Procurement Collaboration for Business Integration

Written by Pearlyn Chan Sook Wai, DPSM

by Pearlyn Chan Sook Wai, DPSM

With collaborative procurement, we can find valuable partners within treasury, product development, legal, line-of-business, and suppliers, and extend the value of procurement beyond its four walls. Common goals, shared information, linked processes and systems, and above all, mutual understanding, can enhance the value of procurement’s relationships inside and outside of the enterprise. The diagram below shows the links of Procurement with internal and external stakeholders.

Contemporary Role of Procurement

Today, Procurement continues to undergo significant changes and leading organizations have already integrated the function at the core of strategic considerations, understanding that it will play a central role in transforming the value chain. In order to play this role however, Procurement cannot limit itself to being an independently operated entity. It needs to become an agile function, deeply rooted in the organization’s DNA and involved upstream in cross-functional decisions. The diagram below shows the involvement of Procurement from Internal Office to External Supplier Office.

The Critical Steps of Procurement Collaboration

Procurement leaders must understand the value that lies in collaboration, and they must perceive the required change as one of their main challenges today. In order to develop strategic collaboration in their organization, procurement leaders must recognize that, although they may be an agent of change, they cannot get there on their own. It is crucial for them to on-board senior executives along the way.

Internal and external supplier office

Diagram created by Pearlyn Chan Sook Wai (2019)

Indeed, the first key step in the shift towards strategic collaboration consists of a significant change in the operating model and governance around the Procurement function. As with all topics related to cross-functional changes and governance in general, CEOs are best positioned to lead the transition and to address some of the main challenges, which may include identifying the best way to engage with stakeholders and creating the right conditions to give Procurement a seat in all relevant discussions. Concurrently, procurement leaders need to ensure that their organizations are able to actually step up to the challenge—and, once the opportunity arises, to demonstrate value and strategic thinking.

Implementing Procurement Collaboration

Engage senior management on the Procurement vision and make the change systemic by breaking down silos in order to make the Procurement system visible and appealing to all stakeholders. Build a truly cross-functional system that makes Procurement and business stakeholders “business partners,” equally involved and equally accountable. Translate the overall company’s objectives and equip Procurement leaders with the means to share and implement this vision while deploying the Procurement system. Ensure the new system’s sustainability by making it a part of the company’s DNA and by fostering cross-pollination of talents in and out of Procurement.

Assess and understand fully the company structure, condition and goals.

With the understanding of company goals, combine it with the procurement goals and form a structural process in SOP. On-board your CEO and the management to request for their involvement in the implementation of the procurement requirements structure by using value-based demonstrations and reports. These will further emphasize on the standard of procurement process and its supportive requirement from each department. With smoother processes and collaboration from each department in place, it will be enhancing the company’s overall value-added savings and provide a leaner process. To show the implemented procurement processes proven with result, create a system to continuously tracking and report progress is important.

The diagram below shows the influencing factors for implementing procurement collaboration.

Procurement

Diagram created by Pearlyn Chan Sook Wai (2019)

Strategic Collaboration of Procurement

When senior management that includes procurement are aligned, they will create the conditions for success together. Getting to this alignment stage, however, is no easy feat. Most organizations have not yet reached that point. The evolution from “genesis” to “development” is often accomplished in project mode, without transitioning project approaches into a “business as usual” mindset. The difficulty is that, if the shift into “business as usual” does not occur, performance will eventually decline and organizations may actually fall back into the “genesis” stage, thus making sustainability an issue of the utmost importance.

The Development of Procurement Collaboration

The inflection point that characterizes the transition from “genesis” to “development” is reached when the organization’s senior management understands the importance and the need for a change. One key indicator of the transition, alongside numerous others, is the level of trust that is shown with respect to performance reported by Procurement functions. Often, at stages of lower maturity, Procurement organizations claim very significant savings that are not always recognized by finance and the business. In some extreme cases, Procurement statements are completely disregarded and the ROI of the function comes under challenge from finance and the business.

