In business, power lies in partnerships. ‘Gatekeeper’ departments that drown employees in paperwork for little return garner less respect than those who team with others in the company to bring them real value. Sadly, many procurement departments find themselves dismissed as gatekeepers, which limits their traction with the rest of the business. Now, that’s changing.
Successful procurement teams are transitioning to a new role as business enablers. They are winning the hearts and minds of their business colleagues and carving out a new niche for themselves as a value centre in the business. This article describes a three-part strategy to transform the role of your procurement department and become a critical asset for the modern company.
Get what the business needs
A successful procurement team is adept at knowing what the business needs and going to get it in the best way possible. Many employees think that they can do this perfectly well on their own. The procurement team must show these employees the gaps in their abilities and persuade them that they can benefit by working with a central procurement function. The tricky part is doing this diplomatically.
Employees might well see a procurement department as an obstacle standing in the way of their goals, especially if they think that they are adept at getting a deal. Business managers will be used to a particular way of doing things. They will buy everything from office supplies through to online services and even computing equipment themselves. It isn’t uncommon for tensions to develop when people believe that they don’t need help.
These environments can be challenging for new procurement managers who struggle to change an organisation’s culture. Tackling this change requires a subtle mix of strength and understanding. They must acknowledge that employees traditionally worked in a certain way while being firm about the need to do things differently in the future.
The process starts with management support. Employees follow their managers’ lead, and without buy-in from senior executives, procurement teams will have a tough time establishing a new order. Getting the ear of the board and having senior managers promote and enforce the role of centralised procurement is a crucial piece of the puzzle.
A procurement team equipped with management support can begin demonstrating that it brings value to the business. It must show that it can find the right suppliers, vet them, and negotiate with them to create deals that make sense for the company. It must show that it can save money where appropriate and get products delivered on time, giving business managers a resource on which they can rely. In short, it must become a trusted advisor and a go-to partner that gets the business what it needs.
Get the best price, not necessarily the cheapest
Getting the business what it needs doesn’t always mean hammering suppliers for the lowest possible price. The procurement team will understand that any corporate purchase is a multi-dimensional transaction with more than the mere cost of goods and services at stake.
One dimension to consider is the quality and specification of the product or service. The cheapest possible product may not be the one that serves the business best. Vendors may offer a bargain-basement service, but a procurement department that has done its homework may realise that it won’t work for employees. Instead, it might choose a version for a slightly higher cost that will delight employees and save headaches further down the line.The other factor to consider is the supplier relationship. Successful procurement is about reaching a win-win outcome with a supplier that knows your business and is itself a valued partner. Companies that squeeze margins from every supplier eventually exhaust those relationships, making it difficult for vendors to bring any added value or build a deeper understanding of the customer. They will ultimately work their way through the top tier suppliers until there are none left of that quality, sacrificing the opportunity to create those rich, value-building relationships in the future.
The more complex and sophisticated the product or service in question, the more critical this understanding and added value becomes. A one-off purchase of office pens may not need a deep level of resonance between supplier and customer. A business process outsourcing project to manage your payment operations will. Most of the things that companies spend money on will need that level of detail and quality.
Mitigate organisational risk
The other way to build effective partnerships between procurement and the rest of the organisation is to mitigate risk. Employees assume they can handle purchases on their own, but often don’t manage or even see the associated dangers.
These dangers increase with the sophistication of the product. For example, buying software licenses may seem straightforward, but the devil is in the detail. If a vendor links a license to a specific laptop, then when the device fails, the company may incur unexpected costs.
Procurement risks also grow in line with regulations. The General Data Protection Regulation (GDPR) will force companies to vet suppliers’ compliance with it, for example.
Finally, procurement departments can better handle risks around long-term agreements, putting contingencies in place for eventualities such as the supplier going out of business or getting acquired.
A successful procurement team will highlight the risks that employees miss and will have plans in place to handle them adeptly. It will quickly become an ally, making people feel more comfortable that someone knowledgeable is watching out for them when they make a procurement decision.
The way forward
The days of the ivory procurement tower are over, and those that try to stay there will quickly find themselves marginalised and struggling for survival. After all, we don't have jobs if the rest of the company doesn't see a need for us.
This layered approach to building an effective procurement strategy is a way forward. Creating a platform based on these principles of partnership and demonstrable value will help to win procurement departments a seat at the table. Those that get there will be able to counsel forward-thinking companies on qualities such as risk protection, economies of scale, and long-term planning. Are you prepared to become a valued player for your business?
About the Author
Canda S Rozier is SVP Global Procurement & Real Estate at NTT Security, the specialised security company and center of excellence in security for NTT Group. She is responsible for establishing and leading best practices in corporate procurement, strategic sourcing, and global real estate strategy and management across Europe, Asia and the US. She is also the senior liaison with NTT Security’s parent company, NTT Holdings, on procurement-related matters as well as being on the Advisory Board for the Sourcing Industry Group (SIG). Since joining NTT Security in May 2011, she has achieved more than 20 per cent in procurement savings annually.