Most people think that procurement teams are about getting the right materials, services in to ensure smooth operations while cutting costs… While that’s certainly not wrong, it is also merely the tip of the iceberg in terms of what great procurement teams actually do!
With that said… So what is it that great procurement teams should be focusing on instead?
1. Strategic sourcing instead of transactional sourcing!
You might be wondering now, what is the difference between strategic and transactional sourcing? After all, isn’t procurement just about purchasing the necessary materials and services?
Wrong! That is only one portion of sourcing, which is the transactional bit that focuses on short-term and routine orders and getting the right materials at the right price at the right time. This does not mean your team is not worth their pay as it is still important for these transactional purchases to be managed pro-actively.
However, with the rise of procurement systems, much of these manual work of getting and comparing quotes, vetting suppliers, management and checks to ensure on-going delivery and quality or managing the accompanying invoices and paperwork which all can now be automated to a large degree!
With their time freed up from these transactional and time-consuming tasks, your procurement team can then focus on creating greater value for your company by maximizing the strategical usage of resources. What strategic sourcing means is that your team now focuses on continuous improvement of the purchasing process and takes into account the long-term needs of the company to maximize value of purchases while managing the overall supply chain risk.
Some important components of strategic sourcing include: spend analysis, market research, supplier evaluation and relationship management, supply chain risk profiling and management and trend analysis.
2. Keeping up with technology, market and business trends
As mentioned above, a great procurement team is forward-looking and this means they should be up-to-date if not at the forefront of new trends whether they are technology, consumer or even market conditions which may potentially boost your business or cripple your industry.
You may be wondering shouldn’t this be advice you should be getting from your CTO (Chief Technology Officer) or marketing executives? While that is partially true, as your CTO is likely to be at the cutting edge of your own industry… But your procurement team has access to a much wider network and intelligence on external happenings simply because they are interacting with a large amount of vendors who are likely to be at the cutting-edge of their own fields!
Hence, your procurement team should be the best sensor of what is happening in the market especially since vendors love to share information with a potential buyer! Compared to trying to gather market data yourself, extract some insights from raw data or worse find out information from competitors, you can imagine why it is much easier to use your procurement team to stay updated on current trends.
All this information will then enable your procurement team to make the best decision or give advice on potential technology solutions, upgrades or even completely abandoning outdated equipment/products early to get an edge over your competitors.
After all, we all know that in this competitive business environment, if we are even a little complacent, it is extremely easy to lose the competitive advantage as well as learning edge. Even huge companies like Nokia and Kodak have learnt this the hard way…
3. Regular talks with internal and external stakeholders
Great procurement teams are always communicating with both external stakeholders such as suppliers and partners as well as internal stakeholders which includes every single department!
Despite making them seem like social butterflies and wasting time talking to so many people, this is actually a crucial part of their jobs.
For external parties, you probably understand that they need to do so to get information and keep updated as previously mentioned, but it is also important to note that they keep an eye on supplier relationships and ensure accurate and current information on any changes in the status of suppliers or partners.
This is extremely important as you certainly don’t want to be caught up in part of a defective part recall, bankruptcy or bad PR about environmentally-destructive practices from your vendors which could greatly harm your brand and business image! Of course, it is not always doom and gloom as your partners or suppliers may be applauded or awarded for various reasons and you could potentially benefit with a timely social media response or otherwise. But in today’s fast-moving world, being a few days late could make a world of difference and thus cementing the importance of forming these relationships.
While the same can’t be said of internal stakeholders, communication with them is crucial to ensure that the procurement team is aware of business goals and long-term plans of every department as well as the needs and problems faced.
This ensures that the team is well-equipped with knowledge of the needs both in the short-term and long-term, enabling them to make strategic sourcing decisions and bringing in necessary technology solutions or equipment to improve the company’s efficiency and effectiveness. It also ensures that any purchases will be useful, as opposed to the horror stories of multi-million dollar systems being underutilized or worse un-used because they end up making life harder for the actual users.
Additionally, regular talks with both internal and external stakeholders also allow the team to pre-empt and resolve possible conflict and misunderstandings. For example, suppliers often do not fully understand the procurement process and may be unaware of issues such as a 20% withholding tax for overseas suppliers resulting in conflict arising with the purchasing team.
Internally, employees may believe that purchasing is simple and just choose the best “value” supplier but in doing so they often fail to consider important aspects such as contingency planning for single-source suppliers. This could lead to massive headaches for the procurement team, especially if contractual terms are badly drafted leading to long contracts or automatic renewals of unsuitable suppliers.
All in all, great procurement teams should be focusing on continual improvement of the procurement processes, keeping up with key trends and managing stakeholders whether they are internal employees or external vendors to generate greater long-term value for your company.
ThunderQuote is the “Gebiz for businesses” and most comprehensive business services portal in Singapore, Australia and ASEAN , where hundreds of thousands of dollars of procurement contracts are sourced every month by major companies like Singapore Press Holdings, National Trade Union Congress and more.