Objective-driven procurement strategies add more value

Procurement needs to be in line with business objectives. Picture credit: Gefco

Procurement is vital to the success of a business and Companies are slowly waking up to the fact that purchasing can be a strategic function. Just last year, the former Procurement and Sourcing Institute of Asia became the Procurement and Supply Institute of Asia (PASIA) to reflect the changing demands being placed on the function by businesses.

“Gone are the days of simply focusing on buying,” said Charlie Villasenor, PASIA chairman and chief executive officer. “Today, our professionals must not only source strategically, they also need to manage risk, to appraise and select suppliers, and to be concerned for corporate social responsibility and sustainability. Hence, our new name reflects this integrated view.”

In essence, strategic sourcing is increasingly perceived as an integral part of companies’ efforts to meet all of their business objectives. Firms need to look at how they can align the two to achieve the best possible outcomes for their organizations.

Setting objectives

The Hackett Group’s international 2013 Procurement Key Issues Research found that reducing spending was still the number one performance-related priority for procurement leaders. Nevertheless, innovation is growing rapidly in importance, while managing supplier risk and compliance are also high on the agenda.

Businesses no longer look at profit alone when they set objectives. Sustainability, corporate social responsibility and process simplicity are all to be considered alongside the bottom line. Procurement functions can play an important role in achieving all of them if they do so in an intelligent and strategic way. According to KPMG’s 2013 FUTUREBUY: The Future of Procurement report, purchasing departments that can demonstrate how they create value for the whole organization will be able to take a bigger role in strategic planning.

Action points

Once it is clear what must be achieved, purchasing functions must focus on the areas in which they can take definite action to improve performance. For many, this will mean mapping their supply chains and isolating strategic suppliers with whom they can work to add the most value.

As part of plans to free up additional capital to invest in growth, it may be necessary to renegotiate contracts with some suppliers. Using a Corporate Card, businesses have extra negotiating power. They can pay suppliers promptly and perhaps even take advantage of early payment discounts without having the funds immediately available - an Amex account offers 51 interest-free days on any one payment, allowing companies to meet their obligations and preserve their cashflow effectively.

A Corporate Card system can also contribute to fulfilling other objectives. Moving to a paperless system is an integral part of any sustainability strategy, while paying suppliers promptly and efficiently can play a pivotal role in fostering strong working relationships.

Define and measure success

Success is difficult to gauge without a quantifiable objective, and in order to measure it effectively companies need access to as much data as possible to clarify positive outcomes and identify areas for improvement. However, it is important that businesses focus on measuring the right performance indicators. In CapGemini’s 2012-13 Global Chief Procurement Officer Survey, it was found that businesses need to conduct thorough studies to understand which datasets have the biggest impact on different functions in the business, ensuring that the data being measured is appropriate to provide the insight companies need.

Before embarking on any new initiative, businesses need to obtain benchmarking data to act as a baseline for measuring development. After that, it is important to keep analyzing performance regularly on the same criteria to give an accurate sense of the direction in which companies are headed. Corporate Cards capture large volumes of rich data that can be analysed and used to generate detailed reports in real time, providing full visibility so businesses can track their spending and make comparisons to see where improvements have been made.

Measuring performance will make it much simpler for procurement functions to demonstrate the strategic role they play in achieving business objectives. In turn, this will increase their influence at the strategic planning level and enable them to continue adding value to organizations.