Does your procurement function need to become more agile?
To achieve profitable and sustainable growth, organizations must create business value, eliminate costs that do not contribute to the company objectives and reinvest these savings into growth initiatives to improve competitiveness. This can prove to be a challenging process and procurement agility can have a significant role in achieving this kind of productivity and efficiency. Companies with high-performing procurement functions consistently out-perform their competitionand apply effective strategies to run their procurement processes. Agility is a characteristic of successful procurement organizations. According to real options value theory (oracle corporation 2010), business agility means how well a business is able to adapt to changing circumstances.
What does research say?
The Hackett group 2016 report provided insights into world-class procurement organizations and what makes them perform better than typical procurement organizations. The study revealed that achieving world-class performance, results in gaining 18% lower operating costs and using 28% fewer full-time equivalents than peers. It also highlighted the fact that world-class procurement also means a significantly higher procurement return-on-investment.
Another report by Ardent partners includes benchmarks and analysis on the state of procurement based on the views of 318 chief procurement officers and other purchasing executives. The report suggests that CPOs should also develop an “agility agenda” that leads their organizations with agile and innovative characteristics whilst maintaining efficiency.
According to the study, critical areas for the agenda are:
-A fluid organizational structure that values skills over experience, an open flow of information and communication, adaptable and responsive people and fluid resource allocation
-Standardized, automated, streamlined and scalable procurement processes managed by a team constantly looking to eliminate complexity and barriers
-Regular and proactive management and operational improvement
-Cloud-based, easy-to-use, and easy to adopt supply management technology, which supports collaboration, with strong reporting and analytics
-A balanced approach to measuring and evaluating metrics.
3 ways to develop procurement agility:
- Re-skill the procurement function
Deloitte CPO Survey emphasized acquisition and developing and retaining talent within organizations. According to the report over 60 per cent of CPOs feel that their teams do not have the skills needed to perform their roles. Another factor which is worth mentioning is that the report suggests that these CPOs are not looking to change their teams, but to develop them. Other studies such as the one by Ardent partners concluded that the procurement profession needs new, more adaptive strategies and approaches to propel it to the next level of performance. All of these studies confirm that procurement agility can be developed through corporate training.
Investing in an effective training solution means more productivity, increased efficiency and, most importantly, the ability to cope with changes. Modern training and development programs are now gaining traction with solutions such as webinars, e-learning, scenario-based videos, gamification etc. Due to its accessibility and flexibility, employees are more likely to be engaged and apply learning in their jobs. This results in a more agile workforce for sustainable growth and profitability.
- Embrace digitization
World-class procurement organizations have shifted to a complete digital experience for their business users. This consists of a paperless environment and the ability to work from anywhere on any device. A wider use of new technologies and software advances is now defining the procurement functions. For instance: cloud-based infrastructure, virtual business and technology networks are rapidly shaping various organizations. A research by The Hackett group found that world-class organizations spend 23 per cent more on technology per person. The investment yields real productivity gains, including 71 per cent lower cost per order than typical companies.
- Consumer-driven procurement
Agility does not only consist of the operational side of a brand. Procurement is also driven by consumers – what they need, what they want and how they interact with your brand. Technology and the digital functionality of your company are important elements to determine the data that drives your decision-making, particularly when looking at fluctuations in the market and forecasting. The customer must be the focal point of all key activities and functions within procurement. With this approach, services are designed based on users’ wants and needs, rather than forcing them to change their behavior to accommodate procurement’s internal processes.
When considering the matter of procurement agility, it is essential to understand the various ways you can be agile in meeting the changing needs of your organization. So the question you should ask yourself is: Does my procurement team employ best practices and sophisticated tools with the right talent? A high-performing procurement process leads to growth and competitive advantage whilst ensuring that the organization has what it takes to be ahead of the game.