As Chief Procurement Officers (CPOs) know all too well, how and what is communicated during the sourcing process sets the stage for the resulting supplier relationship. And while that relationship may never become a true marriage of equals, there are several things that sourcing and supply management professionals can do to get things started on the right foot. This article series highlights seven important strategies and tactics that procurement organizations can use to drive savings while also maintaining and improving key supplier relationships.
Part One: Know Your Spend
Simply put, a procurement department cannot claim to be a strategic function if it does not understand its spend: what it is buying from whom, and at what terms and cadence. And yet, in 2018, far too many procurement organizations continue to operate without good visibility into their spend. Like a sales organization that does not track its pipeline or an accounting team that does not understand basic reporting requirements, procurement groups that are literally sourcing “blind” should be considered functionally inept.
After all, the foundation of operational excellence within the procurement function is spend visibility… and an ability to take action on it. When a sourcing team has the ability to leverage spend visibility across its operations, it can improve results by making better, more-informed decisions to help build better sourcing pipelines, optimally allocate resources, and engage and support business stakeholders. For example, procurement organizations manage, on average, just over 60% of total enterprise spend, leaving nearly 40% of all spend beyond their influence and control. To place more spend under management, most procurement teams must seek out and engage new stakeholder groups. But to attempt to do so without a clear understanding of what each group is spending limits procurement’s credibility and the likelihood that any new group will want to collaborate.
Conclusion
Engaging with and managing suppliers is a key component of any Chief Procurement Officer’s priorities and focus. The procurement function’s relationships with its suppliers are typically the foundation of how sourcing and supply management programs perform. Having a holistic view of enterprise spend and being able to drill down into all different facets of it, particularly as it relates to suppliers, is the first critical step toward better sourcing and supplier management in general. CPOs — know thy spend!
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