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Proven Procurement Techniques with Sophisticated Purchasing Analyses
By Charles Dominick, SPSM, SPSM2, SPSM3 Founder, Next Level Purchasing Association
Many an IT department has seen a new face at the table in project meetings recently; a face that hasn’t necessarily been unconditionally welcomed. The face is that of a representative from the Procurement department. Having purchased goods and services autonomously for years, most IT teams wonder why Procurement needs to be involved in their projects. Some actually detest the thought. They may feel that someone who dedicates their work life to something other than networking speeds or cloud security protocols could only slow down an IT project. Or, they may feel threatened–that tasks once part of their job descriptions are becoming part of someone else’s.
But, fear not. Procurement is there to help the IT team, not hurt it. However, the value that Procurement can add to IT projects isn’t always clear. So, let’s look at the value that Procurement can add and how your IT organization can benefit by partnering with Procurement.
Procurement Expands Your Options
Time-starved IT managers want solutions that work, first and foremost. This naturally leads some of them to lean towards familiar supply sources. While getting a solution to work is certainly essential, that doesn’t mean that the chosen solution is optimal. A premise of strategic procurement is that identifying all options and choosing the best option is the ideal way to make a procurement decision. So, smart procurement aims to not just select a solution that works, but to select the best working solution when all factors (e.g., cost, quality, timeliness, etc.) and options are considered. World-class procurement departments are adept at making sure their internal customers have great options from which to choose.
Procurement Minimizes Costs
Whether for-profit or not-for-profit, every organization wants to at least protect, if not maximize, its “bottom line.” The bottom line is enhanced by raising revenue and/or reducing cost. And the best procurement departments are cost reduction masters. When Procurement provides options, it leverages something that can reduce costs faster than just about everything else: competition among suppliers. Using best practices to get suppliers to compete, Procurement reduces costs without sacrificing quality.
In addition, procurement professionals are professional negotiators. A functional manager may claim to be a great negotiator, but how often does he negotiate? Every few years when a contract is up for renewal? Every decade when he buys a new car? How easy do you think it is for your suppliers to bargain with an “occasional negotiator?”
Top procurement professionals negotiate daily. They’re educated on all of the tactics, techniques, and, yes, tricks that suppliers use in negotiations. Using this knowledge, they are able to negotiate great deals that combine great quality and low price, thus enhancing the financial success of their organizations.
A premise of strategic procurement is that identifying all options and choosing the best option is the ideal way to make a procurement decision
Procurement Manages Risk
Though cost minimization is certainly among Procurement’s primary goals, it is not the only one. “Continuity of supply” is right up there alongside it. This simplified continuity of supply means “getting what you want when you want it.” And, importantly, “when you want it” means more than just that first delivery of a product or the first performance of a service. It means throughout the life of the contract with the supplier.
Savvy procurement professionals manage risk. They run financial models to evaluate suppliers’ solvency, identify potential limits on suppliers’ capacity, and even consider how geography could impact suppliers’ ability to perform. When a savvy procurement professional recommends a supplier, it’s not the “cheapest supplier,” though it may indeed be the lowest cost supplier. It’s also a supplier that is likely to perform the best over time.
Procurement Ensures the Highest Degree of Social Responsibility & Business Ethics
Social responsibility has become a top priority for many organizations. After all, organizations are increasingly being judged by how socially responsible they are. Social responsibility means ensuring that money doesn’t flow through the supply chain to terrorists, considering the environmental impact of procurement decisions, doing business with a diverse supply base, and more. The leaders of the procurement profession know how to evaluate the degree of social responsibility among prospective suppliers.
Closely related to social responsibility is business ethics. There is perhaps no business activity that involves more ethical landmines than making a corporate purchase–essentially the act of spending someone else’s money. When suppliers have hundreds of thousands or millions of dollars to gain, their interactions with decision-makers can get sketchy. Most suppliers probably won’t say “If I give you a ten thousand dollar bribe, will you make sure I get the business?” But they may venture into some ethically grey areas to try to influence those decision-makers or to extract competitive and confidential information from the unsuspecting.
Today’s well-educated procurement professionals learn how to avoid conflicts of interest practically as soon as they learn where their office chair is. It is far less common for other functional departments to learn all aspects of procurement ethics, even though they often wield much influence on how the organization’s funds are spent. Having a Procurement point-person for a project team’s supplier selections helps everyone’s hands stay clean.
Why Should These Procurement Capabilities Matter To You?
By this point, you’ve probably learned more about procurement than you ever cared to. But it was time well spent. These procurement capabilities actually mean a lot to your success as an IT executive. How? Well, there’s a reason your IT managers gravitate towards the first feasible supplier option without exploring all alternatives. There’s a reason that your IT managers don’t negotiate daily. There’s a reason that your IT managers have never calculated a supplier’s Altman-Z Score or audited a supplier’s social responsibility compliance.
That reason? They have other things to do: specialized things that only individuals with their particular expertise are capable of doing. They are using their core competencies as IT experts! That expertise is why they were selected for their IT positions. Using it is how they can add the most value to the organization and should be their focus.
Worrying about the nuances of world-class procurement only serves to dilute their focus on those core competencies. But, by having Procurement handle the procurement aspects of IT, your IT team can spend more of their time doing what they do best. And the organization will achieve more success both operationally and financially. So, when a face from Procurement newly appears in IT project meetings, don’t speculate about the negatives. Welcome that procurement professional. Your team’s ability to do what it does best just got enhanced.