Procurement has long been an essential role within organizations, but as the business world changes, the nature of the job continues to evolve. The next evolution of the role is upon us.
A quarter-century ago, procurement was tactical, primarily focused on transactions and supporting the purchasing process. Over the last 15 years, as contracts have gotten larger and vendors have become more engrained in critical business operations, the role has become more strategic as procurement professionals place a greater emphasis on developing and fostering vendor partnerships.
Today, across leading organizations in almost every industry, the job of procurement professionals is further evolving into an operations and strategy advisory role that demands deep subject matter expertise of business requirements. Several factors are driving this shift, among them the rapid advancement of new procurement tools that are making the tactical role of procurement obsolete.
There’s also a growing recognition by strong C-suite leaders of the unique perspective that procurement professionals can bring to companies’ decision-making processes. With new ETL tools making it possible for large organizations to manage large volumes of data from multiple sources, companies have an opportunity to make better-informed business decisions than ever before. With their unique lens across multiple silos, procurement professionals are best positioned to corral and make sense of the massive amount of data available.
Technology Transforms Procurement Role
As new technological tools have automated many basic tactical and transactional duties, there’s less of the paper-pushing that once characterized procurement professionals’ jobs. With new machine learning- and artificial intelligence-based solutions continuing to flood the market, additional tasks may also soon be taken off their plates, including spend analysis, contract review and even negotiations or developing request for proposal (RFP) documents.
This change in the procurement role is different from other technology-driven transformations in businesses — such as the gradual replacement of warehouse workers with robots, where jobs are just disappearing. Rather, tools are enabling procurement professionals’ time to be reallocated to activities that will make a measurable impact on their businesses.
Procurement is becoming substantially more important to companies as it transforms into an operations engagement function that can drive organizational change.
Unique Perspective Can Drive Cost Savings
In the past, whenever any vendor contracts have come up for renewal, procurement professionals have focused on executing the wishes of their business owner. After reviewing the current requirements and discussing any needed changes internally, they negotiated with vendors to get the best deal available.
There’s huge potential for savings within organizations that actively examine where money is being spent and to what effect — from less than 5% annually to more than 30%. Companies should be expecting procurement to drive the 30% cost savings target, as opposed to only focusing on the 3%-5% negotiation strategy of years past or cost avoidance.
With pricing information becoming more widely available with the advent of web-scraping, AI pricing tools and data aggregation tools. running RFPs for office or cleaning supplies isn’t going to produce the operational excellence and optimal savings it once did. However, there’s a chance for procurement professionals to make a greater impact by evaluating the need for certain supplies in the work-from-home environment, focusing on the pricing of IT peripherals to support employees working remotely, and evaluating digitization strategies to lower the cost of consumables like ink/toner and paper. These kinds of changes would require a deep knowledge of cleaning requirements and collaboration with stakeholder groups.
Another area where procurement professionals can shift their focus is analyzing and optimizing internal services versus outsourced ones. Many healthcare payers, for example, have both internal and external call center partners. A procurement professional could examine questions such as:
- Are external partners performing better in first call resolution, average handle time, etc.?
- What is the cost of the internal group versus external partners (looking at the fully burdened cost with fringe rates)?
- Is the external partner getting better customer satisfaction survey scores?
- Do regulatory requirements for government program communications (Medicaid, for example) require an internal call center located onshore? (If so, it might make sense to keep those types of communications onshore with in-house employees and outsource everything else, a more scalable option with better historic performance.)
- Are a high percentage of inbound calls for the same reason? (If so, the procurement professional could collaborate with business owners on ways to save money by reducing demand, such as by improving self-service on the company’s website.)
Examining Operational Improvement Savings Levers
Sometimes, money can be saved within an organization with something as simple as a rate negotiation, the elimination of unneeded tools or demand reduction. Other times, procurement professionals may need to take a deeper dive into company processes and question why things are being done a certain way.
By examining certain nontraditional savings levers, it’s not uncommon to find streams of spending that can be reduced, sometimes dramatically. One common example is software license rationalization.
Every large company has ongoing subscriptions to a range of software tools, from cybersecurity to creative suites to workflow management. It’s common for these software packages to include several license tiers and license types, each with different capabilities that employees receive based on their perceived needs. What often happens, though, is that employees either don’t use the software at all or are given access to modules they do not need. Frequently, these licenses go unused and underutilized.
In these cases, a procurement professional can map out employees’ actual use of software and determine whether they have the appropriate level of access. A company with 500 licenses for a particular tool might discover 200 of their employees have never even logged in. Maybe only 100 need the premium version and another 200 only need read-only access. In the past, it may have been expected that an IT leader would address these types of opportunities. Today, procurement leaders are being asked to take ownership in all areas of cost savings, including license optimization.
A similar example is within application rationalization, an area that may have once been owned by IT. Today, procurement professionals can lead the way in helping companies uncover cost savings. It’s not uncommon for businesses to lose track of the contracted or intended purpose of each piece of software, and many companies find that they’re paying for multiple tools that have overlapping functions.
Technology is just the tip of the iceberg. With more time at their disposal, procurement professionals can explore streams of spending ranging from shipping contracts to countless industry-specific areas.
Managing a Changing Environment
Vendors, perhaps emboldened by the inflationary environment, have dramatically increased prices in recent years without a corresponding improvement in services — and often, with diminishing service quality. For example, as the technology sector has seen a flurry of M&A activity in recent years, frequent changes in software capabilities are making it hard for customers to understand what they’re paying for while also creating an overlap of capabilities.
The time to act and empower your procurement leader is now. As C-suite expectations for procurement evolve, the opportunity is ripe for procurement teams to deliver substantial and meaningful operation and financial value to their organizations. Companies that aren’t keeping up are losing a competitive advantage to get more out of their people, get more from their vendors and drive change that could substantially impact their organizations in a positive way.
