What is Enhanced Procurement Management?
To say that different businesses have different procurement processes is a sure fire way to win the most-obvious-sentence-of-the-year award.
Of course they’re different – in some cases, wildly so.
The larger the company, for instance, the more bureaucratic the environment and the more players involved in a procurement department. On the other end of the spectrum is the small business, with a simple, straightforward procurement function with only a few people involved.
But regardless of the intricacies of a particular in-house procurement department, every business should manage itself in the most efficient way possible. In the past, an efficient procurement department was one that kept costs low and made sure it landed the best contracts possible.
Things have changed in the intervening years.
Now, there are myriad “best practices” that experts, writers and speakers champion as models by which an organization should govern procurement. This level of management and oversight is often referred to as enhanced procurement management.
So…what is enhanced procurement management?
Simply put, it is system that takes a keen interest in the actions/philosophies/practices of all parties in a supply chain, in addition to the expected concern for contracts and costs that procurement has always been concerned with.
An excellent way of grasping how to establish enhanced procurement management is to ask the right questions of your business. The procurement specialists over at PwC have cobbled together a great set of questions.
• Is our procurement and supply chain management strategy aligned with our overall business objectives?
• Are the activities involved in our procurement and supply chain cost effective and in line with leading practices both within our industry and outside of our industry?
• Do we know what our customers value most about our products and/or services and do our procurement and supply chain practices enable this value?
• How do we measure the success of our procurement and supply chain?
• How are we incorporating sustainability into our procurement decisions and supply chain? Do our processes meet current and projected future environmental regulations?
So…how are global companies doing with enhanced procurement management? Have organizations been successful instituting practices that include suppliers and reflect the evolution of procurement? Have businesses moved with the times?
A survey – conducted by PwC – of global procurement professionals found that, although the drive to engage in enhanced procurement management is there, companies are stuck focusing on contracts and costs.
Results of the survey were gleaned from interviews with Chief Procurement Officers, desk research and an online survey.
• The most important Supplier Relationship Management (SRM) objectives are leveraging supplier capabilities, delivering cost savings and reducing supply risk exposure.
• Approximately 60% of the respondents have a formal segmentation process in place, with spend size, product/service importance and risk exposure as the most important segmentation dimensions.
• While the benefits of SRM are acknowledged, the average SRM maturity level is still low.
• The top-three challenges respondents encounter are an overemphasis on cost reduction, a lack of specific SRM competences and insufficient alignment between the business, procurement and supplier.
• Typical best practices are quantification of benefits and costs (ROI), proactive and two-way performance management, and documented supplier strategies per segment.
• Benefits measurement, executive sponsorship and strategic coherence are indicated as the most critical success factors.
• Technical/functional, relational and developmental competencies must be balanced and continuously developed.
• Innovation, sustainability, leagility and resilience are seen as the key drivers for SRM value creation.
• Current SRM programs already contribute to performance management and risk exposure reduction.
• The respondents indicate that there is a positive correlation between the presence of SRM and an increase in market share, responsiveness to market changes, increased return on investment and shortening order fulfilment lead times.
And the good news? Well…there’s plenty of examples. Chief among them is there is an appetite for enhanced procurement management in the industry. Clearly, procurement professionals haven’t enjoyed as much success in this realm as they would have wanted. But procurement is an ever-evolving pursuit. So, as long as the right questions are being asked, achieving a level of enhanced procurement management will eventually happen.