Procurement Excellence in the Tech Sector
Improving client service, employee satisfaction and margin enhancement
Tech businesses are increasingly shifting their focus towards procurement excellence and cost reduction with the objective to enhance margins.
Rapid top-line growth has rightly been the prime focus for many years with many success stories underpinned by the grabbing of market share, establishing product dominance and customer loyalty. However, as growth naturally slows, and the organisation matures, focus must turn to margin, and the management of costs as well as revenue growth.
Strategic procurement has often been dismissed as unimportant in this sector, but a number of our recent projects have shown that tech companies can use Procurement Excellence as a lever to enhance profit margin but also improve service delivery and enhance employee satisfaction.
Delivering Procurement Excellence in the Tech sector must be considered from 4 sector perspectives
Tech companies do not have a spend profile like a retailer or a manufacturer. A professional services spend profile is weighted towards spend categories that are either IT and Communications (hardware, software, telecoms, data and services) or People-focused spend such as Staff Health & Benefits, Travel, Accommodation, Recruitment and Outsourced Services.
However, our experience shows that often these areas have not been professionally sourced and good savings opportunities exist as well as accessing supplier-led innovation, particularly in people-focused spend areas. A recent project delivered nearly $2m of profit improvement to a global technology development business.
An initial Spend Analysis will identify and profile the spend and an Opportunity Assessment will define precisely where margin improvement opportunities can be realised. We recently helped US tech company GlobalLogic identify savings and create a roadmap to build a global procurement capability. Read the GlobalLogic Case Study.
Tech companies are characterised by globally-mobile, intelligent and empowered employees. They have traditionally been empowered to make decisions and in procurement terms, sort out whatever is needed. It is important that any procurement work supports the culture of the organisation; engaging with stakeholders, supporting them and facilitating the process whilst ensuring that client delivery is improved not compromised.
Spend can be fragmented across regions, from locations as diverse as West coast US to India and to China. With the exception of a few global IT providers, most suppliers are primarily local, regional at best. Procurement projects must take this into account with little opportunity for global consolidation, but rather working on categories in parallel through regional or local stakeholders and sharing knowledge and best practice across the organisation.
Rapidly changing, project-based spend
Tech organisations are also characterised by a rapidly changing spend profile. This is driven, not only by fast growth, but by agility and responsiveness to clients but also project demands. A big project win could easily dictate a new office opening or the shift of an entire project team to a different location. Procurement must facilitate and leverage this flexibility, separating ongoing spend from project-based sourcing. Speed of support and quick implementation whilst minimising contractual tie-ins and building in flexibility to supplier agreements are key.
The three key benefits of Procurement Excellence for tech firms
1) Margin Impact
Excellent procurement can bring significant results to Tech companies. Our recent project for a global tech development company delivered nearly $2m in EBIT improvement whilst at the same time implementing suppliers and services that improve client service delivery and enhance employee satisfaction. Read the Case Study.
2) Sustainable Management of Spend
Procurement isn't a one-off project. With a rapidly changing spend profile, evolving business and project-based requirements, a dedicated procurement capability in-house is important. Our clients in this sector have leveraged cost reduction projects to then put in place Director-level Procurement resource to provide ongoing strategic and corporate-level management.
3) Managing mavericks through a Purchase-to-Pay system: Employee self-serve
Engineers and developers are used to just sorting what they need. Without some form of control through a Purchase-to-pay system, suppliers and commercials put in place will not get used. A P2P system will make sure that spend is budgeted, approved and spent with the right supplier at the right price. The key is to make buying easy for employees so that they can self-serve from the right suppliers.
Points to consider:
- The assumption that procurement is of low relevance to tech companies is outdated
- A programme of procurement cost reduction can enhance profit margin but also provide access to supplier innovation to improve service delivery and employee satisfaction
- Cultural fit is key. Procurement must align to people, projects and culture to be successful
- Spend is constantly changing because of growth and projects, which means ongoing procurement capability is important
- Consider a P2P system to ensure spend is well managed and employees can easily buy from the suppliers you want them to
- Case Study: Global tech company saves $1.85m through structured programme of indirect spend procurement cost reduction
- Case Study: US tech company, GlobalLogic, targets savings to fund set-up of global procurement function
- Case Study: FTSE 250 tech company Sophos targets procurement cost reduction through spend analysis and opportunity assessment
- Article: PROCUREMENT EXCELLENCE – WHAT A HIGH-PERFORMANCE PROCUREMENT FUNCTION SHOULD LOOK LIKE
- Article: UNLOCKING THE POWER OF PROCUREMENT IN HIGH GROWTH COMPANIES
If you would like to discuss any of the subjects raised in this discussion, please get in touch.