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Procurement Pros: You’ve Got A Friend In ROI

How does an organisation know that the procurement initiatives, projects, efforts really result in a quantifiable benefit to the business?

By Mercury Green / Shutterstock

As both a former CPO and consultant, I’m often asked about the strategies I have employed to grow, reach and deliver results. Yes, I can tell you stories from past lives of wooing reluctant stakeholders and setting savings records year over year. Actually, the secret to my success in procurement is much less glamorous, and I’d like to share that with you: 

Effectively planning and prioritising initiatives and meticulously tracking ROI through a rigorous project benefit validation process and governance framework are the best ways to increase your organisation’s credibility, dependability, and recognition.

Procurement plays a critical role in the cost management of an organisation.  This is why many organisations are quick to tout the cost savings and bottom line benefits generated by procurement’s efforts. Procurement’s maturity journey, when done right, can last months to years, and often requires significant investments – consultants, technology infrastructure, headcount, and support services. How does an organisation know that the procurement initiatives, projects, efforts really result in a quantifiable benefit to the business? Furthermore, how can the organisation fully appreciate procurement’s value? When the results are not tracked, reported, and kept as the focal point, procurement’s full impact can be overlooked, or underappreciated at best.

ROI is your friend

Procurement intersects across the business’ most strategic functions: operations, finance, legal, while managing critical external supplier and partner relationships. This broad exposure is combined with well-honed skills in cost control, analytics, process, research, contracting, and negotiation, as well as a deep knowledge of the business and company culture. Yet, we are often not given the respect we deserve as a key trusted business partner. Why is that?  Procurement teams tend to sell themselves short by not forecasting ROI and tracking quantifiable benefits for all value-add initiatives.

Identifying project benefits and estimating an accurate return on investment (ROI) can be very challenging for organisations. There are several possible reasons why ROI often goes unmeasured:

Being satisfied too early

Some organisations are satisfied with the general improvement in their financial statements after formalising a procurement strategy, because now a methodology in which to quantify “savings” or “value” has been defined.  When this journey begins, controls are strengthened, initiatives are defined, “low hanging fruit” is addressed, resources are deployed, and as a result, the organisation performs better as a whole. 

Focusing on tactics

Some companies focus intensely on training resources and executing projects in the early stages of a procurement journey, and place secondary emphasis on measuring ROI, believing that the benefits will come.

Can’t find the right formula

Some companies attempt to measure ROI, yet they are unsure how to quantify project benefits generated from procurement, especially if there are multiple ways to measure a successful procurement effort. It is evident that, even considering how well-known or understood the procurement function is to the world, there is still a significant knowledge gap. How can procurement quantify project benefits and truly link them to a company’s financial performance?

The well-reported results of industry pioneers that are more mature in their procurement function, as well as the pressing need to reduce costs and improve productivity, have encouraged company leaders to push their teams to undertake even more procurement initiatives. Sometimes, after an initial burst of enthusiasm, these efforts languish over time, or procurement becomes less engaged than they once were. This can often be because benefits have not been accurately estimated or verified as impacting the bottom line. In some cases, benefits can be reconciled as tangible contributions to the income statement; but in others, benefits may not be so evident during a reconciliation process.  A critical key to success is to ensure that procurement does not miss an opportunity to bring true credibility to their efforts is to implement a process that directly reconciles project benefits to the company’s accounting and reporting systems.

The tools you need: project selection, benefit validation and governance

A strong project governance process is key to the successful project execution and results. A comprehensive project governance process encompasses how projects are identified, selected, executed and reported. However, in most project governance processes, a key element is often forgotten: benefit estimation and validation.

While most organisations recognise the value of properly vetting project ideas and opportunities prior to launching a project, many fail to follow the process religiously for every initiative. Some may launch projects before a proper prioritisation effort has taken place, or others may spend too much time in the idea generation phase. Often, organisations fail to estimate potential benefit prior to project chartering or prioritisation of projects.

Experience has shown that the pressure to get started, or to drive quick results, pushes teams to launch projects without taking the time to adequately plan or determine probable benefits. This ineffective approach to project selection and prioritisation means that projects are often executed without being fully linked to the organisation’s overall strategic goals, and as a result, too many projects are chartered, and few are completed to the company’s expectations.

Not only does a project benefit validation process help with initial benefit estimation during project selection, it adds rigor during project execution by defining project benefits with more accuracy and clarity. This facilitates credible benefit reporting, and establishes a foundation for post-project benefit reconciliation, where benefits can be reconciled to the organisation’s financial statements. Simply stated, the benefits driven by the procurement effort can now be fully understood as to their impact to the business.

