Bold procurement steps represent actions that procurement practitioners must take to have a transformed procurement system. Procurement has evolved from a clerical to a strategic function over the years.
Research by the IHS Markit (Supply Chain Insights Global Survey) indicated that 63% of respondents said their companies “lacked the necessary data, platforms, and technology needed to make critical cost-saving decisions. For you to transform your procurement structure into a strategic function, you need to take some bold steps/actions.
Spend Analysis. Spend analysis in procurement can be defined as the process of collecting, classifying, and analyzing expenditure data. Spend analysis is a process that analyses the historical spending data of your organization to provide answers to questions concerning spend visibility, compliance, and control. Data shows that more supply chain leaders are concerned with spending analytics within procurement. 239 out of 340 supply chain leaders identified Spend Analytics as a top priority according to the 2021 Supply Chain Insights Global Survey from IHS Markit.
At every given point, you should be able to give your spend value on procurement operations undertaken over some time. This helps make efficient decisions regarding spending and how to strategize procurement operations. Spend analysis gives a detailed breakdown of spend value for each category, department, or line of item. It helps to know the high-value items, the highest spending department, or the category of an item within the organization. Procurement reports should incorporate a list of procurement activities and an overview of spending over the period. A new bold step for procurement leaders to explore to ensure a transformed procurement system.
- Category-managed procurement. Category management defined by CIPS is “a strategic approach to procurement where organizations segment their spend into areas which contain similar or related products”. Category management helps the procurement team to manage each category distinctively with a strategic approach. Categorizing your procurement spending into direct and indirect spending helps create an overview of spend and visibility for efficient strategy creation. 173 out of 340 supply chain leaders identified Category Management as a top 2nd priority according to the 2021 Supply Chain Insights Global Survey from IHS Markit.
Category-managed procurement is a key aspect of the new bold procurement practice for procurement transformation.
2. Cost savings and cost avoidance. Currently, the major task procurement and supply chain managers are faced with today. Cost savings are realized in the actual expenditure through cost reduction. It is actual cost minus budgeted expenditure as a result of cost reduction through negotiation, Framework agreements, bulk purchasing, etc.
Cost avoidance refers to steps or measures taken to avoid or prevent spending from happening or occurring. As procurement practitioners, these define our contribution to the value of the organization. Cost-saving is the financial objective to reduce the excess expenses that occur in any business. Cost savings initiatives through cost avoidance where in-depth need analysis is conducted on every requisition despite the value. Need analysis such as.
- Is the item or product requested for a must-have? This is the major source of wrong procurement of items and quantities. Without understanding and subjecting the item needed for proper analysis, we will continue to have procurement undertaking purchases which cost organizations a fortune. Items are sitting in the stores of some organizations that have not been used to date from their date of purchase and occupying space at the stores with their associated cost. This will help in cost avoidance.
- Is it fit for purpose/ use? The continuous edge for procurement to align its function with organizational goals and objectives is heightening and procurement must stand up to the task. Need analysis will help procurement know if it must go ahead to purchase an item or not and its related quantity. Sometimes an item can be needed but the quantity is wrongly stated and without analysis, it will be purchased which costs the organization a lot.
Cost avoidance and cost-saving represent strategic bold steps to procurement transformation in 2024 and beyond.
3. Digitization or E-Procurement refers to the use of digital or electronic systems to undertake procurement activities. The world has evolved and as Industry 4.0 is in full swing, procurement digitization is in high demand for operational efficiency. E-procurement when fully implemented will reduce or eliminate tedious manual processes to drive efficiency and innovation. It helps the organization in procurement reporting, spend visibility, spend analysis, and reduced cost of manual processes. E- E-procurement represents a bold step to procurement transformation.
4. Sustainable procurement. The “baby” of the moment. The world is gearing toward sustainability, and it is prudent for procurement to incorporate sustainable practices into procurement processes. Sustainable procurement and responsible sourcing according to Deloitte survey in 2022, is high on the CPO agenda. Procurement must now move to environmentally friendly procurement practices through active supplier collaboration. The goal of sustainable procurement and responsible sourcing is to reduce waste, energy consumption, and overall costs within the procurement process. Sustainable procurement and responsible sourcing represent a bold step for future procurement transformation.
Are you just buying and spending in your organization or adding value (saving cost) for your organization? If not, then re-plan and strategize and give a new face to your procurement if you want to be valuable to your organization. The new bold steps are critical to the success of the Procurement function thereby contributing to the strategic goal of the organization. Procurement through these bold steps can also have a place in the Boardroom.
Author: Ahasu Isaac is a Consulting associate with Prosupp Consult based in Accra, Ghana. Isaac has expertise in managing priorities to meet deadlines and realize high-quality outcomes. Isaac works as a freelancer specializing in writing services, consulting, and advisory services. [email protected]