All posts by Jaime Mora

It’s Procurement’s Own Fault That The Business Thinks We’re Only About Price

If you’re forever complaining that all your stakeholders want from procurement is cost reduction, consider this: maybe it’s your fault. Here’s how to fix it.  

Over the years I have seen and agreed with a tendency in the area of procurement and supply management about the movement to become a broader function; one that goes beyond comparing prices only, and becomes a business strategist.

At the day-to-day level, the organisation has goals that when cascaded to Procurement could be understood as “only” about cost reduction. One consequence of this is that Procurement’s work and recommendation revolve much of the time around pricing. And this makes sense, as it is the most intuitive strategy to bring benefits to the company, and it is also the easiest way to measure impact (at least to the eyes of our stakeholders).

Considering that we as a function are trying to evolve, a consequence is that we feel that we get classified as professionals that can only talk about the prices from suppliers. This situation puts a glass ceiling on what Procurement can do, making it harder to gain relevance in the wider organisation.

But, which came first? The chicken or the egg?

It’s our fault

My theory is: could it be caused by us? Could it be that we ourselves are continuously reinforcing the cycle in which we always talk about price and then the organization talks with us only about price as well?

Competitive pricing does not appear from thin air, especially in organisations with mature procurement functions. These organisations require that the Procurement Manager (the agent that needs to make two different organisations “talk and function together”), make use of levers such as strategy tools, supply chain tools and people tools (mainly) to achieve what is regularly expected: a lower cost.

And how many of those levers are about price only?

If Procurement wants to become more relevant in the organisation, it needs to build over time the tone of the conversation, steadily broadening the decision analysis and variables and incorporating into the recommendation more business broad perspectives: create a competitive advantage, consider impact to society and environment, supply chain efficiencies, changing the category structure, and so on.

To understand if you are a Procurement professional who is capable of growth in the organisation and who will one day become a business strategist, growing at the same time the value of Procurement as function, take the first step: make a self-assessment.

Looking beyond price

Take your most successful procurement recommendation, and delete all the components that are price specific, or are directly linked to price (e.g. spend levels, price savings, price structure, price benchmarks, etc.). How much is there left?

If there is not much left, it means you have work to do to steer your business conversations into broader business impact topics. I present below a couple of ideas that could be used to initiate and maintain the transition to procurement contributions with strategic added value to the business:

  • The first one is not an actual recommendation because it is playbook: do the procurement homework. Create the procurement framework for your category including supply market strategic analysis, decision/evaluation matrix, category analysis and positioning, and all relevant topics that revolve around a strategic process. To change the game, you need to be aware of how is currently played.
  • During your competitive procurement processes, conduct a negotiation round (or at least a supplier meeting) without talking about the price (or similar); challenge yourself to identify the differences between suppliers and to identify the value buckets that are hidden behind the price tag. By simply broadening the topics in conversation, the chances for a successful negotiation increase (as you may increase the negotiation topics). As a result your procurement mindset will kick in and will guide you to new and better strategies.
  • When making presentations, ensure the information you present relates directly to your strategy: it clutters your work if you present supplier total revenue, number of employees or location, if these are not directly related to a component of your strategy. At the same time, use graphics to build momentum to present your recommendation; if the intention is to present which supplier is bigger (assuming that the aim is to communicate that bigger is a proxy for better), then presenting a code or a ranking of the “bigger supplier” could suffice to communicate your idea (details could always go to annex).
  • Show others how you expect the variables of your presentation to play out in one years’ time. This means: Do you expect the same supplier to still be the most competitive at contract exportation?  What level of technology compared to peers do you expect the supplier to own at contract expiration? Would the supplier be better prepared to collaborate with the organisation? Which supplier may have a change of ownership or acquire new assets?

Business mindfulness is created over time. By initiating an own process of “thinking  business” instead of “thinking price” while producing our daily procurement outputs, not only are we capable to implement more resilient and value adding solutions, but we enhance the mutual benefit relationship of our function with the business, moving away from that “price manager” tag that Procurement may have, and eventually opening up the space to create more opportunity for procurement professionals.

To give Procurement a seat on the table we also need to be leaders that develop people. It is important to say that these ideas of “talking about everything except price” is a technique that should be used not only with self, but with suppliers and with junior team members. Giving them the challenges as proposed here becomes a tool for their development, challenging suppliers to be better, and help your people become more rounded business professionals.

We should embed in our mindset that every Procurement project is an opportunity to improve as a business professional for the benefit of the business. I expect the ideas shared on this piece to trigger the process of transition from price managers to business strategists.

How To Upgrade Your Procurement Mindset

In a world where cost-savings are no longer king in procurement, how can the function demonstrate its business value and earn a seat at the table? Jaime Mora talks upgrading your procurement mindset!

In recent years, our organisations have gotten a better understanding of the valuable contribution Procurement can deliver to the business.

And yet, there remains a feeling that the function has not yet reached its full potential. Procurement is certainly a relevant and appreciated corporate function. But we’re not yet sitting in the C-Suite…

As procurement professionals, we unanimously agree that the function should be elevated within the business, but convincing those at the top is easier said that done.  Whilst all organisations consider implementing cost-savings to be a crucial part of business success, it’s no longer regarded as a strategic process or a competitive advantage. Leaders are becoming increasingly aware that savings alone will not distinguish them against  their competitors. As such, procurement can be dismissed within the business as a less important function.

The bottom-up approach

If traditional procurement contributions are not at the top of an organisation’s agenda, how can procurement earn its place in the C-Suite?

It’s difficult to find a “one size fits all” recipe but we could start by upgrading our procurement mindset. I propose that we rebrand  ourselves as: “External Competitive Advantage Strategists.”

But what on earth does that mean?

As it stands, we’re  pressured into taking a bottom-up approach to our work. We know we have to bring savings to the table, we achieve this, and only then do we start thinking about the other nice things we can do with our time; innovation, sustainability, supplier development etc. And we deliver on those things too.

It makes sense that the more value-adding contributions we make, the more arguments we have to justify a spot, and a voice, at the highest levels of the organisation.

But in reality,  we end up doing bits and pieces here and there, following trends and simply trusting our gut.

Taking this approach is one of the reasons that procurement objectives and output may deviate from actual business goals.

Taking a top-to-bottom approach

If we truly want to step up our contributions, we should be taking a top-to-bottom approach. Our organisations operate in highly competitive environments, where sustainable advantages are required in order for us to outperform our competitors.

Procurement is uniquely positioned in the business given our access to so much information from our supply networks and an awareness of the opportunities here. We’re in the perfect position to source more than just products and services – we can actually source competitive advantage.

Procurement is capable of seeing things strategically. We can analyse where our organisation stands in a competitive environment and we are capable of both meeting our business targets and identifying where and how our organisation could compete better.  To take a holistic approach, this should be complemented with strategic analyses of our suppliers.

As I mentioned at the beginning of this piece,  cost-savings will always be appreciated. But procurement’s work should never be limited to that. The new approach to procurement is about sourcing the external competitive advantages on offer to give our organisation unique advantages in a competitive environment.

Imagine the following scenario: one of my organisation’s strategies is to develop its people. From my knowledge of the supply market I know a particular supplier that is uniquely skilled in people management and development and this makes them the most competitive supplier. We have the power to bring this supplier to the table; to initiate the discussion to build a partnership and leverage the supplier’s competitive advantage, or even a vertical integration.  Boom! Now Procurement is sitting at the M&A table.

As saving becomes a commodity and not a priority, it is time to reinvent procurement. Leave the Procurement Manager title behind and become a External Competitive Advantage Strategist!