A strong project benefit validation infrastructure can support the procurement function as it matures an evolves to take on more challenging value-add activities for the business. It provides not only the basis for identifying and approving projects, but also serves to maintain the momentum and retain ongoing management and stakeholder support to build the brand, extend your reach, and deliver better results year over year.

WNS is sponsoring Big Ideas Summit London on March 14th. Sign up now as a digital delegate to follow the day’s action wherever you are in the world.  

4 Factors To Consider When Upgrading your Procurement OS

An upgraded operating system (OS) takes the procurement function out of the traditional back-office role, and into that of a valued strategic business partner.  

By Preechar Bowonkitwanchai /Shutterstock

That little flag in the corner of your laptop screen, the red exclamation mark on your phone, the middle-of-night system message. You know what it means- it’s time to upgrade your operating system.

Yes, it’s painful to exit your programs, save your work, and sadly close all 35 of your vacation-planning web browser tabs.  You sit, you wait, then you reboot and possibly even get reacquainted with your digital systems again. No one wants to do it, but in the end, we all are all thankful to those glowing, pulsing indicators for pushing us and guiding us through the process for that much-needed refresh.

Things run so smoothly now, don’t they?

What if we received the same upgrade reminders in real life?  What would your red exclamation mark tell you about your procurement operating system? Is it time for an upgrade?  Almost definitely! An upgraded operating system takes the procurement function out of the traditional back-office role, and into that of a valued strategic business partner.  

The transformation, however, can neither happen overnight nor without setting the right goals and planning.  You’ll need to close some browser windows and maybe lose a few saved files in the process. In our decade-long process of co-creating this operating model with leading global companies, we have identified four key enablers required to help you upgrade. Read on and trust me, it will all run so much more smoothly in the end.

Structure of Upgraded Procurement OS

1. Strategic Category Management

At the heart of the transformation is the shift that procurement has to make from being reactive problem solvers to proactive solution providers. This is not possible without category managers or business-aligned spend managers aligning with the business, understanding strategic priorities and building relationships with stakeholders. When category managers proactively reach out to the business, they begin to demonstrate value and finding a place at the table will become easier.

Building a centralised Center of Excellence (CoE) can help category managers develop the required skills. The CoE can provide the necessary support such as tools, methodologies, templates, market intelligence and coaching.

2. Centralised Procurement Help Desk

On any given day, procurement functions are inundated with queries and work requests. As procurement transitions to operate more strategically, it is critical to find an effective way to service internal and external stakeholders.

Setting up a centralised procurement desk can help channelise the requests to various specialist teams such as:

  • Strategic support team that can be responsible for services such as market research, category strategy development, stakeholder workshops and portfolio development
  • Source to manage execution team thatcan manage the execution of activities such as creation of request for proposals, supplier management and contract authoring
  • Transactional execution team thatcan manage back-office operations such as purchase order management and invoice-to-pay processing

3. Technology Accelerators

The digitisation of transactional and repetitive procurement activities is a low-hanging fruit for organizations as it will release the bandwidth of resources for more proactive, strategic planning. Further, digitisation can help identify patterns, norms and trends leading to a procurement playbook.

Supply chain management is experiencing a quantum shift because of emerging technologies such as internet of things, artificial intelligence and advanced analytics. Adoption of these technologies, is critical to upgrading procurement’s operating model, but it should be planned well. It is necessary to define the overarching vision and strategy, and to then evaluate how technology fits into the roadmap.

4. Implementation Approach

The final piece of the puzzle is the actual re-organization of the procurement function into the new operating model. It is a myth that technology by itself will be enough to integrate all processes. Putting together the right team, getting executive sponsorship, ensuring alignment with the vision and finding collaborative external partners are all critical success factors in upgrading to the optimal OS for your organisation.

This is where the smart phone operating system analogy falls a bit short- unfortunately, we, as the procurement team, can’t expect to wake up to a fully-restored bug-free system- good results take time. It is necessary to plan for adequate time required for the new model to mature and assimilate into the organisation’s new way of working.  If this is done correctly, your stakeholders will certainly experience the thrill of a significantly improved experience. 

Now is the time to upgrade your framework and develop the future infrastructure for procurement operations.

Are you ready to push the upgrade button? Learn more by reading WNS’ Next Generation Procurement Model Whitepaper.   

WNS are sponsoring Big Ideas Summit London on March 14th. Sign up now as a digital delegate to follow the day’s action wherever you are in the world.