Procurement Transforms From Cost Cutter to Trusted Advisor

Blog /Procurement-Transforms-From-Cost-Cutter-to-Trusted-Advisor

Perhaps more than any other business unit, procurement, of necessity, stands at the forefront of digital transformation. What began as snatching efficiency gains by digitizing and automating paper-, time-, and labor-intensive processes has evolved today into real-time analytics, enterprise-wide visibility, and global supply chain optimizations. By harnessing the transformative power of digitalization, procurement’s influence goes well beyond mere cost cutting and, today, profoundly impacts competitiveness and corporate strategy. Procurement professionals are well advised to build on this digital success to cement their recent, hard-won status as trusted advisors to the C-Suite.

Four Pillars Elevating Procurement to Trusted Advisor

1. Tighten ties with finance

While finance and procurement overlap in many ways, in most organizations, they operate as separate business units -- with finance measuring financial performance and setting departmental budgets that align with business strategy and corporate goals, and procurement implementing and enforcing processes and policies that ensure cost-efficient fulfillment of the goods and services an organization needs to achieve its stated objectives.

In many respects, finance and procurement are opposite sides of a single coin. While finance possesses the big picture and calls the shots in setting departmental budgets, procurement has detailed knowledge of all the components and services that go into everything the company makes and sells.

The bottom line is that one cannot fulfill its mission without the other. Finance and procurement must work in seamless unison to achieve a complete, accurate picture of a company's present financial position and future growth potential.

While saving a company money is a good way for procurement to get the CFO/CEO's attention. Sharing its deep and broad subject matter knowledge with finance is a sure fire way to increase spend influence and ascend to the role of trusted advisor.

2. Step up agility training

According to Ardent Partners’ 2015 CPO Rising Report: The Agility Agenda, “Agility, in the context of procurement, requires enterprise sourcing and procurement teams to be highly responsive to any changes in stakeholder needs, supplier capabilities, and market conditions."

Agility, according to Ardent Partners, tops efficiency, cost cutting and compliance for procurement organizations in today’s hyper-competitive, ever-shifting business climate.

Given today's turbulent global economy and dynamic geo-political environment, replete with unpredictable natural disasters and fluctuating material costs, achieving agility on an ongoing basis is easier said than done. Much improvement is needed.

In fact, of the 300+ CPOs participating in the Ardent Partners report, nine out of 10 believe that their procurement departments should be performing better today. Moreover, three-quarters of Best-in-Class CPOs believe that their teams are underperforming today.

Here’s an Ardent Partners’ snap shot of what agility means today:

  • Knowing when stakeholders’ business requirements are changing and being ready with alternative suppliers
  • Quickly responding to a supply disruption with alternate sources for a given commodity, part, or service
  • Taking a more iterative sourcing approach with shorter contracts and more frequent revisiting of the supply markets

For an at-a-glance view of Ardent Partners’ Agility Agenda, check out the following infographic. For real-world examples of agility in action, check out this webinar. The full report can be downloaded here.

3. Invest in technology

According to the recently released 2016 Deloitte Global CPO Survey, spend analysis continues to be the main focus for technology investments among CPOs, with 38% saying this area is most likely to receive investment over the next 12 months. Contract management came in second place, with 37% of procurement executives saying this area would receive the most investment in the next year. 39% pointed to e-sourcing tools, 29% identified supplier relationship management technology and 24% said requisition-to-pay solutions would be a top focus for technology investments this year.

Automating key processes such as procurement, orders, invoicing, and payment is a must if your business is to remain competitive. But to thrive, more must be done with the vast amount of data – internal and external – available to procurement.

Mining, cultivating and analyzing transactional and operational data, together with data from customers, prospects, partners, and suppliers, empowers procurement executives to gain visibility into direct and indirect spending across global accounts, identify opportunities for consolidation, cost reduction, and process improvement, and, in line with procurements’ evolution to the role as trusted advisor, participate in more strategic and business-meaningful goals, such as discovering new business models, driving product and service enhancements, and identifying untapped revenue streams. 

The ability to accurately measure performance in real-time is, of course, a vital capability if procurement is to become a trusted advisor. For this, investment in enterprise performance management (EPM) solutions is essential. According to New Book of Numbers research from the Hackett Group, EPM top performers see 4.4% higher net margin than others in their industry and deliver 21% better total shareholder returns, on average.

Top performers, according to the Hackett Group, are also far more successful when executing a wide array of strategic initiatives, including mergers and acquisitions, business transformation, technology implementation, new product and geographic expansion, and major supply chain improvement efforts.

4. Increase collaboration

Social media networks such as Facebook to Twitter have conditioned consumers to shop, share, and consume in new and more informed ways. Business networks provide an equally easy and scalable way for companies to discover, connect, and collaborate with the trading partners and resources they need to operate in today’s dynamic world.

As commerce becomes increasingly global and complex, the bulk of modern work is more and more team-based. One study, published in The Harvard Business Review last month, found that ‘‘the time spent by managers and employees in collaborative activities has ballooned by 50 percent or more’’ over the last two decades and that, at many companies, more than three-quarters of an employee’s day is spent communicating with colleagues.

Recent research by Oxford Economics shows that most procurement executives and practitioners are in fact observing an increase in collaboration at their own procurement organization.

The results of this collaboration are impressive and business-meaningful. Over half of the procurement executives and practitioners surveyed by Oxford Economics say:

  • Procurement data is being used strategically across the organization
  • Suppliers increasingly contribute new ideas for marketing and product design
  • Suppliers are helping us transform our business model

By spending more time collaborating with other lines of business and external partners, procurement can help a company discover additional revenue, improve supply risk management, and strengthen competitive advantage.

Become a trusted advisor today

We’re hearing it more and more at NTT DATA from CPOs and procurement professionals: Their organizations are under increasing pressure to not only reduce costs, cycle times and risks, but also to provide strategic value, drive innovation, and help sharpen their business’s competitive edge.

Driving business-process innovation, protecting the company from risk, ensuring compliance, establishing a sound sourcing strategy, cooperating on technology investments, participating in business networks, and achieving supply chain excellence are all areas in which procurement can be trusted to help a business reach it's full potential.

At NTT DATA, we work closely with finance and procurement business units across all industries to leverage SAP Ariba solutions for strategic, sustainable value.

Contact us today to learn more about our experience and success in elevating procurement to the esteemed position of trusted advisor or to schedule a meeting at SAP Ariba Live.

Post Date: 3/4/2016

Baskar Radhakrishnan Headshot Baskar Radhakrishnan

About the author

Baskar Radhakrishnan is a director of the Global SAP Ariba Practice at NTT DATA, with 18 years of IT experience. He has an extensive experience working with customers globally across various industries in the areas of indirect procurement, MRO, sourcing, spend and supply chain analytics and contract management solutions. He has successfully led several large global procure-to-pay transformation projects, which leverage SAP Ariba on-premises and SAP Ariba cloud technologies.