Procurement Capability: Strategies for Effective Development

For a business to succeed, it needs to have a robust set of in-built procurement capabilities. To develop these, a clear strategy is needed to ensure these capabilities align with your overarching business goals and offer your procurement professionals the greatest opportunities to succeed in their roles. An effective procurement strategy can help contribute to cost savings, enhance supplier relationships, and improve overall business performance.

First, let's take some time to truly understand exactly what we mean by procurement capabilities and their importance in building a robust business.

Understanding Procurement Capabilities 

Procurement capabilities make up a wide range of skills, processes, and technologies that procurement professionals use to effectively and efficiently source and acquire a wide variety of goods and services. Skills, such as negotiation; contract management processes, such as sourcing and contract execution; and technologies, such as e-procurement systems and data analytics tools, all come together to collectively contribute to an organization's procurement capability.

The modern procurement landscape is shifting, with trends such as digitization and a move towards automation driving increased efficiency and evolution within the field. As these trends become more widespread and commonly used, the need for a more robust and advanced set of enhanced capabilities becomes apparent.

Many of the world's largest companies have realized this, and are investing heavily in modernizing their procurement capabilities to meet the demands of modern business. For example, global IT services company Accenture spent over $7.4 billion in 2020 on its "Procurement Plus" programme, designed to standardize, simplify, and automate the essential elements of its procurement arm.

Key Strategies for Developing Procurement Capabilities 

The best way to develop procurement capabilities is to have a proactive approach. This will ensure that your organization has a consistent focus on continuous improvement while also keeping your procurement capabilities well-aligned with your overarching strategic goals. You should also consider using data-driven skills gap assessments as they offer a true objective basis for identifying strengths and weaknesses within your procurement operations.

If this data identifies any gaps or areas for improvement, it's important to have a strategy in place to improve them. First, consider setting clear goals and KPIs that also align with your wider business goals. This ensures that your procurement team develops, but that your business objectives are still front of mind. Also, consider encouraging your team to engage in continuous learning and development. The procurement landscape is constantly changing and evolving, and your team needs to evolve too to keep up with your competition.

Finally, try to develop initiatives aimed at nurturing and developing burgeoning procurement talent within your organization — mentorship programs and cross-functional training are both great examples of what you could introduce. Senior leaders need to be seen to be driving these initiatives from the top down to instil a culture of learning and development within the company.

Integrating Sustainability into Procurement Capabilities 

Sustainability is one of the biggest themes disrupting procurement capabilities, with increasingly strict regulatory requirements and never-before-seen levels of public scrutiny and pressure forcing companies to look to integrate sustainability practices at all levels — particularly in the field of procurement. 

Now, there is pressure on companies to utilize eco-friendly suppliers who prioritize renewable resources and look to reduce waste as much as possible. There's also a significant focus on carbon emissions, with businesses now expected to be exploring route optimization and energy-efficient logistics solutions to minimize their overall carbon footprint.

While these initiatives can be time-intensive to set up initially, they can be quite beneficial for companies. Not only will they satisfy regulators and eco-conscious stakeholders, but there are also significant cost savings to be had, a boost to overall brand reputation, and the potential for new customers who are attracted to environmentally aware businesses.

Leaders, once again, need to lead from the front when it comes to sustainable procurement practices. By setting high standards for your fellow workers to follow, you create a culture that's more environmentally and socially responsible. This not only helps your business achieve its sustainability targets but also builds a more ethical and resilient supply chain overall.

Enhancing Organizational Resilience Through Procurement Capabilities

Organizational resilience refers to the ability of a business to effectively prepare for, anticipate, and respond to changes and sudden disruptions. Procurement capabilities play a leading role in ensuring organizational resilience by ensuring a company consistently has access to reliable sources of supply, and by having mitigation plans in place to respond to any unexpected market changes.

One strong example of operational resilience on a global scale is Canadian e-commerce company Shopify's response to the COVID-19 pandemic. COVID-19 shook the global supply chain in an unprecedented fashion, causing turmoil for businesses everywhere. Shopify quickly pivoted to a "Digital by default" model, introducing remote work for all of its employees in a relatively seamless manner. Its risk management framework was already in place, and this allowed it to quickly alter its operations to enhance resilience quickly and efficiently.

Procurement capabilities are intrinsically linked with the overall organizational strategy of a business, with significant alignment needed between procurement capabilities and key business goals. As a business scales, the procurement capabilities need to scale with it, for example.

Driving Future Success 

When looking to develop strong procurement capabilities, it's important to integrate a proactive and data-driven approach. This will allow you to objectively decide where to invest time and resources to best align with your existing business goals. You'll want to do everything you can to foster a culture of continuous development so that your company's procurement capabilities can scale in line with the growth of the business.

Consider conducting capability and skills gap assessments, investing heavily in talent development, and integrating sustainable practices into your procurement capabilities from the ground up. Also, try to keep on top of emerging trends in the industry, such as the rapid growth of AI-driven procurement platforms and advanced data analytics. Utilizing these can keep you ahead of your competition and develop a truly robust and resilient set of procurement capabilities within your business.

Reach out to us to have a conversation about our Skills Gap Analysis for determining strong versus weak capabilities within your team, and developing personalized upskilling programs for greater performance.