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
 | 
12.2.2022

The development of procurement starts with organizational cooperation

When the talk turns to developing procurement in a company, often the response is that, even though the will to do so is there, right now, things are too busy for making changes.

Even in the midst of the COVID-19 pandemic, it is important to consider what kind of operating models the company follows and what time is really spent on. Where it previously took maybe one employee to manage material purchases and recalls, nowadays, it takes three to four employees to conduct surveys and investigate availabilities. Contract negotiations can also be a challenge in these times of uncertainty, and it is absolutely vital to carefully plan and prepare for them.

The prevailing situation brings uncertainty to everyone. That said, organizations can benefit from identifying processes that work and polishing them until they meet the organization’s targets.

When was the last time you thought about the following topics in your organization?

  • What works in your company, and what doesn’t?
  • What guides your operations?
  • What is your time spent on in your daily activities?
  • How well are your operations integrated with other operations?
  • Does your function have the capability to do its part?
  • Why do you do what you do?

These are some of the key questions that can help develop your company’s operations once the worst rush subsides. This blog takes a look at the way listening to people, mutual planning, and the logical implementation of operations can help your company in many different areas of your business.

Procurement development is all about developing the whole

Procurement cannot be developed on its own as a separate part of the operations because procurement and purchasing are linked to all of the company’s other operations, such as product development, production, and sales.

The goal of developing procurement is to support the company’s business goals and strategy in the best possible way. Here is a list of starting points that are absolutely useful when starting to develop procurement:

  • A strong foundation for comprehensive development
  • A clear development strategy and management of the entire supply chain
  • Clear development goals and authorization to act
  • The willingness to challenge the established operating model and the company’s capacity for change
  • The right people and the company’s different operations right from the start
  • Mutual commitment to the plan and the future changes

The whole comprises interlinked levels

So what does the comprehensive development of procurement really mean? The next image provides an insight.

Development should take in the different levels of procurement from strategic to operational and go through the operations as processes—i.e. not simply from the viewpoint of procurement but with due consideration for the whole.

It is essential to understand that the company’s strategic and operational activities go hand in hand because strategic procurement lays the foundation for operational purchasing. A flawed procurement strategy can easily result in a rush at the operational level—indeed, the metaphorical fires caused by rush are often the result of the fact that operations are not properly managed or that the strategic level processes have not been designed to be as seamless as they could and should be.

The stages of developing successful procurement

Stage 1: Surveying the present situation

The purpose of surveying the present situation is to gain a holistic understanding of it. After all, it is the basis of all development. Without understanding the present situation, the whole development process may go off piste right at the start as a result of strong and very subjective views and opinions.

The survey tries to find out how the different interlinked functions of the organization, such as production, logistics, or management, view the organization’s operations because the situation may be seen through a completely different prism, depending on the viewpoint.

That said, the present situation should always be viewed from at least three important perspectives:

  • People and organization: How do the employees experience the operations?
  • Processes: How do we work together as a comprehensive process?
  • Data: What do the numbers tell us about our operations?

Based on a comprehensive survey of the present situation, it is possible to identify the key targets of development and draw up a clear development plan. Typically, the survey of the present situation also reveals areas where the first concrete development steps could be achieved through swift measures.

If you’re in a rush, it’s very easy to cut corners, even though the times when you are in a rush are precisely the times when you should follow the due process. If some function is cutting corners, the process can be easily derailed, resulting in corrections and wasted time. And so the purpose of the survey is to challenge the operations where possible to find out if a particular process works or whether it is too difficult for seamless implementation.

Stage 2: Development

At the development stage, it is very important to engage people, i.e. harness the entire organization as part of the development. This lays the foundation for and commitment to the new operating model, which is essential for implementing the change. The development strives to highlight procurement as part of the whole and linking it with the company’s other operations at different levels.

When it comes to developing the whole, it is essential to identify the levels of operations from the strategic to the operational as well as to know which operations are included in the different levels. What are the roles of the levels in the overall picture and how are they organized? How is procurement managed and measured and how is it linked to the overall business strategy? At the development stage, it is absolutely vital for the management to be committed to and support the development. Furthermore, seamless cooperation between levels and operations creates a foundation for the development steps.

That being said, there is no point making the development overly theoretical—pragmatism bears fruit. At the heart of the development stage is clarifying the method or operating model that works for your organization.

Stage 3: Implementation

After the development stage, it’s time for testing. Ultimately, the most important development stage is implementation or putting the development plan into practice.

In addition to implementation, the last stage involves monitoring the progress of the plan and measuring to assess whether the plan is going in the right direction. It is not unusual for some of the measured factors to initially take a turn for the worse as a result of changes and unearthing previously hidden flaws, but you should not let it deter you. On the other hand, the action plan should not be stubbornly forced through if it becomes apparent over time that the development is heading in the wrong direction.

In addition to engaging people, a clear, mutually drawn up plan, the monitoring thereof, and the readiness to amend it are the be all and end all of a successful development journey. So remember that profitability requires commitment, cooperation, and sensitivity to change!

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