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Is procurement the Cinderella of business processes?

April 07, 2014 by Andres Kuuse

Procurement as CinderellaOnce upon a time, Cinderella lived in the shadows of her stepsisters, her positive qualities hidden away as she was cast aside except when called upon to perform chores. Eventually, she had the opportunity to shine, and others recognized that this unmerited treatment and an erroneous perception of her hid a natural beauty.

In the non-fairy tale world of business processes, procurement is a lot like Cinderella, neglected and overshadowed by sales, which get all the glory—and solutions. Despite involving buyers, sellers, goods and services that constitute the nuts and bolts of a company, procurement is not considered by many as core business. Instead, it only seems to come up in discussion when something goes wrong with deliveries or services. However, when given the chance to flourish, it can positively affect a company’s bottom line.

To put it into context, let’s talk a little about procurement’s stepsisters. Traditional business philosophy dictates that for a company to be more profitable, it must generate more sales. For this reason, modern ERP and CRM tools have been developed for sales teams that help them gain better oversight and work more efficiently to make money. Competition is key as salesmen compete against each other for commissions, so it is important that they have the best tools at their disposal, those offering the fastest processes and richest features that don’t waste any time.

While to a certain extent the philosophy of holding sales in the limelight is a valid one, sales only indirectly affect a company’s bottom line. By lowering costs through streamlined procurement, profits can be raised directly, and herein lies its underappreciated beauty. For example, if a company saves $1 million in procurement, the profit increases by the same amount. In sales, with a profit margin of 10 percent, the company must increase revenues by $10 million in order to achieve that same profit.

The importance and role of strategic procurement components like e-tendering and supplier management have long been overshadowed by an inherent focus on sales and therefore overlooked by most software developers. Without an easy, transparent and cost effective solution for the entire procurement system, the procurement process has fallen behind.

And there is a definite need for solutions that can slip on the glass slipper and wow everyone at the ball. Paper, Excel and email-based procurement processes are inefficient and opaque; users are reluctant to give up processes that function, even if archaic; companies waste time on non-user-friendly e-procurement platforms that don’t provide the big picture they need to choose the right vendor and save money; buyers pay more than they should because suppliers are less likely to participate in tenders when the process is not transparent. Procurement is also viewed as something simple—‘just go and buy!’—but a true purchaser has to be a splendid negotiator.

Unlike in sales, procurement staff usually have fixed salaries and there is no competition amongst them. Any decision to change to a better solution must come from someone who is responsible for costs, typically a CFO, but a solo decision can pale in comparison to the power of 10 competing salesmen pushing to adopt a new solution.

Through nurturing and creative software solutions, the perception of procurement will change-- even if, like with Cinderella, it might take a while. Procurement actually involves a lot of know-how. As with sales, it needs to be tracked in order to optimize the process. E-procurement solutions make the procurement process transparent and efficient while managing maverick costs and time spent. By improving the way tenders are processed, managed and optimized, it increases transparency and supplier participation, encourages competition and lowers prices, enabling companies to save money on their procurement budget and reduce time spent on procurement.

Different studies and practices in the public sector have provided proof of the benefits of e-procurement in terms of time and costs. The European Commission plans to make the use of e-procurement mandatory in the EU by mid-2016, with certain phases of the process already mapped out for mid-2014. It’s only a matter of time until the private sector catches up and seeks out the foot that fits into the glass slipper.

 

Andres Kuuse

Written by Andres Kuuse

I am a co-founder and the Customer Support representative at DeltaBid. I’m passionate about creating an easy to use tool that helps procurement and e-sourcing people do their job better. Just as SalesForce revolutionized sales development, we will revolutionize procurement.

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