I still sometimes read some posts which are asking what exactly Procurement gives to the company. I am in Procurement for sixteen years and yes, sometimes I also ask myself if being a good specialist in Procurement is enough. If I stay here, can I continue on earning and justifying my salary?
I had a look back at what I did so far as “only” a Procurement specialist. And here it is! Dear Procurement specialists, do not let anyone tell you we bring no value to a company. If you ever have doubts about what you can bring as an input for a business – here is a reminder list for you.
- Strategic partnerships between departments. We cannot work without other parts of the business. Someone has to prepare specifications and business needs, someone has to manage budgets, someone has to implement everything. Procurement, just like everyone else, has to take part, and, if needed, promote teamwork. Not only within the department, but cross-functionally as well.
- Confidence to investors and creditors. Being very pragmatic – not having Procurement function at all increases credit interest rates for your company. Procurement is one of the most important champions of transparency in the business. Even if it is not on the benefits or savings list – it is just another value that Procurement brings.
- Innovation. Procurement people have (almost?) the biggest exposure to the external information. Suppliers, manufacturers, exhibitions, training sessions. When used properly, such information brings direct cash benefits. I have seen quite a few KPI systems where one of the lines is “Benefits from implemented innovations” (initially, on Procurement goals’ lists and then cascaded down to supplier score cards and improvement plans).
- Productive workplace. Just like everyone else. It is teamwork, after all.
- Risk identification and mitigation. Procurement can identify risks in many ways. Risk, related to suppliers. Risk, related to non-compliance. Risk, related to market changes. General project risk. Planning in advance is an advantage, which allows to mitigate (or otherwise manage) the risks.
- Compliance to various laws and regulations. Import regulations, Greenhouse gas emissions regulations, quality requirements – and it is just a start of the list. Non-compliance costs money in form of fines, delays, fees. If you would really want it, you could actually quantify it. Or, if you are already having issues with the amount of fees you are being charged (for instance – delays in returning railway wagons, costing 100 Eur each day) – any improvement, done by procurement, is a benefit to the bottom line.
- Benchmarking. I have myself created several operational KPIs for the factories and businesses. Procurement has the possibility to ask for and get the information from supplier. More often than not they will have knowledge, various “rules of thumb”. Procurement, bringing several sources of information into one place, can create new KPIs for other departments, can adapt them to our own activity (for example – bringing in project management principles into procurement projects). Also, Procurement is in the position to obtain information and benchmark the performance of the business against industry standards.
- Savings – profit. Various sources of it: cost avoidance, price reductions, demand management, value engineering, budget savings, etc. Main performance indicator, associated to procurement. Not the only one, by far.
- Cash flow improvements. Payment terms optimisation (!!! not pure extension whatever the price, please keep in mind), inventory turns increase – very straightforward quantitative benefits.
- Social responsibility. By demanding the suppliers to comply with policies, which are important for the company they represent, procurement people extend the reach of good initiatives by few tiers. Not always easy to quantify, though.
- Agility, speed. Troubleshooters. Yes, that is exactly what procurement people are. Learning from that, they build in agility into the specifications and contracts.
- Diversification and business flexibility. By giving suggestions, we can fine tune specifications in a way it gives flexibility for future business opportunities. Machinery, being able to handle more than one type of material. Software, which can be applied to solve more than one business need.
- Automation. Linking internal systems with supplier systems. Automating internal processes. Bringing in best practices, seen elsewhere.
- Market insights and knowledge: suppliers, competitors, trends. Quite simple this one, right? Information from suppliers, relating directly to our company. Information from suppliers regarding our friends and competitors.
- Networking and PR. Could there be any better PR than award winning Procurement function, when you are trying to hire people for your company?
Everything or nothing at all. If a company chooses to employ good people – whichever department it is – they will bring benefits in all and every possible opportunities. If people are not chosen carefully… procurement or not… nothing can save the day.