Companies are facing more challenges today than ever and Procurement can be part of the strategy to handle these challenges. Procurement could play a center role in increasing competitiveness by e.g., mitigating cost increase, securing sustainability targets, enabling digitalization on company or functional level, and ensuring a flexible supply chain. When Procurement is Done Right, the Procurement Strategy is an integral part of and aligned with the overall business strategy.
Procurement Has a Significant Impact on Corporate Value Creation
Since the birth of Strategic Sourcing in the 80’s Procurement has had a significant impact on corporate value creation. In most industries the third-party cost (spend) accounts for 20-70% of the turnover, making it a critical area to manage in order to improve business performance. The starting point for development of a Procurement Strategy must be that the Procurement function understands and aligns target and goal setting with the corporate strategy. With this understanding the Procurement function can formulate how they should align and add value to the corporate strategy.
Five Areas That Any Procurement Strategy Must Consider
With today’s evolved Procurement function there are five areas that any Procurement strategy must consider and formulate their approach and value add in respect to. The first one is given and is fundamentally the right of existence for any Procurement function – namely to take cost out. The second one is to secure third party supply, and this is done by ensuring supply chain resilience or as stated by Harvard Business Review “When resilience is your priority, procurement done right can be your strategy”. The third part is to have a plan on how to create efficiency of the own function utilizing digitalization as an enabler. The fourth part is sustainability in the context of how do we as a function support the company sustainability targets. The last important part of the Procurement Strategy is to consider Teamwork Excellence. How is talent recruited, developed and retained? How do we as a function orchestrate cross-functions and engage stakeholders to ensure the value creation of Procurement.