“A goal without a plan is just a wish”
This quote, which is often attributed to Antoine de Saint-Exupéry, the author of the timeless noble, The Little Prince, seems to be reflected in every aspect of the company life.
Vision and Mission, Strategy and Tactic, Long term and Short term, you can describe it in any way or shape you wish, at the end of the day, it all leads to the same conclusion – Setting a Vision is not enough, if you wish to achieve your long-term goals, you should plan it, and you should build the tools that will enable its execution.
Companies invest time and resources in setting their vision and building detailed plans on how to reach it, but in many cases, they fail to convey the message internally and align their internal units to this vision. because of it, they are often missing a substantial portion of their growth potential and the ability to increase their efficiency and operational margins.
A good example that I would like to focus on in this article, is the procurement unit.
Procurement, which has a cross-organization view on most of the company expenses and can be a great contributor to the company bottom line, is often been considered as an execution entity rather than a strategic one – A necessary evil instead of the path for improving the company efficiency, profitability, and stability.
In a world of increasing competition and a growing stake holders’ demand for improving profitability, there is no longer an option for the company to avoid the need to gain value from its procurement – The good news is, that in most cases, the road is already paved, it’s just a matter of walking the mile with the right guidance, to achieve the desired results.
In this article, I will share some insights, from my experience, successes, and failures, and suggest a comprehensive methodology, starting from the vision and perspective on where the line should be drowned, going through the tools and steps that the company should embrace to enable the shift of its traditional procurement organization to a strategic one. Procurement that is based on analytics and forward-looking view, that align with the ones of the company.
Setting a Procurement Vision
There are many approaches around vision, some support a method of setting a very realistic one while others support the approach of setting it far from reach. each approach has its pros and cons, and at the end of the day, every company measure it differently, some will measure success by reaching the pre-set target, while others by the constant progress toward it.
In my point of view, a vision should be set two steps far from what you can see in a clear day, but you should make sure that when setting the vision, you see it from the top of the mountain and not from downhill. it’s less important if looking backward this top of the mountain will be only a hill at the start of a mountain chain. if the right tools serve you and the target is clear, adjusting along the way will still enable you to reach your destination, safe and sound.
In our journey of transforming procurement into a valuable, strategic entity, the visioned destination should be to create: “Analytics-Based Procurement, which provides the company with a holistic view and enables it to optimize its spent and generate new revenue from shifting vendors to partners.”
The road for reaching the visioned destination is by transforming procurement into the center of knowledge on cross-company spend and vendors activity, embracing the use of data and analytics as a generator for insights and savings, and measuring the procurement not only by its ability to save but also by its ability to generate revenue by transforming vendors to partners.
Working Tools and a Detailed Plan
Every road also requires the right tools. In our case, it starts with gaining the needed knowledge and structures it; goes through managing the data and analyzing it; sharing the information gathered, and constantly monitoring and adjusting it.
The idea is to create a growing cycle and not a straight line, to focus on each one of your vendors, but also create a Procurement Management Platform (“PMP”), that will enable a holistic view of the entire activity and will enable to plan. In the following lines I will elaborate on each of the stages:
Gain Knowledge – Dive into the Data Lake
About your company –Understanding what the company does, its structure, what its products are used for, what kind of services it provides, what kind of problems it wishes to solve and what is its products advantages and disadvantages, what is the company line of business, its inbound entities, the main competitors, its long-term strategy and focus areas, are all important.
The sources for information varied you need to combine internal resources like a relevant focal point in the organization, internal education tools, and external, like financial resources, reports to the market, website, and comparison tools.
About the company products and services – After understanding what the products and services are, and what they are used for, you need to understand what they are comprised of. The way to know is to deep dive into the curves of each product and understand what the third parties are and their usage in the product, what is the total COGS for each product, and its margin, what are the main features that impact its price, what is the product life cycle and the End-of-Life policy.
Arrange the Data – Create a Data Warehouse
Tagging and Indexing the Data –One of the most important things in the process is to create a simple mechanism for arranging the data. The preferred way is to create Unique Data Blocks (“UDB”) for each one of your vendors. The UDB should contain all the relevant information regarding the vendor, and the company engagements with it. The basic rule here is to keep it simple, and more importantly, identical for each vendor.
You should use reliable external resources to enrich the data and connect it via API to the UDB. External resources can provide you insights on the vendor, its risk level, share price, competitors, and many other insights.
