Finding New Areas of Impact for Procurement

Aligning procurement projects with business priorities helps sustain influence.

In a crisis, the primary objective of procurement is to ensure business continuity and contain costs. But once conditions normalize, procurement leaders often see their influence diminished.

During the great recession in 2009, procurement delivered an ROI of 9.5 times. But by 2013, two-thirds of business partners reported they were not likely to take procurement’s advice on recovery and growth priorities, business strategy, and M&A.

To remain a strategic partner, Gartner recommends mapping procurement projects to business priorities that extend beyond cost and supply assurance. Given procurement’s deep insight into the supplier ecosystem, it has many ways it can enhance brand value, minimize exposure to volatility and risk, and boost competitive advantage.

Here are ways that everyday procurement projects can align with broader business goals.

Use the supply chain as a force for good.

If you are not already, get familiar with the acronyms CSR (Corporate Social Responsibility) and ESG (Environmental, Social and Governance). In lean times, growth does not have to take a backseat to survival when you build sustainability into your supply chain. In an increasingly connected world, committing to CSR goals and ESG criteria is a business priority. It requires a shift in how you work with suppliers, but improves supplier oversight, governance, and compliance.

Companies with sustainable procurement programs are profitable.

Further to this point, research by BlackRock, a U.S.-based global investment management firm with $7.4 trillion dollars under assets, found a correlation between sustainability and traditional factors such as quality and low volatility, which indicate resilience. As a result, their research found that sustainable companies tend to be more resilient during downturns.

Additional read: Building a Procurement Center of Excellence

Contract Management is essential to meet and exceed performance goals.

Contracts must have KPIs and performance metrics that are mutually agreed upon and grounded in reality. Build regular supplier risk assessments and compliance monitoring into your contracts. Incorporating sustainability metrics into contracts will help you and your suppliers reduce waste throughout the value chain by identifying redundancies, inefficiencies, and outdated modes of production.

Additional read: Building buy-in For Contract Management

Leverage expertise from your supply base.

Your suppliers have expertise in the market, so give them room to innovate. Together, you can work toward better outcomes that reduce friction and speed up cycle times - a win-win outcome. Companies that form alliances with suppliers can greatly impact the bottom line while also improving outcomes that extend beyond cost savings.

• GM reduced its disposal costs by $12 million by establishing a reusable container program with its suppliers.
• Commonwealth Edison, a major electric utility company, realized $25 million in financial benefits through more effective resource utilization.
• Andersen Corporation implemented several programs that reduced waste at its source and had internal rates of return (IRR) exceeding 50%.

Additional read: Optimize your Supplier Relationship Strategy

Drill down into your supply base.

Segment your supply base for attributes that align with business priorities - then highlight these suppliers to leadership to build support for their business based on the value they provide, not just the cost for their service. These can be category-specific or based on other company data collected in questionnaires and scorecards. This will help you determine suppliers that are truly strategic and integral to your company’s supply chains and help your team make faster, better-informed decisions.

Be a customer of choice.

Being easy for suppliers to do business with makes you a customer of choice – especially during a disruption – and facilitates better supplier collaboration. A recent study by McKinsey found that companies with advanced supplier collaboration capabilities tend to outperform their peers.

Additional read: How to Partner with Suppliers Experiencing Financial Hardship

Digital oversight is crucial.

A wealth of information is available to drive data-based decisions that impact operations, supplier relationships, cross-functional collaboration, supply chain management, and organizational strategy.

The key for procurement leaders is striking the right balance between adapting to a changing business environment while focusing on improved collaboration and communication among business units. Strong supplier relationships and visibility derived from clean, actionable data can help procurement leaders secure this opportunity for long-term strategic engagement.