Procurement transformation: Why excellence matters – IBM Blog

Procurement departments tend to be less visible to many stakeholders than sales, operations or even finance departments, but the impact they have on everything from the bottom line to product quality and service delivery shouldn’t be overlooked, which is why “procurement excellence” is a worthy pursuit.

Optimizing the procurement function can help deliver successful business outcomes, such as:

• 12–20% in sourcing/demand management savings
• 95% in improvement in compliance
• 30% in incremental spend under management
• 35% in reduction in contract value leakage

Transforming procurement

If your organization isn’t seeing these kinds of numbers, you might be a great candidate for transformation. The first step in the journey is to understand where you are, then use that information to determine where you want to be. It’s difficult sometimes to carve out the required time and thought process to establish the path to excellence, especially when you are focused on supporting the demands expected from others of procurement in a complex organization—every single day, that is.

That’s when partnering with procurement advisory services can help guide your team to procurement excellence, and help you deliver contributions to your enterprise’s goals: increase profitability, enhance service outcomes that can enable revenue growth, build customer satisfaction and ensuring suppliers deliver high-quality goods and services.

Assessing the current environment

One of the most important steps is to review the procurement department’s mission and current role within the organization. A solid assessment delves into the overall procurement lifecycle.

How is procurement linking stakeholders’ needs with the suppliers who can deliver the right capabilities? How are teams organized to align with key objectives?

How are they delivering in these areas:

• Business planning, stakeholder liaison
• Sourcing operations and analytics
• Supplier performance management and compliance
• Purchasing operations, including requisition processing, and other critical activities

High-performing organizations keep senior management informed on a regular basis to demonstrate the value of procurement to the business. Are you providing reporting, such as:

• Preferred suppliers use percentage, by category and through an organizational viewSourcing effectiveness, planned events on schedule, savings achieved and a highlight of new suppliers from new major deals
• Supplier performance metrics, including an executive summary, top 10 performers (and bottom performers, too)

Designing the future state

Attainable goals that build on the outcome of a procurement functional assessment can provide a roadmap to the future. A procurement advisor helps map across the gaps, typically resulting in a plan to advance category management, to develop a target operating model and surfacing other key opportunities where there is need to mobilize action.

At IBM, with operations in more than 170 countries involving over 13,000 suppliers, this wasn’t an easy task. Using Design Thinking, among other methodologies, the procurement team was able to define the vision for its future state and scale a solution that would work. Transforming procurement with intelligent workflows has enabled its procurement professionals to onboard suppliers 10 times faster and conduct pricing analysis in 10 minutes as compared with 2 days. AI, automation, blockchain and more enabled the transformation.

In fact, more procurement organizations are thinking about incorporating generative AI as part of their future plans to drive faster, more accurate decision-making, lower operating costs and improve resiliency.

The importance of the supplier ecosystem

Suppliers are one of the enterprise’s most valuable elements, so it’s important to partner well in this arena. Preferred supplier programs with well-negotiated contracts and prices, in sync with key business strategies, can enhance the delivery of goods and services—and, as important, customer satisfaction.

A thorough review of your entire supplier ecosystem, from vendor selection and source-to-pay to benchmarking pricing, can provide critical insights into the maturity of your ecosystem. Measuring compliance is a critical KPI for accountability. Are internal stakeholders following policies or going outside the system? Are suppliers meeting contract requirements, service levels and sustainability goals?

Driving stakeholder satisfaction

Many companies closely track their net promoter scores (NPS) for both positive and negative trends. Even in the B2B space, customers demand that transactions are intuitive, easily fulfilled and within corporate policy. In many ways, an optimized procurement function sets the stage for the high-quality, on-time delivery of goods and services that exceed expectations and can generate a 30–50% improvement in NPS.

In addition to external-facing stakeholders, it’s important for the procurement team to build and maintain internal relationships. This not only helps in requirements gathering, but also cultivates trust across the organization. A model that encourages close interaction with “category experts” (who often want to handle their own procurement) can help manage sourcing, contracting and measuring success, while maintaining visibility, accountability and spending discipline.

Procurement excellence works

In a recent Expert Insights report, “Smart procurement made smarter,” IBM Institute for Business Value found that an integrated operating model fosters procurement decisions based on real-time data through advanced analytics and predictive algorithms. Top-performing organizations have achieved 52% lower costs to order materials and services, as well as 60% lower costs to process accounts payable—and more than half significantly outperformed competitors in revenue growth and effectiveness over three years.