Authored by Mickey North Rizza
Most procurement teams want to impact operating margin, returns and earnings-per-share, but very few (less than 7%) have the resources and plan in place to do it.
Steal a page from the winning playbooks of the procurement organizations that are driving financial performance and profitability today; here are a few secrets of success:
The procurement department can make a big impact on the success of the company by delivering financial performance that improves operating margins, returns and earnings-per-share every quarter.
But how does a procurement team achieve this? What distinguishes a highly effective procurement department from the rest? These secrets will help the purchasing team achieve profitability and growth that all members of the organization will enjoy.
1. Get on the same page
Procurement needs to understand the organization’s overall business strategy, have a firm grasp of what terms the finance gurus use to describe value, and decipher what needs to change within the purchasing team to drive financial results that match the board’s priorities – and expectations. CPOs must also be able to effectively communicate how procurement is helping to drive business by using language that matters to stakeholders; for finance, that means talking about the impact on margins vs. savings alone.
2. Be open to change
For transformation to take place, procurement and sourcing must be open and willing to change – and that’s not-so-easy when the function has remained largely the same for more than a decade. The procurement role, along with the resources and skills needed for success, has evolved dramatically – with no end in sight. Technology can now automate a lot of formerly-tedious procurement processes so procurement can focus more on the strategic side of their job: sourcing and supplier relationship management. Learning to embrace this more efficient and effective procurement practices is imperative for a smooth transformation to better processes and overall contribution value.
3. Monitor the journey – and adjust accordingly
Measuring progress is essential. To ensure the team is meeting or exceeding the success of competitors, continuously measure the team’s performance across critical financial KPIs, and also against industry standards. This is important because it allows procurement’s roadmap to be assessed at each milestone, ensuring all changes will still match overall business goals. In order to really drive value, reassessment must be aligned with everyone involved- the business, customers, suppliers, and stakeholders. Monitoring and adjusting the transformation is crucial for driving success and generating value realized by everyone.
Applying these secrets can earn purchasers more internal budget and resources, and demonstrate the value the procurement team brings to the table, ultimately making a significant impact on the business.