When you think of classics in music, you probably smile fondly at the thought of genius arrangements by the likes of Beethoven and Mozart. Without a doubt, these composers have made a lasting impact on music - for both artists and audiences. But, what if music never evolved from there? What if artists never strayed from that genre? Would shows still attract an audience? Would the songs still connect with listeners? Chances are, probably not. While classical music has proven timeless, it's hard to imagine a world without music's evolution; it'd be a world without The Beatles, Michael Jackson, Adele, and many, many others.
The same idea holds true for Procurement. Within countless organizations, the department is still dancing to the sounds of Savings. Though Procurement is in a prime position to drive supplier innovation, facilitate company-wide objectives, and enable its business counterparts - Procurement professionals remain fixated on cutting costs;(insert percentage here) year-over-year.
Unfortunately for Procurement groups hesitant to turn the dial, the Savings tune gets old - and fast.
1. You're beating on the same drum...or suppliers.
Each year, you're set on hitting the same cost reduction notes. To your ears, 5-7% savings sounds great. So, each year you turn to your supply base and demand they place the same piece again and again. For a time, they'll probably feel obliged to put on a show and keep your business. Eventually, however, the music will stop. The chorus of "squeeze, squeeze, squeeze" will only hold an audience's attention for so long. Sooner or later (probably sooner than you think), your business won't be an attractive show to attend - and you're going to need to set up stage elsewhere.
This might seem okay for Procurement. There's no denying that savings sound sweet, but closing your ears can lead to missed opportunities for additional cost reduction. Taking a more strategic approach to supplier relationships can offer greater value in the form of supplier-introduced innovation, improved service levels, and more. But, you'd never know it if Procurement won't listen to new genres.
2. Trapping Stakeholders in the Same Budget-Slashing Performance
The classical Procurement strategy not only means squeezing suppliers, but also backs internal stakeholders into a budget-cutting corner. For more delicate categories like IT and Marketing, that's the last place they want to be.
Nonetheless, they're asked to hit those same savings high notes every year. How do they respond? First, they'll resist or even rebel by introducing dissonance. Simply cutting their budget may mean sacrificing the products and services they need to achieve their goals. Second, they'll develop bad habits and start to miss notes. While conceding to the cost reduction mandate, they identify 15% savings - but that's not necessarily what they're going to report to Procurement. If they admitted to the full 15%, that would mean they'd have no savings to report next year. Instead, they'll offer Procurement the 7% they want to hear and wait another year for the big finish.
Letting savings steal the spotlight damages Procurement's relationship with business partners and keeps it from producing the maximum possible value. It causes disarray among the players within an organization. Instead of accepting its rightful place as a conductor, Procurement becomes an internal enemy.
Composing a new song and moving past savings, Procurement can better encourage harmony across an organization. It can help its business counterparts more effectively manage spend across all categories and identify opportunities for better pricing, better service level agreements, and additional soft dollar value-adds. Additionally, it'll promote better habits. Procurement's bandmates will report their actual savings and opportunities and, in turn, make it simpler for Procurement to negotiate more competitive agreements.
For Procurement, savings will forever be a timeless tune, but the performance shouldn't end there. It simply isn't sustainable and it keeps Procurement in far too low a register. World-class organizations recognize Procurement's potential. They've changed their tune, tone, and instruments accordingly.
Interested in learning more about rewriting your Procurement Strategy? Check out Source One's ISM2018 Sessions taking place in the Music City, Nashville:
- Orchestrating a Successful Procurement Transformation: A Symphony of Recruiting, Branding, and Leading
- Overcoming Procurement's Internal Image Problem
To begin taking your Procurement operations to the next octave, contact Source One's Procurement Advisory and Implementation Experts.