A shared vision and commitment help with drawing up an efficient procurement strategy

Typically, procurement makes up approximately 60–80% of the company’s turnover. Yet, it is regrettably rare that the importance of a seamless procurement process is acknowledged. When it comes to customer projects, it is often evident that the company’s management lacks a sufficient view of the current state of procurement, there is no regular reporting, and procurement […]

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Author: Matti Torkkeli

Drawing up a procurement strategy—experiences of the process

When the company’s management decides to develop procurement, an important development step is drawing up a procurement strategy. So how should your company  implement the strategic process? Matti Torkkeli is an experienced procurement expert who has implemented for ValueSource numerous customers projects linked to implementing a procurement strategy. Find out how Matti sees the implementation of a strategic process and what you can get out of the projects.

The strategic procurement process starts with the management’s initiative—how can you make more of procurement?

Often, the creation of a procurement strategy and a new operating model starts at the management’s initiative, with senior management having either realized the hidden potential of procurement or decided that it wants to explore it. The change may also be initiated by procurement management, but starting the strategic process is always heavily dependent on the management’s support and commitment. ValueSource is usually contacted by the CEO or CFO of a company whose procurement volume varies anywhere between a few million euros and hundreds of millions of euros. The customers need an outsider’s input and know-how to improve their situation. The targets have been identified but there are insufficient resources and own expertise to implement the process. Thankfully, ValueSource’s reputation has spread, and we have received plenty of projects.

“When it comes to customer projects, we have noticed that the management often lacks sufficient insights on procurement and its current state and, unfortunately, even regular reporting”, says Matti Torkkeli. Considering that procurement can make up 60–80% of the company’s turnover, this is somewhat peculiar. Despite this, procurement is often left to a handful of employees, so the disparity is blatant.

ValueSource’s procurement consultant is comparable to a physiotherapist who helps a patient with rehabilitation.     

When the strategic process starts, the company’s management probably has a vague idea that procurement is not managed sufficiently comprehensively: the processes are not defined and the current resources or know-how are not sufficient for management. You start from that. “We have deemed it a smart policy to divide the strategic process clearly into two parts:

  1. Initial assessment and objective definition of development targets
  2. The actual strategic work and drawing up the development plan

“We always start the drawing up of the procurement strategy with assessing the current state. We allocate 5–10 days to this stage. A few of them are used by our consultant on the ground, for example, interviewing the key procurement personnel and familiarizing themselves with the customer’s operations. After that, we perform data analysis to analyze the procurement costs for the last 12 to 36 months and draw up a summary of the situation. On this basis, we are already able to identify the initial potential and the obvious procurement development targets,” says Matti. “Often, the challenge is a huge number of scattered suppliers that are difficult to manage and a lack of processes. Once we have a good idea of the situation, it is time to agree on what to focus on at the next stage. We always modify our process according to the company’s situation.”

“The project is assigned participants, some who are procurement personnel but the majority being representatives of other functions.”

Strategic procurement work—workshops and a shared vision

In the actual strategic work stage, we determine a new procurement strategy and a procurement operating model for the company. The project is assigned participants, some who are procurement personnel but the majority being representatives of other functions, i.e. business decision-makers. Often, the company’s executive team is also strongly represented, which is a boost to the progress of the project. ValueSource leads the project and interviews the participants. At the same time, the project gains an outsider’s insights and more procurement know-how. “ValueSource’s consultant is comparable to a physiotherapist who helps a patient with rehabilitation. However, the final result is heavily dependent on the commitment and work of the “patient”, i.e. the customer.” The work is aimed at permanent changes and the customer’s development.

“Finally, someone is paying attention to these matters.”

The strategic project itself comprises a series of workshops as well as reports, analyses, and other agreed tasks performed between the workshops. According to Matti, the participation rate at the workshops is often amazingly high—even regarding the management. And procurement is happy that “someone is finally paying attention to these matters”. A good workshop lasts for half a day. Sometimes, the workshop may last a whole day, if participants are coming from far away. The important thing is that the meetings have a clear agenda and materials and that the participants are encouraged to discuss the common topic. After all, companies have not normally really talked about the procurement strategy. Everyone may have their own views on it, of course, but the big picture and a mutual procurement situational picture are missing. The discussions also help with commitment to the development tasks. There may be sudden insights: “Hold on, are we really spending this much on procurement?” or “Damn it, we need to fix this!” 

Strategic projects—what have I learned in the last three years?

Here are a few of Matti’s observations related to strategic projects: 

  • Typically, procurement costs make up 60–80% of the company’s turnover
  • Companies have a significantly larger number of suppliers to deal with than you’d think—and even more purchase invoices
  • The procurement resources are scarce, and their time is spent on operational tasks (ordering, other daily routines)
  • There are barely any resources assigned to strategic procurement or systematic competitive tendering
  • Typically, procurement matters do not feature on the executive team’s agenda
  • Hankintoihin liittyvä taloudellinen potentiaali on merkittävä - tulokset näkyvät viivan alla

Mitä yleisiä hankinnan haasteita on huomattu yrityksestä toiseen?"Käytännössä lähes kaikissa yrityksissä hankinta on aliresurssoitua suhteessa siihen taloudelliseen potentiaaliin, jota se edustaa." Koska hankinnat vastaavat suurta osaa liikevaihdosta, niiden kunnollinen johtaminen vaatisi enemmän resursseja - ja sellaisia resursseja, joilla on operatiivisen ostamisen lisäksi kokemusta strategisesta hankinnasta ja toimittajasuhteiden johtamisesta. Rekrytointikynnys on kuitenkin usein huomattavan korkea, vaikka potentiaali ja ns. business case näyttäisi kuinka ilmeiseltä.

Miten haasteita on ratkaistu ja päästy eteenpäin?Kun strategia on tehty ja kehitystarpeita havaittu, ValueSource tarjoaa asiakkailleen tukea sekä hankinnan ammattiresursseja toteutukseen. Tällä toimintamallilla asiakkaat ovat voineet lähteä testaamaan uutta strategiaansa ja toimintamalliaan ilman, että heti tarvitsee tehdä pitkävaikutteisia rekrytointipäätöksiä. Jos malli sitten toimii odotetusti, asiakas voi harkita resurssien rekrytointia suoraan omalle palkkalistalleen.

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