As businesses adapt to today’s rapidly evolving technological and commercial landscape, procurement teams face the challenge of becoming more strategic, technology-driven, outcomes-focused and collaborative.
However, many procurement teams currently lack these attributes. Even when changes have been made to how procurement works with the business, it’s true value proposition often remains underexplored and misunderstood. As a result, organisations aren’t benefiting from the value or business partnering experience procurement can offer in this new environment.
At OCM, we believe enterprises need to redesign how their procurement function operates to achieve better organisational performance and business outcomes.
Rethinking procurement for an evolving business landscape
Procurement is essential for sourcing and managing the goods and services an organisation needs to function smoothly, complete projects and achieve organisational goals. That means it plays a big role in driving operational efficiency, enabling compliance, ensuring cost-effectiveness and building strategic supplier relationships that support long-term growth. However, as many organisations are discovering, this can be easier said than done.
Procurement’s position is especially problematic given the issues currently facing the Australian economy. These include a record infrastructure pipeline that is creating intense competition for scarce resources, ongoing skills shortages and soaring material costs.
There is also a greater community expectation that procurement should not only achieve its purpose but also consider broader environmental, social and economic outcomes. This has become especially important considering the globalisation of supply chains over the past decade, which has heightened the risk of modern slavery and supply chain disruption due to events like the pandemic and conflicts in the Middle East and Ukraine.
OCM understands these issues because we work closely with public and private sector organisations nationwide to help them solve their business-critical procurement issues. Our team also has a deep industry background in procurement and supply chain management.
Based on this experience and discussions with our clients, we believe that organisations need to rethink how their procurement function operates and partners with internal business and external suppliers, so that it can better contribute to strategic objectives, internal business outcomes and the external customer value proposition.
Designing a more strategic approach
To create a more strategic, business-centric procurement function, organisations should design their procurement operating model from ‘right to left’. This means starting with the organisation’s purpose and vision, and the strategic outcomes it wants to achieve, then working backwards to co-design the most effective procurement-business partnering model to reach these goals.
To do this successfully, we recommend organisations follow this four-step approach.
- Co-design your business’s procurement purpose.
Cross-functional collaboration is essential for defining your procurement purpose and effectively embedding change. Involving the broader business in co-designing procurement’s role and approach will help build stronger relationships; develop, test and challenge new ideas; and increase buy-in and commitment to the change. This approach will also help ensure that procurement’s role is aligned with your organisational goals.
However, discussions about procurement policy, compliance and spend under management don’t generally resonate with the broader business. Procurement discussions should instead focus on the business’s strategic goals, opportunities and challenges. This way, stakeholders will be better placed to understand how procurement can add value, and open up opportunities to explore new ideas and deliver practical solutions.
The goal here is to transform procurement from a compliance-focused function into an outcome focused strategic partner for the overall business.
- Adopt a business partnership approach that leverages the skills of team members from across the business to enhance value.
Procurement must collaborate with the wider business to succeed in our evolving business landscape. However, procurement teams often operate separately from core business functions. The solution is to develop a business partnership approach, which is fostered through collaboration and enabled by the right people working on the right opportunities. This requires a shift in mindset.
The first step is to understand that your organisational goals may be at odds with those of your procurement team. For example, while an organisation might generally prioritise the business value and strategic outcomes of pursuing a specific course of action, procurement is often focused on reducing costs. Similarly, a business might consider user experience very important, whereas the procurement team may be more likely to prioritise process compliance.
Lack of alignment on goals, opportunities, priorities and resources often creates significant tension between procurement teams and the broader business. Spending analytics can help organisations to align their business objectives, identify opportunities and agree on priorities and resources.
It is also helpful for businesses to have a good understanding of their current procurement capabilities. This allows business leaders to set realistic partnership expectations and identify areas of continuous improvement.
- Align digital capabilities with organisational strategy and purpose.
Digital transformation has the potential to enable every part of the procurement value chain, from planning to sourcing suppliers, purchasing goods and services and managing contracts. It can also improve how procurement teams work with other parts of the business. However, organisations need to ensure they have the right digital capabilities in place and that they align with the business’s organisational strategy and purpose.
Creating a digital procurement culture that embraces technology involves developing a deep understanding of business users’ needs to create the best possible experience for them. This includes considering factors like the business’s requirements, user experience, business enablement and field mobility, ease of use, accessibility of information and integration with other systems.
Taking these factors into account will significantly improve new technology adoption and deliver a better user experience.
- Measure performance beyond traditional performance metrics such as cost-savings.
Procurement teams have traditionally played a key role in driving cost savings for organisations. However, this has resulted in many procurement teams becoming disconnected from the main business as they aim to reduce costs without fully understanding or supporting broader business goals. This also impacts teams’ ability to build positive and collaborative relationships with colleagues across the business.
To address this disconnection, organisations need to consider whether there are better ways to measure procurement’s value than looking at cost savings alone. This could involve assessing how procurement delivers environmental, social and economic benefits or supports compliance, innovation or business growth.
How we help
There is no one-size-fits-all solution for redesigning the procurement function. However, aligning procurement’s purpose with that of the broader business can undoubtedly enhance collaboration, improve agreement on priorities and performance, and enable more effective use of technology. This will be essential in Australia’s increasingly competitive and customer-centric business environment.
For organisations unsure of their next steps, working with a strategic partner like OCM can be helpful. OCM helps procurement teams rethink their purpose, identify key business requirements and goals, and implement new ways of working to deliver better value.
We also work closely with organisations to uplift their procurement capabilities. This includes helping businesses improve their procurement frameworks, introducing new category management and supplier relationship management capabilities, enhancing the use of data through procurement dashboards, adopting new procurement technology, and optimising the use of existing technology. We can also assist with delivering complex sourcing and infrastructure programs designed to boost business effectiveness.
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