Firing your strategic missile
A few decades ago purchasing was still seen as ‘operational’ and companies focused largely on inputs such as materials and services. Purchasing mostly provided a supporting role to acquire goods and services at a competitive price, at the right quantity and quality. However, a number of environmental factors, such as the oil crisis of 1973, highlighted the importance of supply inputs and the consequences that could arise from underestimating their importance to company processes and activities.
It’s fair to call the last decade transformational for procurement as a function. Most procurement organizations are learning to break away from back-office perceptions and are moving to the corporate forefront. Slowly but surely, it’s becoming more widely recognized that procurement delivers a unique strategic advantage and value to our respective companies. The shift from tactical to strategic can be attributed to procurement activities such as market knowledge, supply base management, risk management, and supplier selection, However, the core functions of strategic sourcing, purchasing, procurement IT and supplier relationship management are also still highly important
A shift in focus from transactional purchasing to value-based strategic Procurement can translate to significant bottom line improvements to the corporation. In comparison to reactive transactional Procurement, a best practice Procurement strategy examines the current supply and demand markets, and the commercial terms and conditions of significant importance. The Procurement strategy should also include a pricing structure and guidelines on how the relationship with key suppliers will be managed.
A well-defined and adhered-to source-to-pay (S2P) process allows for more strategic initiatives to be quickly identified and put into action with the appropriate allocation of Procurement resources. While efficiency in processing purchase orders, vendor payments and the receipt of goods may be the key objective here, driving out maverick spend and reducing ad-hoc spend can be collateral benefits. Procurement has come a long way from where it begun to where it has reached today.
Organizations need to build skill-sets and close performance gaps so that procurement can focus on a strategy that is consistent and acceptable and adds value for stakeholders. Transforming procurement to operate more strategically needs to be addressed as a change management effort; to drive success, careful planning and execution is essential and must address essential skill-set gaps as well as performance expectations.