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.