MOVING FROM A SUPPORT ROLE TO A STRATEGIC ROLE
Procurement management has come a long way since its inception. Millennia ago, the Egyptians used scribes to manage the supply of materials for massive projects. Since the 60s, Chief Procurement Officers have started to strengthen their spot at the executive roundtable, helping organizations to achieve their business objectives. Over the years, however, as the competitive landscape has gotten more complex, the role of procurement and vendor management functions has become more strategic.
Today, advanced procurement departments are leveraging analytics and machine learning to reduce costs and maximize the quality of service. But, before reaching that level of maturity, as a business leader, you should ask yourself the following questions:
- What are the main procurement challenges currently being faced in my organization?
- What key steps should I take to transform our procurement department from a supportive role to a strategic one?
To discover the answers to the above questions, you can use the People Process Technology framework. PPT is a methodology that allows decision-makers to assess the most significant drivers and enablers of an organization.
If, for instance, your purchase orders are ageing more than the required time and your stakeholders are frustrated, then you need to optimize your processes through revision or automation/digitization.
If, on the other hand, your purchase requests are being rejected several times or your tender statement of works fail to cover your business requirements, then possibly, there is a capability gap, which requires training.
A harmonious balance is required to achieve an ideal and seamlessly-functioning department, and PPT can help you achieve that.
ENABLING PROCUREMENT PROFESSIONALS
One of the mandates of a procurement department is to ensure that the organization gets the right goods and services, on time, at the lowest possible price. To achieve that, procurement decision-makers must communicate effectively, negotiate hard, and possess high emotional intelligence. Moreover, they should have a strong understanding of the technical requirements of goods and services as well as their company’s position in the market.
The combination of those hard and soft skills leads to successful and striving supplier relationships, upgrading a vendor into a partner. To foster such qualities in procurement professionals, an organization must have the following:
- A clear mandate and strategy, cascading from management to the procurement department
- A departmental structure in line with the organization’s strategy (centralized, decentralized, or cooperative)
- A proper definition of roles and responsibilities
- An effective mentorship and on-the-job training program for procurement professionals, which is directly linked to their performance reviews
- A distinctive professional certification track for procurement buyers and sourcing professionals
DEFINING EFFECTIVE AND LEAN PROCESSES
Another mandate of a procurement department is to satisfy the business needs of all the internal customers and to manage and maintain a strong relationship with vendors. To accomplish that obligation, lean processes with clear Service Level Agreements (SLA) and Operational Level Agreements (OLA) must be in place. That’s why defining and developing procurement processes is a crucial task.
That said, could your organization achieve its strategic procurement target just by designing the best-in-class procurement processes? The answer is a definite no.
“Could your organization achieve its strategic procurement target just by designing the best-in-class procurement processes? The answer is a definite no.”
Designing processes is the first mile of “the ten-mile road” to success. The majority of the pain points of a procurement department lies in implementation. They are often rooted in issues such as poorly designed SLAs and OLAs, unclearly assigned roles and responsibilities, wrongly selected KPIs or their targets, among others.
WHAT SHOULD YOU CONSIDER WHILE DEVELOPING PROCUREMENT PROCESSES?
While there is not a universal answer, there exists a transparent methodology. By following the below steps, you can ensure significant results.
As a decision-maker, you should answer the following questions:
- What are the business needs of my organization? When do we need to complete those purchases?
- What does the data from the previous year tell us about our spending? How many emergency purchases were requested and from which functions or departments?
- Based on previous year data, are there opportunities for bulk purchases or framework agreements with some vendors? Which vendors are strategic and, therefore, potential partners?
- Does the market analysis show that there is strong potential to update our existing framework contracts?
Once you have clarified your answers, your decisions should be summarized in a clear, decisive, and detailed procurement plan, by which all stakeholders should abide for the rest of the year. It is a good practice to revisit that plan quarterly and update it- if required.
Vendor Management is an independent and ongoing process that continuously supports the procurement function. The first step is to determine and define the needs of the organization and match them with the available market.
Next, you should identify the vendors that would best suit your organization and implement purchasing agreements with them.
After purchasing, it is imperative that you continuously evaluate and monitor your vendor’s performance. That way, you can make the right decision on whether to renew or end framework agreements or any binding contracts.
Tendering and Contracts Management
This is the central part of the procurement process and the most crucial one. You must define SLAs, OLAs, KPIs, and responsibilities based on the current situation of your organization. Ensure that all stakeholders agree with your decisions. Also, keep in mind that leading organizations create committees to manage the tendering process, taking a page from government entities, which are obliged to develop committees such as technical and commercial evaluation committees.
DIGITIZING THE PROCESS
Once you set the organizational structure of your procurement department, defined roles and responsibilities, uplifted capabilities, and designed lean processes, it is time for you to invest in the technology that would allow the operations to occur seamlessly.
Traditionally, procurement departments’ use of contracts, RFPs, tenders, and POs have made them utterly reliant on paperwork and wet signatures. Even though they might be following the rules and regulations accurately, the process is hectic and prone to a lot of human errors.
Due to COVID 19, paperless, digitized, and automated processes are quickly becoming mandatory. The use of Enterprise Resource Planning (ERP) systems, as well as Business Process Automation (BPA) and Robotic Process Automation (RPA) software, could help automate such processes. You can reduce the required time and effort to complete tasks, making them more efficient. By doing so, your organization track and manage data, which would endorse accountability, performance management, and business intelligence.
To conclude, success becomes a lot easier when a procurement team possesses the necessary capabilities, processes, and technology. By developing transparent strategies, investing in the capabilities of your people, and integrating automation into your operations, you can unburden your team so that they can concentrate on the big picture. By doing that, you would guarantee that your procurement function is creating operational and financial value for your organization.