Procurement Approaches Are Often Fundamentally Flawed, Expert Says

When it comes to procurement, resources are all too often applied to areas where they actually add the least value. According to procurement outsourcing firm Proxima Group’s Chief Client Officer, Guy Strafford, value creation is potentially the greatest during the engagement and management stages, and yet few procurement resources are normally applied at these points. Instead, they tend to be applied during the mechanics of selecting suppliers and negotiating, which is a great error because the potential value created at this point is typically rather low. He makes his point in the form of a chart that shows the DNA of procurement.

Procurement Must Be Engaged From The Start

Therefore, procurement needs to be involved from the very beginning in order to shape the way stakeholders think about engagement. The challenge that often arises is that procurement will have less specialist knowledge about a market than stakeholders in the beginning, which is why procurement only becomes engaged much later in the process. At that point, they must spend their time completing RFPs and RFIs and negotiating, essentially catching up on the knowledge the stakeholders already have. Supply managers should engage more from the beginning and then stick around to manage value and boost the efficiency of the process phase.

Strafford feels that companies should not be assuming economies of scale because not every supplier will become cheaper as it gets bigger. He also says that businesses are prone to under-investing in procurement because the criteria for Return on Investment (ROI) used in procurement are different from those applied to other internal functions. He feels the ROI of better buying far exceeds that of anything else save raising prices, which is why companies would do well to invest more in procurement.

This blog post was based off an article from Supply Chain Digest. View the original here.