
Procurement ensures that the products or services sourced meet the standards that uphold the brand’s reputation. Choosing reliable suppliers and maintaining standards contributes to building and preserving that trust in the market.
In a world that’s always changing, being adaptable is key. Procurement can help make this happen by building an agile supplier ecosystem, seeking vendors who are adaptable, responsive, and capable of meeting the ever-evolving demands of the market.
By choosing suppliers with a similar agility mindset, procurement ensures that the business can adapt, thrive, and maintain a competitive edge.
Procurement isn’t just about the here and now; it’s about predicting the future. By staying clued in on market trends and economic shifts, you can add value by guiding the business through the twists and turns of the market landscape.
How to Know Where to Best Add Value
Or, to put it another way, where should you start?
Start with your stakeholders.
Only by truly listening to your stakeholders and getting to know their goals, aspirations, headaches, and challenges will you be able to have that “a-ha!” moment, connect the dots, and uncover an opportunity to bring value to the table. Remember, one of the best ways to do so is to get involved in the discussion as early as possible.
If procurement is brought in at the very last minute, there’s little we can do apart from simply going out and sourcing the product or service. But getting involved much earlier opens up enormous possibilities for value-creation where you can suggest improvements, enhancements, better ways of doing things, and innovative thinking.
The Group Purchasing Connection
Group purchasing organizations (GPOs) like Una leverage billions in buying power and unlock a tsunami of value for our members.
What type of value? GPOs come alongside your existing strategies to complement and enhance the value you’re already working to create:
Una has a vast contract portfolio and relationships with suppliers that are established and stable to provide your internal and external customers with what they need to be successful. We partner with the best suppliers who understand the importance of innovation and continuous improvement.
And, because of the large number of contracts already in place – over 3,000 and counting – members have options when it comes to working with multiple suppliers to avoid supply chain disruptions and shortages.
Our sourcing advisors act as an extension of your procurement team, offering another layer of valuable expertise when it comes to all things procurement and spend management. Having this partner in procurement ensures your procurement team feels supported.
Members see an average of 18% to 22% savings across multiple categories when working with Una. Our most popular contracts have unmatched built-in price protections and our services are completely free of charge.
These savings can be reinvested in the business to supercharge some serious growth.
As a procurement leader, you can work with Una to establish sustainability goals and identify which suppliers within our portfolio qualify as diverse or have diverse capabilities and meet your unique requirements.
Our goal is to help you work smarter – not harder – and find the path of least resistance to savings. Utilize Una and eliminate the need to search for suppliers, bypass the RFP process, skip contract negotiations, and reduce the time it takes to source to things you need.
When employed properly, a GPO can be an efficient sourcing tool that delivers cost savings, mitigates risk, and drives additional value across categories.
The right GPO partner won’t just respond to the effects of risk – they should proactively play a strategic role in procurement planning to mitigate risk and ensure success for their members
While we have certain processes in place to quickly and efficiently get members connected to savings, we know each situation is unique and requires a degree of flexibility. That’s why agility is one of our core values.
A GPO can save you weeks of effort by leveraging its own intelligence sources to gather all the data needed to make an educated decision on the best suppliers. Una does the heavy lifting, which means you can start saving with confidence knowing the GPO’s suppliers have been chosen based on best-practice market research.
Savvik Buying Group Case Study
Savvik Buying Group’s job is to make supply purchasing easier for safety providers and to reduce their procurement efforts so they can focus on their jobs – saving lives.
But finding and negotiating each contract was taking too much time.
Read the full case study to see how Savvik Buying Group and Una partnered up to create a win-win for everyone involved.
Conclusion
At the end of the day, a group purchasing organization works to save you more money, time, and effort. By incorporating the power of group purchasing into your existing procurement strategy, you’ll not only continue delivering cost savings to your organization, but you’ll be boosting business growth and bringing unprecedented value to the equation.
Every minute saved from the day-to-day “grind” can be put into some serious thinking and planning for your new procurement value-creation epicenter!
Ready to Boost Business Growth?
Are you ready to shift your procurement approach to embrace a value-creation mindset and boost business growth? It’s going to take planning, time, and dedication, but we’re here to help.
Get in touch today, and begin your transformation journey from cost-cutter to Value Creator with Una on your side.
Contact the Una Team to get started and download the full playbook here👇
