Do you really know what your organisation is trying to achieve? Profitability is probably part of it. But what about the strategy and priorities in more detail? Clarity on corporate strategy is important because departmental strategies need to be aligned. Procurement strategies, in turn, need to be extensions of those corporate and departmental strategies. In essence, everyone needs to “pull in the same direction”.
Once you have a clear picture of what your organisation is trying to achieve, take a good look at how well current procurement activities and processes are supporting those efforts. While there may or may not be any formal “Procurement Strategy” in place, there is always a “de facto procurement approach” at play.
Once you start to see how effectively (or not!) current procurement approaches support the organisational strategy and priorities, you will start to spot gaps, aka weaknesses. You will also likely see strengths, opportunities, and threats. A good analytical tool to help you think through this is the SWOT model. It stands for Strengths, Weaknesses, Opportunities, and Threats.
How do I conduct a SWOT analysis?
Think of “Strengths” and “Weaknesses” as originating from inside the organisation. Something someone in the organisation could control or affect if they really wanted. “Opportunities” and “Threats”, on the other hand, originate from the external environment. So, stuff that’s outside the control of anyone working for your organisation. The idea is to start stimulating some thoughts around how strengths can be enhanced, weaknesses minimised, opportunities grasped and threats mitigated. See the example below.
How do I use the results of my analysis?
So, in the example above the Procurement department of an imaginary company feels they are maintaining good supplier relationships. That’s obviously a good start. But what does “good relationships” actually mean? Do relationships tend to be too cosy? Are suppliers adequately challenged in terms of cost and quality? Do they bring new innovation to the table that can support your organisation’s corporate strategy? Exploring questions of this nature may reveal opportunities for building even deeper and more meaningful supplier relationships, that in turn can help enhance or create competitive advantages.
Maverick spend, or “leakage”, is a problem in many organisations. A lot of time and effort is spent on negotiating agreements with preferred suppliers, but the value is undermined by non-compliance with those agreements. In other words, some stakeholders continue to use whatever suppliers they individually prefer.
But why is this happening? If it’s because people simply don’t know which suppliers to use and how to engage with them, then perhaps all that’s needed is some training and awareness events.
Often, though, the problem is multi-faceted. It may be cumbersome or time-consuming to comply, so people (quite understandably) chose the path of least resistance to get their jobs done. So, a combination of streamlining processes, policy changes and awareness may be the best approach to reducing maverick spend.
An opportunity in the external environment, relevant to our Procurement approach/strategy, could be the emergence of a particular technology in the supply market, which has the potential to support areas defined in our corporate strategy. We then have an opportunity to adjust our Procurement approach/strategy to ensure our organisation gains access to this technology before key competitors.
Old school Procurement is transactional and savings focused. It is now widely accepted, however, that Procurement can, and must, do much more than that. If the gap between your Procurement department’s approach and external best practice becomes too wide there is a risk that your Procurement team will be marginalised. Stakeholders will increasingly attempt to bypass the team. As a consequence, that coveted seat at the Board Room table may never be offered to Procurement, if it continues to be seen as merely an efficient tendering machine. Embracing a Business Focused Procurement approach will mitigate against that threat.
Being able to self-evaluate your Procurement approach in this way is incredibly important to add critical business value, gain the confidence of your organisation and over time become a trusted business advisor.
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