WORDS: Dappula Wijeyeratne
How often do the best procurement strategies get rejected out of hand simply because they challenge the historic way of doing things?
Too often external advisers are engaged to deliver a certain level of cost-savings, which have been identified by finance or procurement. But, once the strategy is delivered, it is dismissed because the business is not prepared to be challenged on how it operates.
Here are a few suggestions as to how procurement strategy should be vetted and not bullied off the table during the decision-making process.
1. Understand ambitions
If a procurement strategy is to succeed, it must align with project goals and objectives. Can 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 different product specifications, ways of working, or outsourcing internal functions? If the procurement strategy will challenge the way the company has traditionally bought goods and services, does the business have the appetite for change?
2. Where does procurement sit within the decision-making process?
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 programs. 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 the function receives during the decision-making process is vital. Historically, procurement has been seen as a poor relation and suggestions from the function are often dismissed simply because the operations team don’t like an idea or because they are not used to being challenged. This means that some suggestions are rejected long before they reach a senior audience.
One way to resolve this is to ensure procurement has a seat at the table so that cost-saving strategies are evaluated on a level playing field.
Finance and procurement should also put their ideas forward at the same time before a pre-agreed sign-off process or senior arbitration team make the final decisions.
3. Procurement must work closely with the operations team
It is not enough to simply ask the operations team to listen to procurement. 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 with the people that do the job is the best way to work out where the pressure points are. Only then will procurement develop a strategy that truly aligns with the operations blueprint and that offers a solution to problems it is under.
The embedding process is vital to demonstrating credibility when challenging long-held assumptions. Without a detailed understanding of the business even the best ideas will fail. By learning all about a business during the embedding process, and earning the trust of the internal team, procurement can be better placed to challenge long-held assumptions.
4. Back up ideas with facts and a risk assessment
Challenging the way a company does business is always going to be contentious and the reason many “ways of working” are retained is often a complex mix of business principles plus a varying degree of heritage, superstition and old-fashioned attitudes.
These reasons are not always backed up with clear facts.
As an example, it may be possible to offer a manufacturer a saving of 30% on its packaging by standardizing the color. Yet, operations and marketing will rightly challenge this strategy based on the adverse risk it presents to consumer perception and brand integrity. However, the same company may be able to make 30% savings on its legal costs by offshoring transactional services to a low cost provider with absolutely no degradation in performance or quality.
This would far more likely be an acceptable strategy as the risk associated with it is much lower.
Achieving savings requires 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’ that challenges existing business practices and mindset. These strategies have a much better chance of being accepted when the final product presented is based on a detailed understanding of the operational challenges facing the business
This article was originally published on Procurement Leaders.