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How can small businesses rebuild their Procurement strategy?

  • Publish Date: Posted about 4 years ago
  • Author:by MERJE

The world of Procurement has altered tremendously in recent years, its rise in prominence being well-documented as teams unite to break the mould and find advanced new ways of working. Evidence suggests that it will continue to grow, the advent of technology having accelerated the change.

In an era of increasingly connected commerce, technology will play a critical role in determining how quickly the industry moves forward. This means that all signs point to Procurement becoming a more important business component than perhaps typically in times gone by.

While the role that Procurement plays is fast becoming more strategic, so too is the way sourcing happens, as operations are improved and streamlined via the use of sophisticated analytics, cloud-based applications, AI, IoT, automation and machine learning.

In fact, according to research from global research firm Gartner, 55 percent of Technology Procurement staff will require additional digital and analytical skills to realise business innovation and growth. This will help Procurement functions to transcend influencing purchasing decisions to actually make a positive impact on business decisions, particularly in smaller organisations.

Here are our top tips that Procurement teams might want to consider to optimise the value they can bring to the wider business.

Implement a digital strategy

The rise of digital technologies and how they impact on Procurement has been long been projected as a trend. In the past couple of years, organisations have embraced cognitive procurement technologies such as big data analytics and AI.

In 2020 and beyond, the use of these technologies will only increase. From automating redundant Procurement tasks to empowering C-Suites in decision making, from better market visibility through product innovation to increased profitability, the benefits of digital technologies are enormous. And, by 2025 for example, the global AI market is expected to be worth almost $60 billion(£46 billion).

However, according to IT service management firm The Hackett Group’s research report around CPOs, which surveyed 180 large companies, a mere 32 percent of executives had implemented a digital strategy. This was in stark contrast to the fact that nearly 85 percent of them believed that digital transformation will fundamentally change the way they deliver services over the next three to five years.

Although organisations clearly realise the importance of digital Procurement, the question is whether they are approaching it properly in order to make the most of it. To that end, businesses need to take the leap from manual to digital transformation with a proper strategy in place. They also should invest in the right infrastructure, processes and resources with a vision that aligns with their organisation’s long-term objectives.

The Hackett Group’s research suggests that a bespoke approach should be taken; one that accounts for the emergence of newer and more sophisticated technological tools. It should also be done with an eye towards improving technology sourcing for the company at large. If Procurement has success with a particular method, it should look to find ways of refining it further and duplicating it across the business.

Build a talent pool to support new technologies

The Procurement function has to move from delivering cost savings to providing a strategic edge to the organisation in question. To build a holistic framework and to drive enterprise wide cost reductions, Procurement has to utilise digital technologies to their fullest extent for maximum value.

A Deloitte CPO survey showed that Procurement leaders remain hesitant to integrate new technologies like AI and robotic automation in their day-to-day work. As per the survey, 51 percent of Procurement leaders believed that their teams did not have sufficient capabilities to deliver on a digital Procurement strategy.

By not adopting technology, a business can find itself exposed from a security and business standpoint to cyber risk, heightened competition, hiring difficulties and disruptive innovation.

This is why, going forwards, Procurement functions need to focus on finding the right talent while honing their in-house resources through specially designed training and personal development programs. This is so that Procurement professionals may acquire the skills needed to succeed in the digital arena and remain relevant within their sector and across their core disciplines.

Supplier collaboration

Collaboration with suppliers remains a critical approach. With advanced technology and the changing landscape of Supplier Management, the Procurement function has shown tremendous scope for improving relationships with suppliers. Now, buyers cannot afford to communicate with suppliers just over the price. They need to involve them in more strategic decisions, right from the initial planning phase. Suppliers thus become an integral part of any supply chain and can play a pivotal role in making or breaking the backbone of Procurement.

Suppliers currently have increased visibility of all the steps in the Procurement cycle to assist in getting the best pricing while reducing the risk quotient. This transparency will not only support suppliers to feel empowered but also promote healthy competition, eventually benefiting organisations.

With the empowerment of suppliers, it also becomes necessary to have a reliable supplier performance evaluation plan in place. This plan stands for a focused, smart and effective method of measuring, analysing and improving supplier performance and thereby reducing costs, while increasing efficiency, enhancing vendor relations and business performance, preventing product issues and driving improvements in the supply chain.

Expect the unexpected

From the current uncertainty around Coronavirus to Brexit and trade wars, for example the US imposing tariffs on imported goods from China and Europe, right through to fluctuating oil prices, the simple fact is that major world economies need to prepare for the unexpected. All of these uncertainties are highly likely to impact massively on supply chains and this is why the Procurement function should be at the forefront of an organisation to minimise risk. Procurement moving forwards will have to remain at the top when it comes to keeping business costs down in a competitive environment. It will require bringing in the latest innovation and technology in order to achieve this.

Analytics, data and insights

Procurement’s aim should be to become more than an isolated, siloed company division. Ideally, it should become a trusted, influential business advisor, one that works to optimise its own functions, while adding value across the entire organisation. Mastery of data will be an important part of this expanded role.

Procurement should aim for proficiency with big data analytics and be afforded the ability to model and filter vast quantities of information from many disparate sources. The Hackett Group’s report suggests that organisations should support the development of employees and offer in-depth analytical training. Dedicated centres of excellence and special projects teams should be established to make sure that staff are instructed correctly and are working from the most up-to-date information.

Beyond this internal focus, Procurement should also aim to deliver new forms of market intelligence using reporting services: this will enable more sophisticated and accurate decision-making.

Increased use of AI systems

AI will not remain just a Procurement trend in 2020, with increasing numbers of organisations choosing to integrate it with their existing processes. Procurement teams will design and deliver intelligent bots to complete most run-of-the-mill Procurement tasks with minimal human intervention. From managing large volumes of orders to running repetitive sourcing events, from negotiating with suppliers for low value items to updating inventory lists, AI will undertake all these activities, thus putting mundane tasks on auto-pilot mode.

Effective management

Procurement leaders have time and again agreed that changes to management have been the biggest roadblocks in achieving outlined Procurement goals. With the advent of digital technologies, the transactional work in a Procurement function is becoming automated. As a result, the extra available time can be designated to the more strategic needs of a business. However, the transition to change management is not easy, as it brings a sense of insecurity about the end state and certain resistance to undertake new initiatives. In 2020 and beyond, organisations should devise and implement smooth change of management frameworks through regular communication with the employees. They should be engaged throughout the process and receive adequate training and support.

In 2020 and beyond, Procurement must look to make the most out of its budget, expand its role, and adjust its philosophy to suit a world of shifting norms and ever-evolving technology.

The Procurement team at MERJE boasts more than 30 years worth of experience in this field and we recruit a host of highly skilled roles over a diverse range of sectors. Find out more here.