Hot topic: Establishing a procurement function
It’s fair to say that it’s been a tough and challenging 18 months for many businesses. At one of the scale, some businesses faced their turnover effectively switching off almost overnight, whilst cost bases still loomed large relative to that. At the other end of the scale, some businesses experienced huge increases in demand, with their supply chains facing sudden, huge pressures coping with demands coming from many directions. The challenges have kept coming as businesses face ever-changing circumstances, many of which have never been seen before.
During these testing times, Procurement has come to the fore for lots of reasons. Some of these include turning costs off, renegotiating costs, restructuring supply chains, identifying new sources of supply, increasing supply, reducing risk, providing insight, driving efficiencies, and getting the best from suppliers. Arguably, it’s businesses that can see the true value Procurement can offer, those that have invested in Procurement, which have been agile, able to adapt and better meet the circumstances presented whilst steering businesses to a better place.
Procurement delivers huge value when it’s embraced in businesses big and small. How can you best benefit from the support of a procurement function? For some, it may be about introducing procurement for the first time. For others, it might be more about how you can get the best out of an already established procurement function.
Having worked with numerous different types and sizes of businesses and procurement set-ups, here are a few of our observations.
Scenario one: Little to no existing procurement function
For businesses starting at ground zero with little or no procurement function, where do you start? How might you convince a leadership team to spend money investing in procurement resource?
One angle here is to pitch directly to CFOs or FDs watching over the numbers. Make a business case that considers return on investment. For example: if we spend £50k on procurement resource then we will target a return of 5/1 in savings benefit.
How to build a business case:
- Analyse supplier spend data – Gather accounts payable data that shows what was spent with each supplier in the last year and focus on the top suppliers.
- Review copies of contracts – Get copies of contracts for those top suppliers and work out contract renewal dates, identify opportunities to tender or to renegotiate, discuss potential opportunities with contract owners, ask them what support they would like in an ideal world. Everyone is busy, so extra resource to run tenders or negotiate with suppliers is often a good starting point.
- Build a pipeline of activity – Log all identified opportunities and where possible take a view of what the opportunity might be on a conservative basis.
- Draft a business case – Consider what level of investment in procurement resource is needed, how much that will cost and therefore what return on investment could be delivered with the savings generated.
Whilst it’s possible to do the above in-house, it can be a daunting task for a non-procurement professional. Without having the backing of procurement insight, credibility and experience it can be challenging to accurately estimate savings or resource costs, engage contract owners and gain buy-in from the leadership team.
Another option is to outsource the whole process, from analysis through to business case and to then use external resource to drive projects and deliver savings. This is something that Ebit excels at. Having supported many businesses with this kind of project, by engaging with us you can also benefit from using procurement experts with in-depth knowledge of your spend categories and suppliers. We are well versed in estimating and delivering savings and because of our experience, insight and data we can fast track the process.
In many cases, building a business case as an initial exercise has quickly shown the value procurement can bring which then leads to more resource and more investment to the ultimate benefit of the business. From there, procurement gradually becomes a more mature and established part of the business which adds increased value as well as cost reduction.
Scenario two: Established procurement function looking to deliver further value
As a procurement function becomes well-established in a business, how does the team go up a gear and deliver further value? The ‘low-hanging fruit’ may be long gone, yet the business still expects value to be driven. Where does this value come from?
At Ebit, we’ve worked with great businesses who already have an internal procurement team.
Here are some of our observations:
- Greater reach with stakeholders – Is procurement looking at all areas of the business? Are there difficult stakeholders? Build a plan for reaching out to areas of the business where procurement has previously struggled to engage. How can you win over stakeholders that have not worked with procurement before? Consider what stakeholders’ pain points might be, what problems you could solve for them, what they want help with. Consider allocating resource to run a tender, provide insight on different solutions or expertise in a certain area. Showcase where you have helped other parts of the businesses – can those people where you have done a great job act as a reference for other parts of the business? Ultimately, take time to build relationships.
- Use external procurement resource – Sometimes it’s hard to see the wood for the trees and one business will always find it difficult to have all the answers. Using external resource is a way to bring in new ideas and see different solutions. At Ebit, we work with lots of businesses. Therefore, we see different ways of doing things and have a huge base of knowledge, insight, data and expertise. We can bring fresh insight and benchmarks to drive additional value. We also have numerous spend category specialists who bring depth of knowledge due to their sole focus on spend categories including IT, Marketing, Logistics, Professional Services, and Payment Processing as examples.
- Leverage suppliers – Good suppliers will know more about what they are selling and their market than the people in the business they are selling to, so tap into that. Talk to suppliers, share your challenges, ask them to come up with solutions, soak up their insight and knowledge. You can even formalise that process by issuing a request for information and inviting suppliers to present their solutions to you in order to form a view on what you want looking forwards.
- Consider whole cost – Whilst a price may look great on the surface, is it as good as it could be right throughout the supply chain? Are all the parts on that supply chain set up as best as they can be, working as efficiently as possible? Break down the supply chain in as much detail as possible to understand its components. Think differently – what are the different ways you could structure a solution to deliver best value?
Procurement really can deliver great value at all levels and stages. There are some great businesses, both big and small, that really see the value that procurement can deliver. At Ebit we have had the pleasure to support many of them at all different stages of the procurement journey. We have huge expertise, insight, data and if you would like to benefit from that, we would love to talk with you.
If you would like to find out how Ebit could potentially help you build a procurement team from scratch or add value to your existing procurement function, get in touch.