The evolution of the procurement function from a peripheral role to a more strategic one is helping unlock its full value in companies and organizations. It is key to note that the procurement function in companies accounts for about 60% of the approved organizational budgets.
Previously, the procurement function primarily revolved around negotiating the lowest price for goods and services. This process often began with budgeting and planning, an order from a department to source specific items and ended with the delivery of the goods or service. In between, there were bid invitations, bid assessments, and eventual communication of the winning bids then contract sign-off.
It was largely mechanical and transactional, often characterized by confrontation, where sometimes not all parties felt they had received a fair deal.
As business competition evolved, driven by the need to deliver and extract maximum value across the value chain, the procurement function’s importance was undeniable and needed a rethink.
At PostBank Uganda (PBU), we aligned our procurement process with the bank’s purpose of Fostering Prosperity for Ugandans. As a result, processes have become more collaborative and less transactional, focused on value-based decisions with an eye to long-term benefits for the parties (PBU and its suppliers) involved in the procurement process.
For instance, the decision to procure software for a given department will start with consultation with the relevant team to ensure it aligns with the company’s strategic objectives. After thorough verification and assessment, we then collaborate with suppliers to deliver the required goods or service.
This approach helps minimize complaints, which were common in the past when the procurement function was sometimes accused of forcing unsuitable items on departments that ticked budgetary objectives.
As mentioned above, interactions with suppliers have become less confrontational. It is no longer about the buyer pressuring suppliers to quote the lowest price. While price is still a key determinant, other intangibles like after-sale service and strategic fit have become key. Therefore, it is not necessarily that the lowest price bidder is the most responsive but rather the bidder who offers value optimization over the medium to long term.
This shift in relationships with suppliers has also helped companies benefit from innovations that suppliers now feel free to pursue in this more collaborative environment. The aforementioned software may be produced differently depending on how well the supplier understands his or her client’s needs.
Have you noticed that increasingly, software providers are now customizing solutions that fit the intended purpose for the procuring company? This helps with managing company resources and ensuring that only what is required at a time is procured.
Lately, procurement is much easier since most, if not all processes are digitized. This has improved speed of delivery and efficiency across the value chain. There was a time when processes were paper-driven, nothing moved if an official was traveling, or just off their desk. What once took days or even weeks to finalize can now be concluded in minutes, thanks to the adoption of advanced technology and the evolution of the procurement process.
I estimate that the improved efficiencies resulting from this strategic thinking and speed of delivery have saved PostBank at least 20 percent in revenue in recent years. This has far-reaching implications for sustainability, determining whether the business stays competitive.
Elevating procurement to a strategic level enhances risk management and resilience. In the past, the procurement department was “just an office” in most companies. Today, the procurement function is a fully fledged unit in most companies, with an overall view of the business. As a result, the procurement function inevitably thinks differently, especially concerning mitigating risk and ensuring the company’s continued resilience.
Procurement is not just about purchasing items; it involves many other considerations that can only be addressed through the procurement function’s understanding of the company’s big picture.
Many procurement professionals are now better trained to meet the evolving needs of companies. The new demands require companies to recognize the strategic relevance of procurement professionals and to and set themselves up to reflect this.
Professionals go beyond knowledge to strategic thinking to optimize value for all stakeholders. As companies are continuously playing their part, procurement professionals also ought to strategically think and align their operations to their respective companies’ purpose.
