Positioning procurement as a lever for commercial success
Business leaders often see procurement as merely an area for cutting costs. But Tracey Shearer, Managing Director of August Consulting says the right approach to procurement can also lead to greater commercial success.
When procurement is evaluated with a commercial mindset, it serves as a valuable lever that can help an organisation to reach for larger goals. This means in practice that procurement can shift its traditional focus on cost cutting and operational management of spend and contracts, to more value adding activities that actually benefit business goals and top-line results.
Successfully achieving this transition requires a number of factors to fall in place, says Tracey Shearer, who leads procurement-focused consultancy August Consulting. “To start, you need to consider addressable spend. This should be under the remit of the procurement function to ensure a strong commercial focus,” says Shearer.
“Having a strong focus on an organisation's addressable spend will bolster financial viability, for some organisations that can vary from 30% to 70% of their cost base depending on the organisation’s business context.”
The power of data
In order to bring commerciality into the way an organisation approaches procurement, data needs to be put front and centre. An organisation that understands its numbers will have greater success in tweaking procurement to its advantage.
“Unsurprisingly, 98% of decision-makers are investing in insight tools, automation and AI for procurement. We know data offers a competitive advantage, but only if you ask the right questions,” notes Shearer.
That data analysis should include different sources of data including internal data like products, behaviours, and performance, but also external data, like industry reports, market intelligence, and supplier data.
The best way to harness the full potential of data is to standardise data collection across the organisation and boost collaboration between procurement, sales, and other departments to share data. With all teams on the same page as far as data insights, it becomes easier to take action towards larger objectives using that data.
“What levers or buying behaviours can you use to meet agreed targets? Use data-driven evidence to negotiate and secure long-term partnerships with suppliers,” says Shearer.
Besides that, Shearer suggests organisations “monitor supplier performance against agreed objectives and manage risk by having measures in place to address shortfalls, including penalties to ensure supplier relationships are driven by a joint commitment to deliver.”
Market insights
A perfected procurement function with better commercial focus will also include more heightened market awareness and interoperability. “Everything is connected – clients, strategy, systems and the market environment. Understanding how to connect the dots can enhance commercial success and future-proof the business,” adds Shearer.
For example, organisations should be considering: how competitors respond to challenges in the market; what challenges key suppliers may be facing; what industry trends are emerging in the next few years; and how long-term partnerships can be leveraged to stay on top of trends and ultimately stay competitive.
“A commercially-focused procurement function drives growth by aligning spend with organisational strategic objectives. It leverages data and market insights to drive value creation and maintain financial viability,” concludes Shearer.
