Saving on the bottom line has long been an important objective for procurement and contract management. As technological advances expand procurement’s analytical capabilities, this department may play an increasingly active role in other aspects of an organization’s growth.
What Does Procurement Entail?
Procurement and purchasing sometimes appear to be interchangeable terms. In case it’s been awhile since you’ve worked closely with procurement professionals, let’s take a quick refresher on what procurement management means.
Purchasing involves actually placing orders for the goods and services vendors provide to serve an organization. This is an important area to turn to when reviewing ways to reduce business expenses and maximize profits. Purchasing represents one aspect of procurement.
Procurement refers to the broader process of acquiring the resources an organization needs. It involves business strategy to determine the organization’s needs, vetting and selecting vendors, negotiating the most favorable payment terms, preparing the contract, and purchasing goods and services.
Automation and Analytics Are Expanding
Jaggaer polled nearly 500 procurement officials for their 2017 Global Procurement Tech Trends Survey. Their findings illustrate how much technological advances are influencing the role procurement plays in a company.
Cloud-based software, for example, allows easier information sharing, improving supply chain visibility and encouraging closer collaboration between procurement officials and the vendors they work with. The popularity of features that run spend analytics or collect similar data means analytical skills are quickly becoming an essential competency. More than 70% of procurement professionals say they are using or plan to use spend analytics to inform business decisions.
Automating as many operational and transactional activities as possible helps improve efficiency. It also frees up procurement professionals’ time for other value-creating activities. One particularly important project is reviewing and interpreting analytical data. Procurement technology may automate some traditional competencies of the job, but there’s no reason to worry about job security yet. Using all of this data in an intelligent, effective way demands human insight and strategic thinking.
In terms of reviewing technology, consider factors like transparency, communication, and analytical capability. Sharing information quickly and performing detailed reviews on contracts helps optimize efficiency and robust data collection.
Procurement Enters the Boardroom
With technological advances driving an increase in rich data collection activity, it’s no wonder that two-thirds of procurement professionals predict an increase in attention from executives over the next year. In fact, procurement may pivot to incorporate an advisory role for executive decision-makers in many companies. Over half of procurement professionals already feel like trusted advisors in their workplace.
Executives may lean more heavily on procurement to consider risk management activities, for example. The 2016 Deloitte Global CPO Survey reported that CPO participation in risk management activities has been growing steadily for several years, from 16% in 2013 to 25% in 2015. Managing contractual relationships carefully is one important aspect of managing risk. From selecting the right vendors in a potentially volatile market, to following through on a contract to ensure all incentives and rewards are realized, effective procurement operations can reduce risks of lost costs. In fact, contract management is one of the main procurement areas companies plan to invest in over the next 12 months, second only to spend analysis.
In short, don’t be surprised if procurement has a greater voice in the boardroom as its role in risk management, financial considerations, and business strategy increases.
The New ABC
For a long time, the rule of thumb, “Always be closing” fit well with many procurement officers’ work. Taking a tough attitude toward negotiation was essential to drive the best deals for the business.
Sharp negotiation skills are still important to consolidate spend and reduce costs, especially in industries where the market has slowed. In an increasingly digital world, however, a new “ABC” rule may become even more important for procurement: “Always be communicating.”
As we’ve discussed, procurement is expanding into more divisions of the business. Executive officers, legal counsel, financial service leaders, and more may turn to procurement for data they need to optimize different aspects of business strategy. Procurement leaders who develop strong communication skills will be ready to facilitate intelligent use of analytical data throughout the organization.
Efficiency and Strategy Improvements Are Key
Procurement is on the road to becoming an increasingly important source of data that informs decisions throughout the business. And executives want that information available fast. The 2016 Deloitte Global CPO Survey found that, while cost reduction remained the top priority, considerations like speed and strategic collaboration follow close behind.
“Cycle times need to be shorter, insight needs to be richer and more agile, and performance needs to be more transparent and efficient,” the survey authors wrote.
Effective technology is one essential component to achieve these efficiency and transparency goals. With so many departments relying on access to procurement data, relying on outdated methods of information storage and sharing is a mistake. Investing in platforms that encourage thriving supplier relationships and offer access to critical data allows procurement professionals to continue to develop their role as a dependable source of information and support.