Recognising the Value Proposition of Procurement in Organisations

In this Industry Trends article, we will explore two perspectives on the value of procurement and how that value can be increased in our industry and across various other commercial landscapes.
We all know that the value proposition of procurement for organisations extends way beyond the final transactional steps, and into the profitable realms of cost savings and growth. Procurement also shields organisations from a number of unnecessary headaches and potential disasters: think compliance and risk management. Now there is an old saying that says beauty is in the eye of the beholder, and the ugly truth is that without a competent, dedicated and experienced procurement function, profits can be diminished or put at risk through expenditure blowouts and misunderstandings.

So, from a corporate or management point of view there is value unless procurement is seen as simply a support function – in which case, there is not a lot more to be said. However, if procurement is seen as a value-add catalyst, things become far more interesting.

Cost centre versus profit propagator

“It all depends on how you look at it and from where.”

That somewhat blithe answer in quotations, can be applied to many questions in commercial life. In this case however, in trying to highlight the value of procurement in organisations, it really does depend on how you look at it and from where but importantly, you need to understand who’s looking at it and why.
As mentioned, procurement is important to well-run operations because compliance and risk management is likewise important to well-run organisations. It just makes sense to cover these two areas off and to ensure that some detailed thought has come into play. That said, when operating in an everchanging, fast moving commercial environment, growth opportunities are fleeting and eventually, no matter your how large your lead is, you’ll find your competitors are closing the gap. That’s where innovation, cost savings, collaboration, and an understanding of the value of partnerships becomes a key contributor to the bottom line.

Looked at from a profit propagation point of view, an experienced procurement team is not only a valuable contributor to discussions on process improvement, cost savings and reductions, it provides insights into strategic sourcing and innovation around supply development as well as overall sustainability. All of these roads lead directly to best practise which in turn paves the way to sustainable returns and mutual benefits flowing between the organisation and its stakeholders/ customers.

Well, it certainly sounds right, doesn’t it? These are all things we already know but perhaps during the daily hustle and bustle of getting things done, we rarely say. This may be part of the reason some procurement functions and teams may be unintentionally undervalued by organisations. There is nothing malicious in it nor is it ignorance. The benefits just need to be kept top of mind.
In terms of those benefits, there are probably three that are critical to smooth and profitable operations.

Three keys to unlocking the value proposition of procurement

Actually, there are more than three but without the following points, the procurement department could well be relegated to cost centre status as opposed to a ready source of profitable opportunity.
1) Be the key piece in the partnership puzzle.
Procurement is often the team that can bring together the disparate threads of strategic sourcing. Rarely nowadays, or ever, for that matter, is it all about the price and how low we can go. Trust is key and therefore a clear and accurate understanding of supplier process, primary materials’ origins (modern slavery awareness), and even an up-to-date understanding of geopolitical issues, influences, and considerations, become valuable when developing effective partnerships.
2) Advancing and progressing effective process improvement.
If on-time, in-full delivery of goods and services lays at the heart of procurement’s function and therefore value, understanding the advantages of optimised processes, workflows and practises is just the tip of the iceberg. A progressive procurement team will be hard at work interrogating automation, AI, inventory management, and costs, all in the pursuit of best practise and best possible profit outcomes.
3) Sustainability is everything

Much has been written, and rightly so, about environment, social, governance (ESG) matters and how they influence and shape not only our industry but commercial and organisational endeavours the world over. Thoughtfully sourced primary and secondary materials and the practises used to “keep the world turning” is one very important facet of ensuring we furnish our key stakeholders with the goods and services they require in a sustainable manner. The procurement department is central to these sustainable practises.
Recognising the value proposition of procurement in organisations is, in large part, up to those that are best positioned to speak on the benefits of an engaged, talented and experienced team. If you are reading this article, you are running the inside track towards making this value known.