Once the inflection point is reached, a significantly larger portion of Procurement’s performance is translated into budgets and tracked into the company’s balance sheet and P&L. By that point, in essence, finance and business stakeholders are playing an active role in the performance of the function—hence they are more inclined to recognize their own efforts.

Typically, the proportion of performance objectives shared with the business by Procurement and of cost savings translated into budgets will increase from 20% before the inflection point to some 60% afterwards. The “development” phase is characterized by greater cross-functional collaboration. During that phase, top management assigns shared objectives to business stakeholders and Procurement. These objectives are not distinct and cumulative; they are truly similar, encouraging business stakeholders to turn to Procurement for help in order to reach their targets. They are now in a “pull” mindset; collaboration takes place in project mode, as shown in the diagram below.

The Challenge of Implementing Collaboration in Procurement

Crucially, during the development phase, the collaboration between Procurement and the business tends to be project-based. Even though this stage is truly necessary, as the entities are progressively taught how to work together, performance will erode over time if there is no further evolution.

Moreover, as the focus of top management evolves and top-down pressure diminishes from year to year, there is a risk that the organization will fall back into a traditional procurement method. The only way to mitigate this risk is to truly embed best practices (SOP) into the organization in order to create a virtuous cycle. Procurement must be physically embedded into the business functions, and it must co-build continuous improvement plans with them, so as to deliver on a shared ambition.

Conclusion

Procurement are embracing their evolving roles of greater strategic importance within the enterprise. Procurement teams’ focus is landing on more strategic initiatives and efforts to align with the goals of their organizations. Procurement is starting to face in favour of a much more strategic and business-critical function. Its adapting to new challenges, and playing a more valuable and vital role in today’s increasingly agile and competitive organizations. As procurement executives shift their attention away from cutting costs, it had evolved from data and analytics to collaboration. With relation forged between inter-department and external supplier, this will further enhance a liner company process and operational efficiency thus gaining added value to productivity and cost savings for any enterprise.


References

Ardent Partners Research. (2018). “Six Ways for Procurement to Collaborate Inside and Outside of the Enterprise”. Retrieved from
https://cporising.com/2018/07/31/six-ways-to-collaborate-inside-and-outside-of-the-enterprise, accessed 15/12/2019.

Joe Kok Kong Loong, DPSM. (2019). “Essential Technology Application for Public Procurement”. Retrieved from SIPMM:
https://sipmm.edu.sg/essential-technology-application-public-procurement, accessed 15/12/2019.

KPMG (2019). “Future of Procurement”. Retrieved from https://home.kpmg/xx/en/home/services/advisory/management-consulting/optimize-your-sector-operations/future-procurement.html, accessed 15/12/2019.

Oliver Wyman. (2017). “Strategic Collaboration in Procurement”. Retrieved from:
https://www.oliverwyman.com/content/dam/oliver-wyman/v2/publications/2017/mar/strategic-collaboration-in-procurement-final2.pdf, accessed 15/12/2019.

PYMNTS (2018). “CPOs Struggle to Prove Themselves a Strategic Asset to The Enterprise”. Retrieved fromhttps://www.pymnts.com/news/b2b-payments/2018/advanced-chief-procurement-officer-technology-investments-innovation, accessed 15/12/2019.

Zaiton binte Aby Bakar, ADPSM. (2019). “Essential Strategies for Public Procurement Practices”. Retrieved from SIPMM:
https://sipmm.edu.sg/essential-strategies-public-procurement-practices, accessed 15/12/2019.

About the Author: Pearlyn Chan has extensive experience in procurement. She is passionate about procurement methodologies and strategies to improve workplace procurement process efficiency and cost savings for an organization. She holds a Diploma in Electronic Computer and Communication from Nanyang Polytechnic of Singapore, majoring in wireless telecommunication. Pearlyn is a member of Singapore Institute of Purchasing and Materials Management (SIPMM). She completed the Diploma in Procurement and Supply Management (DPSM) in December 2019 at SIPMM Institute.

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