No Company is an Island: Why You Need Strategic Procurement
6th November 2014 | Caroline Booth
In this article, Caroline Booth explains why ‘no company is an island’ in the modern economy, and therefore, why procurement is critical to the success of any organization.
One of the enduring mantras of modern business has been to ‘focus on your core’. This mantra has endured because, to be honest, it makes a lot of sense. At its heart, it recognizes that an organization cannot succeed if its resources (whether personnel or financial) are spread too thinly and if it becomes average at everything rather than supreme at what makes it unique.
To identify what is core to an organization, it is usual to look both at what is important to its success and what it is good at. The former is assessed in the context of the organization’s strategic priorities and the latter in respect of its competitors and other providers of the goods or services. Implemented well, the resulting division of labour will help any organization to become much more effective and competitive.
Over the years this mantra has had interesting consequences. Outsourcing proliferates the number of companies involved in both meeting an organization’s internal needs and delivering its customer value propositions. As such, the strength of the procurement process (including sourcing and supplier management) and its application throughout the lifecycle of these relationships has become business critical.
Whereas once, procurement was seen as an administrative process that was valued for ensuring financial probity, it is now increasingly recognized as key to a company’s success. Thoughtfully selecting and contracting with suppliers that care about your company and then managing their performance should now be considered mere table stakes.
Certain industries, such as manufacturing, have always had a high percentage of their costs with third parties. However, now companies in nearly every industry routinely spend as much with their suppliers as they do on salaries and benefits. This means that good procurement can make an impact on any organization’s performance. The why and the what of all of this is explored in the second edition of ‘Strategic Procurement’, including:
- Focus on your organization's customer value proposition (and not just on what you are good at) to help it evolve for longer-term success;
- Own the supply chain and leverage others expertise where it makes sense - thereby answering the 'make versus buy' question;
- Agree on what the organization really needs. 'Functions first, then features maybe# is key to any successful sourcing exercise;
- Be prepared to engage the whole organization in the process - procurement is too important to be left to just the procurement department;
- Know that the best contracts in the world are only part of the solution - post-contract management is key to securing both the performance you need and mitigating on-going supplier-related risk.
At its heart, procurement is a key business process with a great value proposition in both good and bad times. It can help to deliver better revenues through suppliers and supply chains that innovate and delight the customer as well as reduce costs through effective leverage and sourcing what the organization really needs. As such, strategic approaches to procurement help raise its value to both the organizations that deploy them and its practitioners.