Oct 16, 2021

Procurement Has Potential to Become the Top Value Creator

Supplychain
Procuremernt
ProcurementStrategy
supplychainrisk
Omer Abdullah, co-founder, The...
5 min
The Smart Cube believes procurement teams have the potential to become the number one value creator in modern business. Here’s why - and how to achieve it

For decades, procurement teams have been victims of their own success. Their incredible ability to keep costs under control and enable the business to maximise its margins without sacrificing product quality or customer experience has understandably earned them a reputation as exemplary cost controllers.

That’s the problem with being very good at something – especially something that delivers such strong value to the business. It quickly becomes your ‘thing’, and people stop thinking about what else you may be able to do, because they’re so content with what you’re already doing. There’s no pressure or imperative to change. Or there wasn’t, until very recently. 

Procurement has always been strong in times of crisis, helping organisations and their supply strategies adapt to shifting and challenging conditions. And the last 18 months have held plenty of opportunities to prove that strength and flexibility. 

Leading procurement teams have played a significant role in helping their organisations understand and mitigate the risks that came along with events like the COVID-19 pandemic, the Suez Canal blockage, and more. Plus, as organisations have scrambled to adapt to shifting consumer preferences, procurement teams have helped reshape strategies.

It’s been a challenging time for us all. But for procurement teams, it’s also been an incredible opportunity to explore and showcase all the ways they can deliver strategic value. It’s helped the world see a new procurement function – one that The Smart Cube believes has the potential to become the number-one value creator in the modern business.

Procurement as the #1 value creator in the business

That sounds like a lofty claim. But, once you examine all the different ways that empowered procurement departments can support business strategy and deliver value to the wider organisation, the rationale behind it becomes much clearer. In recent months and years, we’ve seen leading procurement teams:

Support supplier-driven innovation and improve product strategies 

Innovation is all about identifying gaps and seizing the right opportunities at the right time – two things procurement teams are very good at. 

As procurement teams monitor key markets and categories, they can provide valuable input to drive product improvements and inform product strategies. Plus, that laser focus on markets and commodities also makes the procurement team an incredibly valuable source of competitive insight.

They know what’s happening in your markets, understand what needs to change to keep pace with your competitors, and can see the most cost-effective way to get you there.

Help businesses achieve their sustainability goals

Sustainability has quickly become a strategic priority for virtually all major organisations, and procurement teams are well positioned to help them achieve it. 

From logistics decisions to packaging and materials choices, the function has unique opportunities to directly impact the sustainability of operations and take concrete steps to improve it at a time when immediate action is more needed than ever.

Recognising, mitigating, and minimising supply chain risk

High-performing procurement teams constantly scan categories and re-evaluate suppliers to assess potential threats to business continuity. Often, the trends and drivers they identify are the earliest signs of significant disruption.

Then, when a crisis does strike – or ideally, before it strikes – the team can adapt supplier portfolios and strategies, isolating the business against the impacts of major crisis events, and even turning them into opportunities for value creation.

Continue to deliver strong cost savings

The cost savings delivered by procurement teams aren’t going anywhere. Perhaps most impressively of all, we’ve seen procurement teams continue to drive down costs and maximise margins while also delivering the rest of these new sources of business value.

What it takes to get there

Some of those sources of value require a significant change in how procurement teams operate and are empowered by their organisations today. If you want to unlock them all, your procurement team needs three key things:

The time, resources, and freedom to focus on new sources of value

While many procurement teams have the capability to deliver all those exciting sources of business value, the thing that lots of them are still missing is the capacity to do so.

For procurement teams to step into a more strategic role and become the number-one driver of business value, they need the time, resources, and freedom to focus on the sources of value.

That means finding new ways of creating time for the team. That could include automating routine tasks, serving teams with actionable commodity insights to save them from spending hours manually sifting through data, or simply scaling up the resources within the team to unlock those new value sources.

However, this must also be accompanied by a change in how procurement is perceived at the highest level of the organisation. There needs to be a clear route to deliver strategic input to the organisation, and KPIs need to evolve to reflect how the function delivers value to the business.

Reliable, timely insights and intelligence

The common thread that runs between all the ways procurement teams can deliver value to the modern business is that they all start with reliable market, commodity, and supply chain intelligence. If you can improve the supply of those insights to the procurement team, you can directly increase the value the team can deliver.

That means augmenting existing intelligence sources with new ones, translating raw data into actionable insights faster, and critically, making insights and intelligence easily accessible to everyone in whatever form they find easiest to work with.

The right combination of human and artificial intelligence

When building and delivering those insight capabilities, it’s important to remember that Artificial Intelligence (AI) and Human Intelligence (HI) are two very different things, each bringing different qualities and capabilities to the table. 

While AI is far better at processing massive volumes of data and extracting raw insights from them than humans, humans are much better at contextualising those insights and asking the right questions of AI and digital tools.

To succeed today, procurement teams need to combine the two in a way that works for them. There is no single correct balance of AI and HI – the two should be balanced for the specific use case and procurement function in which they’re deployed.

 

Omer Abdullah is a co-founder of The Smart Cube and leads the firm’s business across the Americas. He works with procurement and strategy leaders at global organisations, transforming their teams to become value-driven and insight-l

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