In our ongoing interactions with procurement leaders from around the world, we have chosen these eight European Procurement Best Practices. In our endeavor to understand the procurement landscape and arm you with procurement best practices, we spoke with the CPOs. Without actually naming them, we have distilled their insights for an easy read.
We asked them in the context of how a significant decision they have made, affected their performance? While CPOs face countless huge decisions, and such qualitative interviews do not prove cause and effect, the responses do uncover some interesting and suggestive differences between high performers and the rest of the pack. We hope that these procurement best practices from European domain leaders will help you game up your leadership.
Seven Procurement Best Practices from European CPOs
Build a Procurement Brain Trust
First of all, for key roles, most of the CPOs we interviewed said that they not only invest in experienced talent but also on new talent for less critical purposes. Virtually all of the CPOs we met are biased toward recruiting and developing talent rather than outsourcing strategic procurement work. We believe that this is quite a positive trait, and it can be easily imbibed by other organizations.
Go for Maximum Control
Secondly, our discussions with CPOs reveal that procurement organizations’ levels of authority and control directly affect their performance. Organizations functioning with centralized control are more times likely to report high spend under management and contract compliance. Please note that in this context, to go for power implies taking charge of any situation to prevent any disruption.
Report Compliance Data Openly
Another quite significant procurement best practice that we could extract is the need for transparency. One CPO particularly described to us how he pushed for transparency and shared compliance data with all (not few) the relevant business leaders. Consistent, systematic, and public reporting of compliance data drove performance improvement as it took advantage of image-building and competition amongst managers and departments.
Enforce Policies & Rules
CPOs are biased to rock-solid corporate governance structures — policies, practices, authorities, workflow, and enforcement tactics that support strategic control and minimization of corporate spending. Indeed, the CPOs we interviewed are in substantial agreement that there is a powerful connection between formal governance structures and their abilities to deliver real cost reductions to enterprise bottom lines.
Track Savings vs. Market
Our discussions with CPOs reveal that procurement organizations use multiple and sophisticated methods of tracking procurement cost savings. While it was once considered acceptable to measure cost savings via competitive sourcing events or contract negotiations, dynamics changed. 40-60% of CPOs now look at realized savings based on transaction values and actual consumption and hard savings based on budget reductions.
Invest in Best of Breed Tech and Integration
Finally, most of the CPOs we interviewed have had mixed success in upgrading their procurement technology infrastructures. They realized that standalone, legacy ERP or homegrown solutions are not the best of the breed. 42% of Companies that reported high spend under management (SUM) and cost savings rates, invested in integrated suites. The remaining 23% use best-of-breed procurement solution mixes. Integrated suites function with greater ease, thus enabling them to measure and report on compliance.
Don’t Shy away from Standardization and Change
Across the board, the number one strategic entry point for enterprise procurement groups is the usage of spend analysis. Spend analysis helps to identify opportunities for competitive sourcing or re-sourcing of spend categories. High savers are 2X more likely to put early focus and energy into standardization. It includes identifying approved items for purchase, implementing preferred suppliers, and so forth. Matter of fact, very high savers are 6X likely to emphasize uniformity before focusing on competitive sourcing/re-sourcing, re-negotiation, supply base rationalization, and other procurement strategies.
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