As we transition into autumn and back to school, for over 75% of companies it is also the time to start discussing budgets for next year. Oh, how even the word “budget” conjures up long days of negotiating to save your current budget and add more to it!
This year’s budget season is no different, however the Procurement budget is changing. Leading Procurement executives have expanded their mindset. They now want and need the right Procurement team to deliver real value contribution. Consider that “cost take out” is a way of life for business, especially to secure its margin. Every $1 Procurement saves falls straight to the bottom line while every $12-$15 in revenue that sales generates equates to essentially the same net profit for the business. Hence, Procurement’s impact to the business’ profitability is enormous.
Chief Procurement Officers are now focused on what it takes to secure the cost take out, improving working capital and assuring the product makes it to market to make the project revenue. With this kind of real value contribution, the Procurement budget must take into account the resources required to generate these profitable responses now, next year and into the next few years. The resources to consider are:
- People: Questions that are being asked and discussed as budgets are prepared are: Do you have the right people and skill sets to accomplish the strategic plan and goals for next year? How about the next few years? What plans will need to be made with HR to set up training programs for current employees, plus career counseling and coaching? What are the plans for new hires? Will you be working with outside services firms to augment sourcing events? Will you outsource portions of your business to keep your procurement and transactional costs low while still reaping value in sourcing and supplier management? Do you have the right resources around the globe? Do you have the right organization model such as a Center of Excellence or Centralized or Decentralized structure to fit the business needs while managing the suppliers to meet all the requirements?
- Process: Do you have the right processes across the horizontal processes such as new product introduction and the customer’s requirements? Are they automated? Is there a way to take out touch time or cycle time and reduce the time to get to full value quicker? Can you use a service provider? Can you outsource? Do you need additional technology? What is the cost equation for the new technology and the ROI?
- Technology: Do you have the right technology to minimize process steps? Are all required parties using it? If not, do you need training to help your employees? Is it time to take another look at what is on the market? What is the investment required and what is the ROI?
All thoughts as you move forward.