Collaboration is about a lot more than getting larger discounts and better pricing. Procurement professionals have an opportunity to work with 4 distinct “partners” to make it all happen.
A few months ago, I posted a blog, 4 Key Procurement Trends for 2016. Those trends, according to a Procurement Leaders series of articles, are the conversion of silos into collaborative communities; digitization of the supply chain; greater emphasis on data and analytics; and control over indirect spend. Over the next few months, I’ll be writing about each of these trends. Today, I’d like to cover collaboration and how that trend is being acted upon in both internal and external relationships.
We’ve posted a number of blogs on the need for collaboration between procurement and accounts payable to create greater efficiencies and savings in the supply chain. However, there are four very important “partners” those in procurement should collaborate with:
- Internal stakeholders and departments – The old acceptance of silos of responsibility is disappearing, and rightly so. We work now in a cross-functional reality, where everyone in every related department plays a role in the success of the company. Nowhere is that more applicable than in Procurement when it comes to sourcing projects. Procurement is typically familiar with the cost, quality, and service metrics of supply chain partners, and has direct access to the decision-makers. Therefore, organizations can achieve increased competitive advantage if Procurement is involved earlier in the procurement process, even given a voice in budget creation. Bottom-line, Procurement should be given a much more robust consultative role earlier in the project; and not used as a “blunt spear” after decisions have been made.
- Other procurement organizations (GPO’s) – Not every company has the economies of scale necessary to gain large supplier discounts or preferred pricing. They need leverage, and leverage means numbers that contribute to buying power. This approach can increase that power by partnering with organizations of the same size and scope, and using that aggregated buying power to purchase similar materials at a larger discount. Many of these GPOs already exist and have completed advantageous negotiations, so there’s little need to create your own.
- Suppliers – This is hardly a new concept; in fact, it’s the oldest collaborative relationship within the supply chain. Procurement departments regularly collaborate with suppliers on process improvement and innovative business ideas to create a competitive advantage in the marketplace. In today’s business environment, reducing product costs is not enough to ensure success. Strategy plays an increasingly important role, so procurement needs to collaborate with suppliers to create value beyond cost reductions. That could include working with suppliers on supply chain optimization and risk management. It could also mean leveraging a product category to fit changing business needs.One unique collaborative process takes place when the customer is also a supplier of your company. This 360-degree arrangement benefits both parties. If one of your customers is also one of your suppliers, your leverage is even greater. You can achieve larger discounts on material and services and so can your supplier in its dealings with you. The result – reduced costs, increased sales, and increased profits for both.
- Vision-driven groups within the company – We spoke above about the disintegration of silos and how Procurement needs to be brought into the planning process earlier. When you talk to procurement professionals, one of their major complaints is their lack of access to executive leadership, those who create and maintain the “vision” of the company. When the vision of that layer is created unilaterally, necessary advice is missing. That’s the advice and counsel that Procurement can bring to the table; but too often, procurement doesn’t receive the respect, access, and communication they need to help the company fulfill its vision. In too many companies, Procurement lacks the political clout and mandate necessary to make a formidable impact on a company’s competitive advantage.
Each one of these collaboration “partners” is a necessary piece of the supply chain puzzle. When the pieces all fit, the company has a chance to achieve its objectives. But when even one piece is missing, the puzzle remains incomplete and the picture is less than clear.
See how to manage your procurement needs more effectively.