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Move Procurement Out of the Basement

May 29, 2024 5 min read

Here’s a sentence never heard in a board meeting, ever:

“So, tell us what’s going on with procurement.”

OK, maybe that’s a somewhat unfair generalization. But not much of one.

Most enterprises are overly tactical about their procurement operations. Sell-side, revenue-generating systems like CRMs are targets for investment as business accelerators, while buy-side systems are seen as transactional and managed through the lens of cost savings and risk-avoidance. At smaller organizations, procurement can even be a hobby taken on by another team, like finance, or not owned centrally at all (“just swipe your credit card and expense it”).

A transaction-centered view of procurement leads to IT systems driven by that core buying transaction, and limited to the tactical considerations surrounding it. The place in the larger organization strategy is an afterthought.

In high-functioning organizations, procurement is viewed very differently.  They recognize that supplier agreements need to be optimized with a broader perspective. The “best” agreement with a supplier is not just the one with the lowest possible cost.  “Best” is defined by a suite of critical agreement factors aimed at achieving key business outcomes (price, delivery terms, quality assurances, operational terms and conditions, and many others). “Best” is also a function of supplier characteristics and is interwoven with risk mitigation factors, and these risk factors also come from a broad perspective on the supplier relationship and how it feeds the business.  “Best” also has a time factor – perfection can’t be the enemy of progress, as they say. If the business is operating slower, or stumbling, or outright stopped due to lack of a particular good or service, time suddenly becomes a prominent factor, above almost everything else.  Every day negotiating a better price could be costing you many multiples of the savings you secure.

Buying is a team sport

This broader perspective starts with recognition that buying is a complex team sport. Done well, procurement involves highly collaborative interplay among multiple stakeholder groups as they source and contract with suppliers.  High-functioning procurement goes beyond the “what” of line items and dives multiple levels into the “why” this stuff is needed and “how” it needs to be received into the organization.  It doesn’t stop with the immediate need (“we need someone to build this web site”) – it considers the deeper need (“the web site will establish our new European brand and will lead to several country-specific spinoff sites”).  It doesn’t stop with the immediate delivery factors (“the site will be entirely developed by the service provider with all code handed over to the IT team”), it considers broader and longer-term touchpoints of the supplier relationship being established (“ideally the developer can also provide managed services for these sites, embedded within our in-country marketing organization”).

None of this gets factored into the procurement process without the business sitting right next to procurement, collaborating end-to-end through the process.  Anyone that has gone through either side of a “procurement-driven” or “IT-driven” RFP process can attest to the pain, inefficiency and risk that gets added when business throws supplier requirements down the stairs to the RFP team in the basement, and waits for them to deliver the answer.

Partners can do more than one thing

High-functioning organizations also recognize that supply chain relationships are nuanced and complex. A vendor might be a supplier for direct and indirect needs across an array of categories.  A vendor might also be a customer, or a channel partner, or a marketing partner.

Relationships across these scenarios could potentially impact each other.   Overall purchase volumes could drive more strategic pricing and delivery.  A sourcing candidate could be (de-)prioritized based on their relationship with you as a channel or marketing partner. A bi-directional supplier/customer relationship could fundamentally change the nature of a supplier agreement.

So at the same time that business is collaborating directly in creating supplier relationships, the procurement operations need to have broad and direct visibility on partner relationships across the business.

Procurement solutions should be built in full sunlight

Solution architecture for procurement is a challenge even without any of the considerations above.  Procurement has its seemingly end-to-end platform offerings – in the enterprise space these are typically from the likes of SAP, Oracle, Microsoft, etc.  But the various activities involved in sourcing, purchasing and supplier management processes often lead to consideration of specific point solutions for risk assessments, supplier portals, etc.  It’s even easier in procurement than other areas to find yourself with a poorly-integrated bag of tools with fragmented sources of record.

The “right” approach is usually some hybrid of monolithic vs best-of-breed.  A general procurement/ERP platform provides the core, and specific point solutions are integrated with that hub system.  This allows you to orchestrate the varied supplier processes, from sourcing to onboarding to purchasing, in a consistent way, and in a way that maintains your key sources of record.

The “high-functioning” factors discussed earlier add additional important considerations.  Business partners across the organization need effective means to collaborate throughout the procurement process.  This will drive focus on generalized user experiences within the procurement space (making it a proper part of the larger “panes of glass” across the org), as well as integration needs to support situations where procurement needs to operate in a headless manner relative to the other parts of the business.

Agreements span the business

If you want to get serious about improving your procurement – and you should – you need to take an even broader strategic view of your contracting process.  Procurement, like many other operational areas, depends on a family of different types of supplier agreements.  But because of the various systems and modules that might be used to drive things like sourcing, purchasing and receiving, the context that drives these agreements can be spread across several systems. Add to this the assumption that your organization needs comprehensive visibility of your agreements, and contract management becomes a cornerstone in your solution design for procurement.

Since many procurement solutions bundle “good enough” contracting into their platforms, it can be tempting to value the potential simplification and perceived lower costs they offer. Effective collaboration and the drive to rationalize your overall enterprise architecture are strong reasons to avoid them in general. If you are using a procurement-centric contracting solution (or even worse, multiple contracting systems for different procurement scenarios), cross-functional collaboration in crafting agreements can become highly problematic.  And it logically follows that other contracting solutions will be used in other operational areas, like selling, human resources, etc. – you don’t expect salespeople to use your procurement system, do you?

Contract management needs to be managed consistently across your procurement architecture, and consistent with the rest of your agreement landscape.  Find an enterprise contracting solution that serves procurement AND other operations effectively.

Bottom line

So to sum up, high-functioning strategic procurement comes from taking a broad, holistic perspective on the buying team, the shape of vendor relationships and the architecture that supports procurement. And when considering buy-side contracting, that holistic perspective needs to extend beyond the boundaries of your buying process, across your enterprise agreements. Buying needs to be freed from the basement, and allowed to operate in the sunlit working floors of the house that is your organization.

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Jim is the Senior Director, Head of Enterprise Architecture at Ironclad.