You may have heard the analogy of strength versus impact before. A boxer can be incredibly strong – stronger than anyone else in their weight class – and still lose a fight. Why? Because being strong doesn’t always mean you are the quickest, that you have the most stamina, or that you hit the hardest. Strength is a factor that affects impact, but it’s not the only factor. To make the biggest impact also takes skill, practice and knowledge.
That said, you must have strength to have meaningful impact. The boxer that is physically weak won’t win a fight.
So what does this mean to procurement? It could actually mean quite a bit. The goal of procurement transformation is to improve the function as a whole, to shift from the reactive buying that “old-school” procurement did, to what we now consider best practices – aligning procurement, and the supplier relationships that we manage, with the overarching goals and objectives of the business.
When we talk about procurement transformation, we often think about three core elements – people, processes and technology. Depending on where an organization is on the maturity curve, the strategies you can utilize to improve this core structure can vary.
With technology, it’s always best to walk before you run. If you have no contract management system in place, the first step isn’t to buy one. It’s to collect all your contracts! Even if it means assigning a resource to physically go out into the business and gather agreements, until you get your arms around the current state, you can’t decide what your technology needs are. The same goes with spend analysis, if you have limited visibility into spend, you need to fix that issue before buying a tool to analyze the spend for you.
From a process perspective, the first goal is to ensure there is a repeatable procure-to-pay methodology in place. Without basic controls, you can’t possibly manage spend. The end goal from a “best in class” perspective often ties together sourcing process with technology, developing business rules and allowing the system to govern the process (versus requiring people to do it manually).
These three core pillars of procurement transformation are what I would equate to procurement strength. You can be strong or weak in these areas, and based on where you are in your maturity curve, it will vary. But these things alone will not determine the effectiveness of the procurement and sourcing function. It will not determine how well you are received by the supplier community, or the stakeholders you support. Relevance – both internal and external – are what is needed to be effective, and relevance can also be classified as “Impact”. Relevance, or impact, determines how hard you can hit. Externally, procurement’s ability to negotiate, to solicit innovation from the supply base, and the ability to align suppliers with their organization can’t be measured through as a factor of strength. The function has to have relevance – the ability to impact.
Internally, relevance is just as important. You can have all the best tools and technology, great people that know their categories, but if procurement doesn’t have a good internal brand, if you aren’t properly aligned within the organization (not just in your own department), the impact you can have, the spend you can manage, the projects you can get involved with will all be limited, as will your impact.
What most procurement transformation initiatives focus on is strength. The reason is simple, these are the things that are most tangible, most measurable. And without them, you can’t have a meaningful impact, so you need to get them right. However, impact – the “relevance” factor, is much less tangible, but as you can see – just as important. Including it in your plans will make the difference between a successful and an unsuccessful transformation.