There is a discrepancy between procurement’s impact on the business and its representation in high level business strategy. Buoyed by a rising tide of digital transformation and buffeted by waves of geopolitical and economic instability, the recognised importance of procurement has increased dramatically in the last few years. Business leaders are looking to their CPOs to mitigate risk, contain costs, and simultaneously drive innovation and ESG initiatives within the business.
However, the increased fanfare around procurement and its potential to be a driver of business transformation hasn’t necessarily translated into a deeper understanding or scrutiny of what procurement does.
According to Derek Bush, Procurement Advisory Leader at IBM, “Procurement departments tend to be less visible to many stakeholders than sales, operations or even finance departments, but the impact they have on everything from the bottom line to product quality and service delivery shouldn’t be overlooked.”
Procurement’s impact grows
More than half of CPOs expect their budgets to increase in 2024, according to a recent Amazon Business report. The report adds that, “following a year of focusing on reducing costs, procurement leaders are now planning to use the funds they saved to invest in approaches to optimise their procurement processes and allow them to operate more strategically.” As budgets rise, it’s important that business leaders and CPOs maintain clear and open lines of communication. Doing so will create necessary transparency within the procurement function.
Creating procurement visibility
Analytics software is commonly used throughout the supply chain. Supported by machine learning, the technology is used to track and analyse performance. It has seen success and relatively widespread adoption in the retail, manufacturing, service industry, and other fields. In procurement, however, performance analytics haven’t penetrated as deeply into the function. This is due in part to how recently the procurement function has been recognised as a source of strategic innovation. However, in order to capitalise on that potential, business leadership needs to apply visibility tools in addition to building a strong culture of communication with procurement leaders.
The process of effectively implementing analytics requires centralising and amalgamating records and existing data. A positive byproduct of this process is often that collating data across the entire organisation (especially with the help of AI) can also break down silos between logistics, supply chain, procurement, and other departments.
A more effective understanding of your procurement function can help identify inefficiencies, reexamine legacy practices, and identify the areas where there are easy wins readily available.
Bush notes that “The first step in the journey is to understand where you are, then use that information to determine where you want to be. It’s difficult sometimes to carve out the required time and thought process to establish the path to excellence, especially when you are focused on supporting the demands expected from others of procurement in a complex organisation—every single day, that is.”
