Regardless of whether your company is just starting out or has been around for awhile, your goal for procurement should be the same: maturity.
Unfortunately, there is no way direct way to get there. The path to maturity is not the same for every company. Furthermore, it is a continuous process. Even after you get to the point where you are satisfied with the state of your procurement department, the same issues need to be revisited at regular intervals in order to keep up with the changing nature of business both inside and outside the company.
If your goal is to achieve a mature procurement department, you need to start by establishing your starting point. You need to know how far you have to go and where exactly you need to focus your energy. The following list contains 7 characteristics of a good procurement department. Use them as benchmarks to guide you in the evaluation of your own procurement procedures.
1. A mature procurement department has clearly defined objectives that align with those of the overall organization.
Clear objectives allow you to communicate your department’s value effectively to higher management. If management understands exactly what procurement does and how it benefits the company as a whole, they will be more inclined to provide a supportive budget and give your department a more vocal voice in the organization.
2. E-procurement solutions have been successfully implemented and usage is common throughout the department.
Relying on email and Excel for procurement is inefficient at best and downright risky at worst. With the variety of e-procurement solutions on the market, there's really no excuse for best-in-class procurement departments not to already have one. That being said, take care when selecting a SaaS solution. Make sure to involve end users in the process or else you'll run the risk of implementing a tool that buyers aren't willing to using.
3. Supplier relationship management is seen as an essential part of the procurement process.
Developing positive relationships with key suppliers involves collaboration and communication, and it doesn’t stop once a contract has been signed. SRM software can help you keep records up to date and remind you of when you need to set up a quarterly review or renew a contract that's about to expire. Top-notch procurement departments also know that relationships are two-way streets, so they also look for feedback from suppliers and use it to improve their purchasing process.
4. Cost is not the only deciding factor when making decisions, nor are cost savings the only KPI used to measure success.
A mature procurement department understands that there are many other ways to add value to the supply chain other than by lowering price per unit costs. Total cost of ownership factors into sourcing decisions, and management understands the diminishing returns of cost savings and knows other ways to provide value.
5. A great procurement department has a policy and established procedures in place — and adheres to them.
Well-defined operating procedures aid buyers in doing their job and assist with overall compliance. They also help to ensure transparency and avoid fraud and corruption. Plus, if a buyer leaves the company or is out due to illness or personal time, it will be easier for someone else to step in, but only so long as everyone is following the same procedures. You can download a free procurement policy template here.
6. Your procurement team has been hired and trained with the department’s needs and goals in mind.
Finding talented procurement professionals is tough. According to the 2016 Deloittle Global CPO Survey, a full 62% of CPOs feel that their team lacks the skills needed to carry out their chosen strategy. Due to the current talent shortage, you likely won't be able to improve your team through hiring. Therefore, it makes sense to focus on training your current employees. A great procurement department knows the value of continuing professional development through conferences and certifications, such as those provided by CIPS and ISM, on-the-job training and networking opportunities.
7. A mature procurement department has a role to play in corporate social responsibility and innovation initiatives.
When Procurement is involved early-on in projects or product development, there are a number of benefits to be had. For one, they will have the time to carry out a strategic sourcing process for the goods and services needed, which has the potential to result in better market understanding and better supplier selection. Furthermore, establishing sustainable, socially responsible procurement practices can both help protect your company from risk and scandal and make your own supply chain more sustainable in the long run.
Comparing your procurement department to the seven points found in this list is only a start. It will give you an idea of where your department stands and where extra work needs to be done. Once you feel your department has obtained the level of maturity you desire, don’t forget to review this list periodically to make sure that your procurement department hasn’t gotten off track.
This article was originally published in December 2014 and has been updated to reflect current industry trends.