How to encourage sign-up to procurement strategies

posted by Dap Wijeyeratne
24 February 2017

How often do the best procurement strategies get rejected out of hand simply because they challenge the historic way of doing things?

All too often external advisers are engaged to deliver a certain level of cost savings identified by, say the finance or procurement team, but once the strategy is delivered it is dismissed because while they wanted cost savings the business was not prepared to be challenged on how it operates. Here are a few ways to make sure procurement strategy is fairly vetted and not bullied off the table during the decision-making process.

Understand the ambitions of the project 

In order for a procurement strategy to succeed it is important that it aligns to the project goals and objectives. Will the targets set by finance be achieved by a simple cost reduction exercise or can they only be achieved through a much larger-scale business change, such as changing product specifications, ways of working or outsourcing internal functions? If the procurement strategy is going to challenge the way that company has always bought services and goods, does that business have the appetite for change?

Where does procurement sit within the decision-making process?

Consider how the decision-making process within the company can affect the outcome of a procurement project. Who holds the ultimate power when it comes to ratifying a cost saving strategy?

The role of procurement within the final decision-making process is vital to the success of large-scale programmes. Cost savings at the highest level will involve challenging all internal decisions taken that drive costs, from complexity of specifications to ways of working and sign-off processes.

For a new procurement strategy to be considered fairly, the share of voice they receive during the decision-making process is vital. Historically the procurement function has been seen as the poor relation and procurement suggestions can be dismissed just because the operations team don’t like an idea or even because they are not used to being challenged. They may be making some decisions based on a number of ‘sacrosanct’ rules and ideals that they have always followed. This means that some suggestions are simply rejected long before they reach a senior audience.

A way to resolve this is to ensure procurement has an equal seat at the table with the other interested parties, which means that cost savings strategies are evaluated on a level playing field. Finance and procurement should put their ideas forward at the same time, before a pre-agreed sign-off process or senior arbitration team make the final decisions.

Procurement must work closely with the operations team

The key part to presenting a successful strategy is to really get under the skin of the business. Time spent sitting in the warehouse, or on the factory floor, or in the retail space or whichever area is core to the business, and with the people that do the job is the only way to work out where the pressure points are. Only then will a new procurement strategy develop that truly aligns with the operations blueprint and offer solutions to the problems the operations team are facing.

Back up ideas with facts and an assessment of risk

Challenging the way a company does business is always going to be contentious and the reason many “ways of working” are retained is a complex mix of business principles plus a varying degree of heritage, superstition and a plain old fashioned ‘we’ve always done it that way’ – not all of which are backed up with clear facts. As an example it may be possible to offer a manufacturer of a famous branded soft drink a saving of say 30% on its packaging, by standardising the colour. 

Operations and marketing will rightly challenge this strategy based on the adverse risk it presents to consumer perception and brand integrity. However, being able to offer the same company 30% savings on its legal costs by proving transactional services that can be “offshored” to a low-cost Far East provider, with absolutely no degradation in performance or quality, and evidencing that that practice is common in the industry, would be far more likely be an accepted.

Conclusion

Achieving big savings is going to require determination and creativity both from the business and the team employed to find them. Clients often challenge procurement professionals to take costs out of the business with ‘innovative thinking’. This type of thinking requires us to challenge existing business practicesvand mindset.

Dap Wijeyeratne is principal at Efficio

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