For years, procurement has been mostly ignored or undervalued, but that’s all changing as more and more leaders realise that aligning their procurement strategy with their business can be a major driver of change.
For any organisation operating in today’s uncertain business environment, one of the major challenges they face is controlling costs. This is an even more pressing issue for SMBs and SMEs, which have less fat than larger enterprises.
Despite this, a recent KPMG report found that many organisations still treat procurement as an add-on service. The business units decide which suppliers they want to procure from and then the management of the relationship is handed over to procurement with the expectation that they will be able to screw the supplier’s margin down by a few points.
Tactical or nothing at all?
While this sort of strategy is more tactical than strategic, some organisations don’t have a procurement strategy at all. Others may have an informal strategy such as laptops from vendor A, desktops from vendor B and servers from vendor C, but it’s not documented.
Documented strategies can range from simple documents that are more like a statement of purpose to detailed policies that are compiled with input from all stakeholders and are annually reviewed and widely distributed throughout the organisation.
Among SMBs and SMEs, few organisations have a formal procurement strategy. However, this is slowly changing. According to the KPMG report, the sustainability of the supply chain will increasingly become a key challenge for businesses as companies focus on using systems and technology to get better value for money while encouraging innovation and product differentiation from their suppliers.
Developing a strategy
While the idea of developing a strategy from scratch may seem daunting, the reality is that it’s a process with logical steps. It’s also a process where there is a lot of information available – flow charts, templates and webinars from both government departments and private consultants. Nevertheless, it starts by simply understanding where the organisation is now. What is it currently doing? Does it have a strategy and how developed is it?
This is also the time to gather data and determine some hard baselines using whatever benchmarks are deemed most useful, whether it’s procurement costs as a percentage of dollar spend, how long the procurement cycle takes or efficient use of technology. What are the benchmarks in the organisation’s industry and how does the company compare? What are the categories within the overall strategy?
What do you want to achieve?
Once a baseline has been developed, the next step is to work out what the company wants to achieve with its IT procurement strategy? This goal should align with the highest values and objectives of the company.
For a company that prides itself on its environmental sustainability and benchmarks itself against a triple bottom line, factors such as energy usage, recyclability and local suppliers of hardware and services will feature heavily in its IT procurement strategy.
A company planning to automate major functions may well decide to prioritise suppliers who can help it on that journey. For a new company seeking to expand, the main emphasis may simply be on cost. Whatever the size of the company, these discussions should involve all the major stakeholders including C-level executives, line-of-business managers, procurement personnel and suppliers.
A vision of success
Once these discussions have concluded, the next step is to define a vision of what success looks like. It’s not all about money, so look at all the dimensions of IT procurement holistically. At a high level, obviously the new IT procurement strategy should align with the values of the organisation, but there should also be measurable goals such as improvements against the benchmark data.
These goals could include cost metrics such as the total cost of IT procurement, annual savings against baselines and contract compliance, as well as cost of sourcing metrics such as sourcing cost against dollars spent or procurement cost per headcount in the procurement department.
Quality and service metrics such as the percentage of incomplete orders, returns and defects, as well as the percentage of on-time deliveries and on-time service job completions should also be considered.
Once all these metrics have been decided upon, the next step is the implementation phase. Various C-level executives will make up the executive steering committee, but they’ll also engage the key stakeholders by including them as part of the project team, which has the added advantage of building buy-in for the new strategy. Of course, once a strategy has been developed, it shouldn’t just sit on a shelf gathering dust – it should be reviewed and revitalised annually.