How strategic procurement helps organizations achieve their goals
Goals vary across organizations and sectors, but are generally focused on financial measures and growth. An organization that recognizes the importance of procurement in working toward those goals will be better placed to achieve them. Here are some common organizational goals, and how procurement can contribute.
Lowering costs is understandably one of the primary goals of the purchasing department. Effectively managing procurement means organizations can get the best price on goods, services, and contracts. This doesn’t just apply to goods and services traditionally sourced through direct procurement either. Indirect procurement, the act of purchasing services or supplies related to day-to-day business operations, can help reduce overhead costs that may not have been examined recently.
For example, a construction company may use direct procurement for all its materials and equipment, ensuring it gets the best price. However, equipment maintenance has been handled by the same company for the last ten years and was originally engaged because someone “knew a guy.” Putting equipment maintenance out for procurement could result in finding a more reliable supplier at a lower cost, or it could even encourage the current supplier to become more competitive in their offering.
Procurement can’t directly increase revenues, but what it can do is increase efficiency so that more revenue can be earned with the same or better resources. Good quality supplies and equipment arriving on time makes for satisfied customers, and can help organizations feel confident taking on more work. Logistics, maintenance, supply chain resilience, and strong supplier relationships all have a measurable impact on revenue, and are the direct result of effective procurement.
Improved customer service
Organizations committed to improving customer service may not think to examine their procurement processes when trying to achieve that goal, but that would be a mistake. Procurement has a direct impact on product quality, production times, service delivery, and more, all of which impact a customer’s experience with an organization or product.
Public sector organizations are responsible not just for service delivery to their citizens, but also accountability for how tax dollars are spent on those services. The purchasing department must ensure that public dollars are stretched as far as possible while maintaining the quality of the service that citizens expect. Reductions in costs without cutting services will keep the taxpayers happy and the budget balanced.
Private companies have the burden of providing not only quality goods and services to their customers, but also value and profitability for shareholders. Purchasing teams buying the best quality for the most competitive price, and working to reduce costs but also improve delivery times and product superiority, will ensure happy customers at the end of the transaction.
The purchasing department initially has the most direct contact with suppliers, and may be in the best position to learn about and evaluate innovative goods and services that could improve company processes or provide a competitive advantage.
For example, the procurement team could implement an eProcurement system that improves their own efficiency, cutting costs and mitigating risks for that department. That system then further assists by increasing the supplier network, reducing and managing costs for other projects, and providing valuable reporting to help other departments manage spend and production.
See how one school board cut costs by 20% while shaving 35% off their procurement timelines in this case study.
Purchasing teams should also be involved in discussions with R&D on innovations within the organization, as they may be asked to source new or highly specialized supplies or equipment for those initiatives. The team can provide valuable input on supplier engagement, challenges, supply chain and risks involved to guide innovation to success.
Whether aiming for economic growth of a municipality or region, or the growth of a private sector company, sustainable growth should be a goal for any organization. Reducing costs, increasing revenues, improving customer service, and innovating are all factors that impact growth, and we’ve already seen how procurement impacts those.
We've developed 5 tips for being more strategic in your procurements - read about them here!
Beyond that, a purchasing team is well-placed to manage both external relationships with suppliers, and internal relationships with finance, logistics, distribution, communications, human resources etc. A business with procurement at its core and strong relationships between departments will be better aligned to achieve its long-term business goals.