The journey to procurement excellence
High performance procurement functions across all sectors share common practices and characteristics that define their approach. They have similar goals, embrace similar processes and require similar enablers in order to achieve similar outcomes.
This three part series takes a closer look at what high performance procurement involves, the processes that constitute best practice, the fundamental components that underpin procurement excellence, and what the organisation should expect to achieve from adopting this approach.
Within these areas, the focus for every organisation will vary, but with the right drivers in place, every organisation can navigate their way to high performance procurement.
Part 1: Establishing and optimising core processes
There are multiple processes running through a high performance procurement environment and each one has a different focus and repeats on different timeframes. Think of them as a single ‘process house’, as shown below;
Strategic planning and target setting
Firstly, there are the planning and target setting processes. Synchronised and correlated with the overall organisational strategy, these should be informed by senior management through annual strategic planning procedures that set clear targets (SMART – Specific, Measurable, Achievable, Realistic, Time-based) for delivery and performance.
The balanced scorecard approach to target-setting used by high performance teams includes both financial goals, such as savings, cost-to-procure and procurement ROI, alongside broader organisation, stakeholder and employee objectives. These organisations demonstrate the management of KPIs like spend under management, aggregate supplier performance, stakeholder satisfaction and team competency.
Strategic plans needs to translate into goal-setting and planning at both supply and commodity level. Ideally, these should look at areas such on-boarding alternative suppliers to cover for important categories where you are reliant on one or two key suppliers, as well as plans to mitigate supply chain risk, particularly for the supply of commodities.
Excellent procurement functions manage their entire supplier portfolio and are focused on continual improvement – from evaluating the quantity and quality of existing suppliers and developing SME or local supplier bases, to increasing the percentage of low-cost country sourcing and CSR initiatives.
Category and supplier management
Category management is a systematic process that addresses each specific category of spend to lower total cost of ownership, while strategic supplier management focuses on relationships with key suppliers – usually high-spend but also long-term partners, or suppliers of critical goods and services. High performance organisations demonstrate excellence in both areas, using the processes to drive step-changes in cost reduction.
A robust operational sourcing process is essential to optimising the value of procurement spend. The process will vary according to the type of organisation and nature of the purchase but typically involves structured market interaction steps (Request for Information or Request for Proposal), rounds of supplier negotiations or e-Auction and supplier evaluation to ensure selection of the best supplier at the best value.