The Enablers of Procurement Excellence

The Enablers of Procurement Excellence

The Enablers of Procurement Excellence

 

High performance procurement functions across all sectors share common practices and characteristics that define their approach. They have similar goals, embrace similar processes and require similar enablers in order to achieve similar outcomes.

This three part series takes a closer look at what high performance procurement involves, the processes that constitute best practice, the fundamental components that underpin procurement excellence, and what the organisation should expect to achieve from adopting this approach.

Within these areas, the focus for every organisation will vary, but with the right enablers in place, every organisation can navigate their way to high performance procurement.

 

Part 2: The Enablers of Procurement

Foundations are important. Strong performance is built upon strong fundamentals and there are six areas which form the basic building blocks for a procurement function. We call these the Enablers of High-Performance Procurement. When sports teams talk about “getting the basics right” the same applies to procurement organisations. Performance will depend firstly on these basics being in place but also the level at which they are operating.

When we assess a procurement function we use a performance assessment model based on the six key enablers. Each enabler has a number of dimensions and for each dimension there are a number of criteria, or measurement points. In total, there are 60 measurement points which then build up to provide a clear picture of the functional capability of the procurement organisation. By assessing the level of each of these criteria we can accurately “map” the performance profile.

Understanding the performance profile is important for a number of reasons;

    • Firstly, we can understand the overall level at which the function is operating. This is an overall measurement and forms a key performance indicator for the function. In our view, we categorise functions to four levels; level 1 is operational, level 2 is standard, level 3 is professional and level 4 is excellent. Development of the function along this scale can provide a key tenet of an organisation’s procurement strategy and a measurement which should be visible and monitored at board level.

 

    • Secondly,  we can use the profile to benchmark against similar organisations. We believe that an organisation’s procurement performance has a direct correlation to the overall financial performance of an organisation and understanding how a procurement function compares to industry peers is a particularly valuable diagnostic for profit improvement. It is important to note that one size does not fit all and the profile of a procurement function should be tailored to the operational business of the organisation. For example, a procurement function for a financial services organisation will have a different profile to a manufacturer or an NHS hospital.

 

  • Finally, and most importantly, we can use the profile as a functional diagnostic, quickly identifying the gaps in functionality of the procurement function. By assessing where the function is now compared to where it needs to be and highlighting the areas which need to be improved, we can develop a procurement development plan; a clear roadmap for development of the function.

So what are we looking for in the Enablers of High-Performance Procurement?

1) Strategy & Organisation

Excellent procurement functions have a clear strategy; a written document outlining the scope, direction and mandate of the function. The strategy is reviewed and approved at board and provides executive level sponsorship of the goals and objectives of the procurement team.

Leading organisations have strong procurement leadership. The leader is visible, respected and involved in all commercial discussions. Leadership is not just one person – leadership for procurement also comes from the board, the non-executive directors and the senior management team within the organisation.

Finally, engagement is key – both internally with stakeholders in the business and externally with suppliers and partners. Many procurement organisations are back-office, reactive functions which respond to requests to buy requirements or just act as compliance and contracting resource when contracts are up for renewal. The good ones are proactively engaged, peer-to-peer, with all stakeholders in all parts of the business. The combination of domain knowledge from the stakeholder and commercial expertise from a procurement professional is very powerful.

2) People & Skills

The importance of people in procurement cannot be underestimated. In the last ten years, e-procurement and e-auctions have grabbed the headlines but business is about people and excellent people are needed for excellent procurement.

There are two main factors. Firstly the development and skills of the people, and strong procurement functions have structured role competency profiles, structured development programs and regular appraisals in order to upskill and continually develop their main assets.

The second factor is the scope and influence of the team. High performing functions influence all of an organization’s expenditure and that degree of influence is dictated by the engagement skills of the procurement team.

3) Strategic Procurement

This enabler is the engine of a procurement organisation. Within this enabler are three fundamental procurement processes; strategic sourcing, supplier management and contract management. These processes are the basic drivers of a procurement function.

Supporting the core processes are criteria which dictate the effectiveness of the function. For example the criteria of category expertise which indicates the depth of understanding of the supply-markets from which the organisation is buying.

Leading organisations manage risk well and the best organisations have integrated procurement and supply chain risk into the overall risk management processes of the business. If your procurement function seems to always be fighting fires you may already have an informal indicator for this criteria!

4) Supply Chain

Procurement is end-to-end. Inventory and stock control and logistics are key enablers to the overall performance of a procurement function.

Logistics functions will often be separate from procurement and a subject that is often debated. However, it is the connectivity of buying with logistics and inventory that is key. Buyers must have a clear understanding of supply chains in order to put in place the optimum commercial arrangement and to work with suppliers to develop lean stock management. Consideration must be given to how an organisation can manage inventory and the best procurement functions will work on a total cost approach.

5) Infrastructure, Systems & Data

Article 1 described the importance of the procurement backbone processes and procurement function must have the basic tools for the job in terms of tools, infrastructure and systems.

Data, through spend analysis, is key. Without knowing what you spend, with whom and how much your procurement function is operating blind.

An efficient and purchase-to-pay process is essential, tailored with appropriate approaches to different spend requirements; catalogues, purchase cards, low-value transaction solutions, to high-value one-off requirements and project purchasing.

Finally, savings measurement and validation. Strong and credible procurement functions measure and validate savings and measure them in a way that is agreed and supported by the finance function and the board. Accurate and credible measurement of savings, cost avoidance and value-add are essential.

6) Policies, Procedures & Performance Management

The final enabler covers aspects such as procurement policy, authority and approvals. Procedures and process control including compliance and maverick spend, and the management of assets. Additionally, cross-organisation agenda’s such as Corporate Social Responsibility, local buying or the SME agenda are included here.

Finally, excellent procurement functions measure and monitor their own performance, usually with a suite of KPIs or a Procurement balanced scorecard.

 

Points to think about for improvement

    1. Benchmark your procurement function. Without knowing where you are starting from, you cannot identify the areas for improvement. If you would like to use of self-assessment tool, please get in touch, or a third-party expert view can quickly identify any blind-spots.

 

    1. Develop a transformation plan. The journey to high-performance is an evolution. Address the performance gaps and be realistic in terms of developing the function. Build a plan and assign a lead to each workstream. Utilise expert resource where you do not have the internal skills.

 

  1. Monitor progress. What gets measured, gets changed.

 

If you would like to discuss transforming your procurement function, please call: +44 (0)203 693 7275 or click here to email us

Click here to download a PDF of this article