Leading companies have realized that the procurement function directly affects their bottom line. Hence, world-class organizations follow some procurement best practices in order to achieve better performance.
In this article, let us find out what leading procurement teams do differently in areas like working capital, spending visibility, supplier management, and analytics.
1. Apply Best Practices knowledge
World-class procurement departments have already moved from being a tactical purchasing function.
Hence, they apply best practices to the purchasing cycle’s various activities and use analytics and strategy to align the procurement function with the business goals.
2. Greater spend visibility
In its Realizing the Power of Procurement Reports, A. T. Kearney finds that leaders have visibility into 80 % of their direct and indirect spending compared to 50 % of non-leaders.
The report also states the importance of advanced analytics tools to understand the various cost drivers. Furthermore, analytics should be applied not just to spend management but also other areas like forecasting risks for measuring supplier performance.
3. Looking for value
Supplier management is an ignored but high potential area for cost savings and risk management. Therefore, procurement departments need to unlock this value using strategic long term initiatives that focus on building the supplier relationship and building more resilient supply chains.
4. Select the right KPIs
Please note that KPIs must not be used in isolation, but they should be used as benchmarks against industry performance. Therefore, the suggested KPIs include:
5. Avoid common mistakes
Cost savings, quality, and delivery work in unison. Therefore, avoid situations where an excessive focus on cost savings results in procuring cheap goods and services. Hence, if you notice a pattern of reporting high on not meeting KPIs, it is indicative of the KPIs not choosing well.
The A.T. Kearney report highlights that Procurement leaders follow a three-part success formula: team excellence, category excellence, and supplier excellence. For team excellence, Procurement teams maintain strong collaboration and visibility with the CFO.
Category excellence requires a balanced scorecard creation with critical metrics aligned to the broader business goals. Also, Supplier excellence presents the most significant opportunity for procurement. Hence, by following these best procurement practices, organizations can drive goals like innovation and risk management.
However, organizations have realized now that the benefits of state-of-the-art procurement go beyond costs. In addition, procurement is a business partner that supports the organization in meeting its larger enterprise-level goals. Therefore, read our latest article on 5 Ways World-Class Procurement Organizations Stand Apart to apply them to your own business.
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