How to reorientate your Procurement function to mitigate inflation and drive business value in 2022 and into 2023

Back in April 2021, Procura Consulting released the article Covid-19 How Procurement functions can help businesses survive and thrive explaining the key 5 phases, in our opinion, that an organisation with a proactive Procurement function should consider to support their organisation bounce back strongly and successfully from the damage and disruption of the pandemic.

Well, here we all are in late March 2022, and external challenges to businesses continue to mount up. Covid-19 pandemic continues, consumer supply and demand fluctuates, skilled labour shortages, inflation (some credible; some opportunistic/profiteering) has hit just about every area of an organisation’s cost base, and the atrocities in Ukraine are adding to the commodity price disruptions and shortages. All this has also created renewed emphasis on topics such cash management, risk management and sustainability in the supply chain, including topics such as diversity and inclusion. These ongoing issues and trends will be here for the foreseeable future, and we would argue have altered the world of procurement forever.

The days of Procurement functions delivering quick wins and rapidly improving the P&L, are few and far between, with classic category strategies rarely proving dynamic enough for many industries and categories. Good reactive Procurement has been very important in the last 2 years to deliver supply at best cost. Excellent proactive Procurement will be critical in the next 12 months+ to combat cost pressures, aggressively reduce costs where possible, strengthen the supply chain while minimising risk, implement sustainability and support operational and digital optimisation of the business.

Well resourced, skilled and proactive procurement functions have been playing an intrinsic and amazing role in their organisations already. We salute all those people for helping raise the profile and credibility of Procurement for all of us.

What are these good Procurement functions doing that the rest should follow?  They continue to add tangible value.  

The ‘Procura Procurement House’ contains the key areas and processes every organisation should consider to drive value to their organisation.

Throughout the rest of 2022 and into 2023, Procurement functions need to work as hard as they ever have to collaborate and add value to their organisation and seize the opportunity to demonstrate to stakeholders and suppliers that as well as playing the traditional buyer and policy role, procurement is acting as a true strategic partner. It is crucial that Procurement influence senior management to understand that typical cost saving metrics are just one of a multitude of metrics that Procurement success in 2022 and 2023 should be judged upon.

There are six key areas that we have picked out that Procurement should focus on;

 

 

  1. Strategy and Operating Model

Does Procurement have the right structure, capability and capacity at the right cost to the business to support organisation needs?

Does Procurement have the right fit policies, processes and accountabilities in place that align to business operations and goals?

Is Procurement being supported with the right leadership, culture and team morale to achieve high performance and deliver results?

How does your Procurement function benchmark against your competitors?  If you are underdeveloped, are you missing out on optimal benefits and/or creating reputational risks?

 

Look into the Procura Transformation Function Diagnostic  to understand how to benchmark the maturity of your function and create a tangible plan of action to enhance Procurement Procura Consulting Procurement Transformation function diagnostic

 

  1. Cost Optimisation

Are you acquiring goods and services at the best overall value for the organisation?

How is Procurement supporting the business to proactively challenge and mitigate supply chain inflation?

Are you aggressively pursuing cost reduction in category areas identified by Procurement as an opportunity?

Is there opportunity to consolidate or group purchases to support volume cost benefits?

Is Procurement renewing or refreshing contract terms to improve or mitigate immediate costs (pricing, payment terms, rebates) and future costs (price indexation for 12-month+ contracts). Does this also include working with sales/accounts to flow inflation into client contracts or review product margins?

Procurement functions can still drive savings in a world of inflation, procurement professionals need to use a new set of levers to do it. You can read how to here.

 

Look into the Procura Spend Analysis Opportunity Assessment diagnostic for how to identify cost reduction and profit improvement opportunities  Procura Consulting Spend Analysis Opportunity Assessment

 

  1. Supply Chain Optimisation

Is Procurement evaluating Make (internal) vs Buy (external) options for all/key goods and services?

Look into the total cost of ownership – can goods and services specifications be optimised to reduce the need, volume or standards previously purchased to stop or reduce spend at source without detrimentally compromising sales or service to clients?

Can Procurement help operations identify enhanced standardisation on products and eliminate duplicated purchasing?

Is Procurement looking into insourcing or domestic/near shoring for cost benefits, while also supporting business goals linked to geo-political concerns and sustainability objectives?

Is Procurement engaging collaboratively with the supply chain to utilise their knowledge and experience to identify ideas and opportunities for efficiencies and value adds?

Supply Chain Optimisation

 

  1. Supply Chain Risk Management

Has Procurement completed a risk assessment of the supply chain, with a plan of action to proactively mitigate any immediate and future risks with key supply disruption?

Does Procurement understand the multi-tiers in the supply chain to be able to anticipate and plan for proactively mitigating any future supply disruption, cost increases, ethical or anti-corrupt challenges?

Has Procurement mapped out the business (ESG, CSR, geographical, reputational, operational) challenges to current geo-political challenges to enable the business to make swift and decisive decisions with an informed understanding of the impacts?

 

Look into the Procura Supply Chain Risk Management: Implementing a 3-step framework Procura Consulting Supply Chain Risk Management-3-step framework

 

  1. Sustainable Procurement

Does the business have a Sustainability (ESG) strategy and culture that can (or must where future regulatory) be aligned to the supply chain?

Is Procurement engaging with key stakeholders to embed the organisation’s sustainability strategy into Procurement and the supply chain?

Does Procurement have the right capability, capacity and processes to embed sustainability into the operational processes and the supply chain?

 

Look into the Procura Sustainability Impact Assessment and Capability Diagnostic for how to make sustainability in the supply chain real  Procura Consulting Procurement Sustainability impact assessment and capability diagnostic

 

  1. Digitisation and Automation

Has Procurement undertaken a mapping exercise and health check/diagnostic to understand where Procurement tools and systems can support the streamlining, automation and process efficiency to create productivity benefits and drive future cost and value benefits?

Are your current finance and procurement systems fit for purpose in a digital world and acting as positive enablers for business operations and procurement initiatives?

Can you engage with external parties (consultants and/or suppliers) who have a high degree of expertise and experience in optimising systems or introducing alternative better fit options?

 

Look into the Procura Procurement Digitisation Roadmap for how to find, select and rapidly implement cost effective and leading-edge procurement tools and marketplaces, transforming processes to deliver operational cost efficiencies and bottom-line cost benefits Procura Consulting Procurement Digitisation Roadmap

 

Up to 70% of an organisation’s costs are purchased from external goods and services. Underdeveloped and non-value adding Procurement functions are a business risk to safeguarding an organisation costs and strategic objectives in 2022 and 2023, therefore it is critical for an organisation to invest across the six key areas through a mix of internal development supported by external experienced capability and capacity.

Points to consider:

  1. Excellence in Procurement is more essential now, than ever, in a world of inflation and risk
  2. Ensure your procurement function is set-up to deliver the core processes, this will lead to tangible value delivery
  3. Savings are still possible but different levers are required
  4. There are six areas where Procurement can drive benefit in 2022 and in to 2023. Review your strategy through this lens

We have also published a white paper on Procurement Transformation;
the article can be read here

If you would like to discuss any of the points raised in the webinar or the article, please contact us, we love to talk procurement.

 

To find out more about how Procura can help your business please contact us.

Email us: info@procuraconsulting.com

Call us: +44 (0)203 693 7275

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