Business leaders and key stakeholders look to procurement to drive value for the organisation. We already know that procurement’s role extends much further than obtaining products or services for the best price. But in today’s world, and particularly in the wake of a global pandemic and major supply chain disruption, what does value-add actually look like?
Here are three important considerations for procurement professionals looking to drive value for their organisation.
1. Understand that low cost does not equal good value
Analysing the cost of products and services is a crucial part of the supplier selection process. But there’s an important distinction to be made between the best price and the best value.
If, for example, you’re looking to source a critical product component, a manufacturer in China will likely offer a cheaper price than a vendor offering a similar service based in Australia. But in the event of major supply chain disruption, on-shoring your production in Australia (albeit at a higher cost) could turn out to be the best decision you ever made. The outbreak of COVID-19 led to shipping delays, border closures, and stock-outs, which proved particularly challenging to navigate for those with sprawling global supply chains.
There are several other important aspects to consider when weighing up value versus cost, including quality of service, ease of communication, reliability, supplier diversity, and sustainability. If you can’t work efficiently and effectively or drive innovation with your suppliers, you might not be creating as much value as you had hoped.
2. Implement robust risk mitigation strategies
Once you understand which factors are driving the most value for your organisation, you can consider the risk mitigation strategies needed to maintain these operations.
For example, you might have a large customer base that has grown accustomed to buying your products or services as and when they need them. What happens if you can no longer fulfill these expectations due to changes in consumer demand or severe supply chain delays? Ultimately, you could lose both your loyal customers and hard-earned reputation.
Implementing robust risk mitigation strategies can be time-consuming and expensive, particularly if it involves consolidating supplier lists, establishing contingency strategies, or sourcing from a new geography. But not doing so could result in more disruption and value-loss for your organisation. The fallout from COVID-19 has only served to reinforce the importance of risk management in procurement, and the huge value it can create.
3. Improving operational efficiency
Procurement teams can drive significant value by addressing inefficiencies in their operational processes.
It’s worth reviewing how your team handles inventory management systems, supplier selection, contract negotiation, onboarding, supplier relationship management (SRM), and purchase-to-pay (P2P) cycle time.
Improving the efficiency of these processes might involve consolidating your supplier lists, implementing a preferred supplier programme, streamlining procurement processes across the organisation, or automating your procurement systems. The upfront costs might be expensive but the long-term savings will pay off.
Join PASA Connect today
On 21st April PASA Connect is hosting a virtual roundtable, “How to achieve better value for money – and when,” facilitated by Roy Barton.
To learn more about PASA Connect, including pricing information and how to join, please contact Jonathan Dutton via:
T: 0404 452861