July 9, 2024

If you have read any of my LinkedIn posts, you may have picked up that I’m a firm believer in the immense value that procurement, when done well, can add to an organisation.

It has the potential to improve costs, strengthen the supply chain, mitigate risks, unlock innovation, support revenue growth, and help to deliver sustainability objectives.

But how do you go about driving a step change in performance from procurement?

Well, I’ve been lucky enough to go on this journey multiple times, working with leading companies to transform their procurement functions. I thought it might be useful to set out some considerations and lessons that I’ve learnt along the way.

This is by no means an exhaustive list or a comprehensive “how-to” guide, but is intended to provide food for thought. I have broken it down into 3 steps. I hope it’s helpful.

Step 1 - Assess Your Current State

In most cases, but not all, there will be an existing procurement team. However, “procurement” can mean very different things in different companies. Is it a back-office administrative function, or is it a strategic enabler, adding real value to the organisation?

Start with the basics. Do you understand your expenditure by category, the number of suppliers you have, and the status of relationships with the biggest suppliers? How are your suppliers performing? Are you overly reliant on any particular suppliers, exposing your organisation to unnecessary additional risk? Remember, just because a supplier calls you a “partner” doesn’t mean you can give them a free hand and blind trust! Investigate the commercial basis of deals with your key suppliers and check whether they reflect current market conditions.

Next, assuming there is an existing team, how is that structured and does it align with the overall company business model? Centralised procurement functions can work very well to raise standards quickly and accelerate the delivery of benefits, but will struggle in a company with an ethos of decentralisation.

Nothing gets done without people. What is the calibre of your team and how do they currently spend their time? How does this split between strategic work and administrative activities? Importantly, can they adapt to new expectations and adjust to new ways of working? There are few things as rewarding as seeing individuals develop and flourish but, unfortunately, not everyone can make that jump to the next level of performance. Tough choices and difficult HR decisions may need to be made.

What goals are currently set for the procurement function? Are these well-defined, visible, and aligned to the overall company strategy? A best-in-class procurement function should be able to articulate a direct linkage between the work they do and the (positive) impact it has on company performance.

It’s critical at this stage to get input from your stakeholders. What do they want from procurement? Keep in mind they may not have a full appreciation of what best practice procurement looks like, so you may need to explain this to them and make sure you are all on the same page. You might also wish to consider getting feedback from a subset of your suppliers.

What is the state of your core procurement processes and systems? It all starts with an appropriate procurement policy but needs to be underpinned by a good purchase-to-pay (P2P) process and system.

Lastly, have you got the data you need to generate insights, make the right decisions, and measure performance? If not, you’ll need to consider your digital strategy for procurement and your toolkit of strategic procurement systems and market intelligence sources.

Step 2 - Make Your Pitch

So, you’ve gathered information on the current state, now you need to make some proposals about how to improve.

I know the term “elevator pitch” is a bit overused, but you will need one! If you are going to drive change, you will need a clear “why”, i.e. what will it achieve, why should it be funded and why should anyone care? This pitch will vary by company. For some, financial savings will be the key. For others, it could be about strengthening the supply chain to reduce risk, enable growth, or accelerate progress towards sustainability goals. Choose the message that resonates best with your organisation and strategic goals.

Assuming there is a financial dimension (and there usually is!), how will you measure and track this? Do you need to embed savings targets in budgets? How will you treat cost avoidance? How will benefits be validated?

Of course, you’ll need a clear set of projects, and ideally a multi-year plan. Think about this carefully, particularly if your team needs to be strengthened. Set your delivery ambitions accordingly.

You’ll need to have a target organisational design, bearing in mind the earlier point around the overall company business model. The optimum organisational design for procurement will vary by company and it’s critical to get this right to maximise your chances of success. Will it be solid line, dotted line, or a hybrid? Will you base it on supplier categories, company structures (e.g. business regions, customer functions, or divisions), or a mixture of both? Where will teams be located? The answers to all these questions are likely to need to be developed in conjunction with stakeholders, and keeping in mind any specific characteristics of your supply base.

Additionally, what will be the ROI on any investment in procurement? It would be naive to think that the C-suite won’t expect a clear and compelling business case to underpin any proposed changes.

Finally, it’s usually wise to treat a procurement transformation like any other major project and establish clear governance and reporting. Make sure you have a sponsor with sufficient weight and authority, think about establishing an executive-level steering committee, and prepare a good comms plan. Get your stakeholders involved, and make them feel part of the change you are advocating.

Step 3 - Deliver What You Promised

And so, you’ve assessed the function, developed your proposal (with a compelling “why”), secured approval, and now you need to deliver what you promised.

To state the obvious, things will go wrong! You will encounter issues and resistance, experience disappointments, and not all will go smoothly. Don’t lose heart, stick to the overall plan but be prepared to adjust and compromise on the smaller details. Above all, communicate well with your business, share the highs and lows, and be honest.

Think carefully about resourcing options. Do you need category-specific expertise or additional transformation experience to get things moving quickly? If so, you may want to consider specialist contractors or experienced interims.

Give thought to how you will manage the overall transformation project or programme. Do you need a dedicated Project Management Office (PMO) to keep things on track?

If you’re appointing existing team members into new roles, how will you help them to succeed? Will they need additional training or coaching? If you’re recruiting new team members, think carefully about your recruitment approach and proposition to attract the very best people. Do you need a specialist recruiter who understands procurement and the change you are driving?

Consider the composition of your new team. Will you have the right levels of diversity of thought, experience, and enthusiasm to generate great ideas and overcome the inevitable hurdles that you will face? You will need a team that shares your vision and (really) stands behind it.

Finally, don’t forget to celebrate success. It helps enormously to build momentum and maintain morale if you can highlight even the small wins as you head towards your overall objective.

Well, that’s it. There is much more I could have included but, hopefully, this covers a number of the key areas and is useful, at least to some degree. I’m always happy to talk procurement, so please don’t hesitate to get in touch for an informal chat if you think I can help you or your organsation, or if there is a particular topic you would like to discuss.

Richard is an interim executive and independent consultant, specialising in procurement transformation.