Cutting Costs, Not Corners: Why Your Procurement Department Deserves More Respect
Just as finance is no longer about bean counting, the role of procurement has evolved from transactional chores to strategic partnerships.
Having spent most of her career running procurement and supply chain for corporations, Anna McGovern is bringing her expertise to the nonprofit world as Chief Supply Chain Officer at Food Bank for New York City.
In this episode of Spend Culture Stories, Anna explains the true value of the procurement department in the 2020s, why negotiating with suppliers shouldn’t be a zero-sum game, and why being honest is more effective than keeping your cards close to your chest.
Anna McGovern of Food Bank for New York City
💵 What she does: Chief Supply Chain Officer at Food Bank for New York City.
💡 Key quote: “It’s all about relationship-building and collaboration, openness and transparency. It’s become a given that that’s how we have to do business.”
👋 Where to find her: LinkedIn
Listen to the episode
You’d think that leaving behind corporate jobs for a nonprofit would be a change of pace. But Anna says this sector is busy professionalizing its procurement processes, which gives her the chance to apply her skills.
“We need to watch our budgets, and there are ways to streamline and get tremendous value from the procurement function. I’m very happy to be working on that here,” she says.
A big part of procurement is still negotiating with suppliers. But Anna believes these should involve more give-and-take than holding back.
“There’s always going to be the formal negotiation where you’re sitting on one side of the table, and I’m sitting on the other. But it’s really about the win-win: what are the non-negotiables for me as a buyer, and what are the non-negotiables for you as a supplier? Come up with common ground.”
Anna also lays out how — and why — it’s important to build strong supplier relationships, especially in the wake of a pandemic that revealed just how crucial those can be.
Top takeaways from this week’s conversation
Procurement deserves a seat in the C-suite 🪑
Most Chief Procurement Officers (CPOs) still report to the Chief Supply Chain Officer (CSCO) or even to the CFO. But Anna argues that the role has evolved to become such an integral part of an organization’s operations that CPOs deserve a direct link to the CEO.
“They need to be at the table because they’re driving the value chain throughout the organization,” she says. “The procurement function controls anywhere from two-thirds to three-quarters of the overall budget.”
Contrary to popular belief, the procurement department isn’t only looking to cut costs (something finance teams can relate to). “Procurement can partner to drive value, they’ve got the direct capability to drive the top line, not just drive bottom-line profitability through cost cutting,” Anna says. “Procurement really belongs on the board level, reporting to the CEO.”
Be upfront with your suppliers about what you need 📦
There’s a belief that coming to the table for negotiations with suppliers means holding back certain information about your plans and goals for the future. Sharing what you need and why will empower your supplier to help you get there.
“I’ve sat in formal negotiations where I share, ‘This is where we are and I need to deliver 10 percent cost savings, because I’ve got a margin target that’s non-negotiable.’ And you look for ways to do it,” Anna says.
You may not walk out with exactly what you asked for, but suppliers might be able to make it work over a long-term contract, or across multiple regions. “It’s understanding where the give and take is, having that open and trusting conversation, and coming to a consensus,” Anne says.
Technology empowers you to collect and manage the data you need 🖥️
Understanding the nature of every step of the supply chain and the relationships within it is key to running it smoothly. And for that, you need data. “You can’t improve anything unless you start measuring it. That’s how you drive continuous improvement,” Anna says.
Technology is the key to collecting and analyzing all that data. “What we need to get at is the single source of truth that’s going to be able to connect my demand to my supply, and how do I connect things so I have quick insight,” Anna says. “It starts with having the right supply and vendor master to be able to provide insights to the suppliers, and invite the right suppliers in.”
Anna looks for technology — like Procurify — that streamlines every step of procurement: “Being able to do requests for proposals (RFPs), requests for quotes (RFQs), requests for information (RFIs) online; being able to look at a catalog of suppliers online; structuring e-auctions — that’s going to help you do the analysis in terms of the value drivers.”
Spend Culture highlights
Cut costs, not relationships 💡
[07:32] “The last 20 to 25 years have been all about low-cost supply chains. It’s been all about how do I cut costs? How do I consolidate suppliers, increase my buying leverage, so I can cut costs, cut costs, cut costs?
When you’re in procurement, that’s table stakes: Finding ways to save money is part of the equation. But as we go into a post-COVID world, it’s become about supply chain resiliency. It’s about creating collaborative partnerships, whether it’s with suppliers on the backend or with customers on the front end. It’s about connecting customers to suppliers and creating multi-party relationships that are going to deliver value and innovation.”
Learn from your network 💡
[11:06] “I’ve worked with suppliers like big chemical companies who service multiple categories. Most of my background is in everyday consumer packaged goods. But for example, if you look at a company like Dow, which services multiple industries — consumer packaged goods, pharmaceuticals, water filtration, paint coatings — there are opportunities where you can learn what other industries are doing that could be applied to your own.
By having those very close, collaborative relationships, you discover the opportunities to create value by looking at new things, and applying them to the work that you’re doing.”
Help your supplier meet your future needs 💡
[22:32] “When I joined a beauty company, I looked at my top 20 suppliers, I prioritized meetings based on spend, and I said to them, ‘How do we work with you? What kind of headaches do we create for you?’ They didn’t believe me. I’m like, ‘No, I’m totally serious. I’m sure we make your life a living hell. Tell me how we do that.’ And they told me that they received their forecast from us when they got the purchase order, so they had no visibility into our strategy or our forecast.
I started with getting the team to think about the next three months; let’s give them a range. It’s really allowing the supplier now to plan the labor.”
Strong relationships take multiple levels of effort 💡
[26:19] “Once you’re building that relationship, and that openness and transparency is there, you can start to have much more collaborative strategic discussions. It starts with bottom up and top down. It’s got to be business senior leadership to business senior leadership, usually CEO and CFO with CEO and CFO at the customer and the supplier level, and then you work your way down.
Then you’ve got the next level, creating a steering committee around that relationship. And then it’s about the local-to-local relationships. So there are multiple levels of governance that have to take place, and it’s something that evolves over time.”
Look for savings outside of the obvious places 💡
[35:53] “Look at the full product composition. For example, if someone says, ‘I can’t spend that kind of money on my perfume, because this price is way more expensive than what I’m paying today,’ look at an additive that allows you to change that.
For example, if you get a plant-based surfactant which is really clean, you suddenly have a base formulation that is now odorous, and suddenly you don’t need to use as much perfume. Paying a higher cost per pound is irrelevant, because I’m using a lot less of it, so my total cost of the formula just went down.”
[12:38] “I mentor young professionals coming out of school, and I try to explain the value of getting into procurement. Because think about the skill set that you need. It really does take a generalist approach.”
[15:14] “If you’re in indirect procurement, think of all that you’re touching outside of the supply chain — manufacturing, products, and materials. There are so many areas where we can leverage and create value through spending.”
[27:09] “You’re not going to wave a magic wand and create strategic collaborative partnerships. It does take a lot of time and investment of resources between both the customer and the supplier to make it work.”
[43:39] “When I first got into procurement, I had this arrogant attitude that I am the customer and you are the supplier and you will kowtow to me. It was a real humbling experience.”
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