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The Value of a Customer-centric Procurement Function

October 15, 2015 by Hillary Ohlmann

Businessman Holding Small Brown We Love Customer Signage.

Have you ever heard the old writing adage, “Show, don’t tell”? In writing, it means to provide concrete examples to help the reader imagine a scene or understand a point in place of worn-out, vague adjectives (e.g. A smile lit up her face when she saw him. compared to She was happy to see him.).

 

In the world of procurement, there’s a place for “show, don’t tell.” One of the biggest gripes we hear from procurement professionals is that the function is not recognized for the value it provides. In fact, they frequently are not even given a platform to “tell” and communicate their value to upper management. This is why the “show” becomes so important.

Value Beyond CA and CR

One way to show the value of procurement is to provide Finance with solid numbers, and bring the organization closer to achieving sustainability goals or other objectives near and dear to the company’s mission. Procurement professionals are able to dig into the numbers and get them to add on to the company’s bottom line or negotiate contracts that will provide value in other ways (improvements on quality, delivery, or any other number of KPIs).

Beside cost reduction and cost avoidance, a well-managed procurement process can cure many of the ailments found in the company’s finances. For example, less inventory and an increase in payment terms decreases the need for external financing. This has a direct impact on finance costs. Positive cash flow can provide the sales team with leverage, as well, since sales can extend payment terms to the customers, if needed. Supplier selection, auditing, and performance evaluation will definitely increase supplier quality and decrease the cost of poor quality (COPQ). All of this is real money that can be measured before and after.

A real-life example of "show, don't tell"

A recent LinkedIn post entitled "Hey Procurement, Nobody Cares" by Robert Case, a global strategic sourcing consultant, provides a perfect example of this concept. In the post, he describes how he and the procurement team approached a plant manager to discuss a pice of machinery they were purchasing. The response they received? "F*** off, I'm busy making the company money." Apparently, he was not convinced the procurement function could assist with that.

Not to be deterred, the team went back and built the manager just the tool he needed. Once he actually saw it, "he began promoting the procurement function and strategic sourcing to all of his plant manager buddies. His main points to his colleagues were that we provided high value, understood his goals, saved him money, and took very little of his time," writes Robert.

Who are your customers?

Numbers in hand or tools in place can bring you one step closer to showing your value and getting the buy-in you need to effectively do your job. However, being able to show your value means you have to be working together with the right stakeholders. And while it may be quibbling over semantics, what do you call them? Sometimes simply changing the label from stakeholder to customer will change your mindset and how you do business.

Customer-centric procurement means moving beyond gatekeeping and getting to know and understand your customers’ needs and objectives. This is where Procurement can take a page from the B2C playbook. New customer-centric apps and services are all about visibility. You can see where your packages are and know when they should be delivered. You can see where your taxi is and know when it will arrive at your door. Ideally, the procurement function should be just as visible. Making your function visible means communicating and collaborating with your customers, touching base with them frequently throughout the procurement process.

Making your procurement function more customer-centric may involve listening to some hard truths in the beginning. Identify and then engage those customers to benchmark your current situation. How do they see Procurement? Do they think it provides value? If so, how? If not, why? As Bill Gates said, “Your most unhappy customers are your greatest source of learning.”

Collaborating with customers creates value

In creating a more customer-centric procurement function, you will certainly see an increase in value. According to a June 2015 paper by The Hackett Group, “Procurement organizations that are viewed as a valued business partner report 68% higher savings than those viewed as a gatekeeper.”

Procurement organizations that are viewed as a valued business partner report higher savings

Procurement organizations that are viewed as a valued business partner Source: The Hackett Group, 2015

There’s good news, though. It appears as though a majority of companies are already moving in this direction. Back in 2010, Ariba sponsored a report on the future of procurement called Vision 20/20. Oxford Economics and SAP recently surveyed both executives and procurement practitioners to see how some of the predictions have been playing out. According to the survey, 68% of executives and 70% of practitioners either agree or strongly agree that procurement is becoming more collaborative with other parts of the business. This is certainly a positive sign. Focusing on collaborating with the customer will give the function an opportunity to “show” its value rather than “telling” and hoping the C-suite will listen.

Download the Strategic Sourcing Guide

Hillary Ohlmann

Written by Hillary Ohlmann

Hillary is DeltaBid's resident writer, copy editor, researcher, and all-around procurement enthusiast. She holds a degree in Journalism and Spanish from UW-Madison.

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