It's a common scenario: a company's procurement organization develops a strategy that can save a substantial savings, but the idea never really gains traction because the business side resist changing long time business practices.
Dap Wijeyeratne, a principal at UK consulting firm Efficio, has some thoughts on how to address this issue, writing on the Chartered Institute of Procurement and Supply (CIPS) web site. CIPS is the equivalent in Europe to the US-based Institute for Supply Management.
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| Each idea recommended by procurement that could lead cost savings has a real and/or perceived risk to the business. |
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As always, Wijeyeratne says, alignment of the procurement strategy with business goals and objectives is critical. Will the targets savings be achieved by a simple cost reduction exercise or can they only be achieved through a much larger-scale business change, such as changing product specifications, ways of working or outsourcing internal functions? If the procurement strategy is going to challenge the way that company has always bought services and goods, procurement must analyze whether the business has the appetite for such a change.
Procurement must also assess where it sits in the decision-making process. The key question: Who holds the ultimate power when it comes to ratifying a cost saving strategy?
For a new procurement strategy to be considered fairly, Wijeyeratne says, the share of voice procurement achieves during the decision-making process is vital.
"Historically the procurement function has been seen as the poor relation and procurement suggestions can be dismissed just because the operations team don't like an idea or even because they are not used to being challenged," Wijeyeratne writes. "They may be making some decisions based on a number of ‘sacrosanct' rules and ideals that they have always followed. This means that some suggestions are simply rejected long before they reach a senior audience."
Wijeyeratne recommends a rather bold strategy: insist that procurement has an equal seat at the table with the other interested parties, meaning that cost savings strategies are evaluated on a level playing field.
"Finance and procurement should put their ideas forward at the same time, before a pre-agreed sign-off process or senior arbitration team make the final decisions," Wijeyeratne says.
Further, Wijeyeratne says the key part to presenting a successful strategy is "to really get under the skin of the business."
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That means spending time on the distribution center or factory floor, in retail stores or whatever areas are core to the business. Only by working directly with the people that do the job can procurement well understand where the business pressure points really are.
 "Only then will a new procurement strategy develop that truly aligns with the operations blueprint and offer solutions to the problems the operations team are facing," Wijeyeratne adds.
Finally, Wijeyeratne says, procurement needs to back up ideas with facts and an assessment of risk
Recognize that challenging the way a company does business is always going to be contentious. How processes work the way they do in a given company "is a complex mix of business principles plus a varying degree of heritage, superstition and a plain old fashioned 'we've always done it that way' - not all of which are backed up with clear facts," Wijeyeratne observes.
Each idea recommended by procurement that could lead cost savings has a real and/or perceived risk to the business. Procurement needs to assess those risks - and push hardest for changes that have the least risk, Wijeyeratne says.
He recommends identifying proposed changes that have been successfully adopted by other companies as a way to reduce the perceived risk.
Business leaders often challenge procurement professionals to take costs out of the business with "innovative thinking," Wijeyeratne concludes. However, "This type of thinking requires us to challenge existing business practices and mindset."
And that, SCDigest says, is a tall order indeed
What do you think of Wijeyeratne's recommendations? Can procurement really insist on an equal seat at the table? Let us know your thoughts at the Feedback section below.
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