Hear your Crowd – In that respect, Learning from the numbers and written data is important, but there is no replacement for experience – accordingly, it is important to identify who is the relevant users in the organization that worked with the vendor and to interview them – The inputs from the users should be recorded, aggregated and added to the UDB as the “voice of the users”.
Be a devil’s advocate – Understand the risks in the engagement and your relations with the vendor, and most importantly try to understand what you are missing. In that respect, it is important to understand what the legal risks in the agreement are, are there any compliance issues, or financial issues, what is the level of dependency in the product/service/ vendor, what would be the lead time in case you like to replace the vendor product. Also, here, it is important to use external resources that will provide insights, databases like D&B, Gartner, and any other specialized sources. The inputs should be reflected in the UDB under “Potential risks”.
The bottom line is that the UDB should provide you a holistic view of the vendor and its activity in your company and that all the information will be updated constantly, based on automation tools. All the UDBs will eventually be a building block to the Procurement Management Platform.
Create a Management Layer and Analyze the Data
After collecting and aggregating the data on each vendor in the UDBs, and not less importantly indexing it in the same manner across the board, it is now time to climb up the ladder and see the full picture, the way to do it is by creating a Procurement Management Platform (“PMP”).
As much as the eyes are the mirror to the sole, The PMP is the mirror to the organization’s relations with its vendors and the procurement relations with its internal stakeholders. The PMP has a backend and frontend.
Backend – The backend is where the analysis and data enrichment process is happening, and it is also where the AI and ML processes are taking place as explained above.
In its basic layer, the analysis is based on the data you structured into the UDBs, understanding it analyzing it, and comparing it to other UDBs and external data. things like understanding what the main spenders are; which vendor has multiple engagements with the company; whether the company uses similar tools in different products; are their engagements that are about to expire, are there gaps between the forecast and actual spend, and many other insights you can gain by just looking at the data and use comparison tools.
The more challenging layer is deeper and requires you to use AI, and more specifically NLP and machine learning tools, and run queries on the data.
The idea here is to find connections and anomalies between, for example, the level of service and the decrease in usage, the times the users approached customer service and the need to renew maintenance, the history of finalizing project by certain outsource team and the incentives embedded in the agreement, or the region of the developers, comparison between outsourcing teams and internal ones, comparison between lead time of HW manufacturers and the vendors you are buying the equipment from.
Frontend – The front end is the user interface, the dashboard, where all the conclusions and insights are presented and monitored.
The desired result is that all the insights, from all levels of analytics, will also be aggregated to the PMP and the insights will be translated into suggestions, in a way that the user will be able to get recommendations, in push mode, on actions it needs to take. The options are unlimited.
In that respect, it is important to emphasize that there are tools in the market that can ease each one of the processes described above and can also, in a way, provide insights. putting aside cost issues and maturity, none of them will be relevant if the basic knowledge does not exist or if your data lake and indexing are not accurate.
Convert Vendors to Clients and Partners
Setting a vision and using the right tools will enable the company to improve the procurement work and optimize the company spent, but it might also open the company a path to grow its revenue, and that is by using procurement as a partnership and sales initiator and by leverage vendors desire to close deals with the desire of the company to expand its business.
As said in the preamble to this article, the procurement has a cross-organizational view on most of the company expenses, if we are adding to that, the right education on the company environment and offering, and the UDB’s and PMP that will enable to better understand the vendors, their offering, and the company spend with those vendors, and on top of that, the fact that the procurement partners usually are very experienced negotiators, that is constantly working with the vendors’ sales team and management, one can start to understand that there is a very good base for making magics.
From here it’s a question of connecting the dots, but also of setting it as a clear target to the procurement partners, it just needs to be in the mindset that this is part of the expectation.
This understanding has also a technological side, for example, connecting the PMP to the CRM and connecting between sales and partnership opportunities and the spend with each vendor. Seeing it from the client-side, but also understanding what the vendor potential is, given your business’s focus. The shift of many companies to the cloud, and the trend of an open platform that enables adding third parties through a marketplace, can also contribute and simplify partnership options and emphasis the procurement role in connecting the dots.
Get Busy Living to not Get Busy Dying
As advised above, by opening the organization to a structured procurement process that is backed by analytics, the company opened itself to a blue ocean of opportunities, optimizing its spending and diverting its growth by adding a non-conservative revenue track.
As in every process that influences the core structure of the organization, it will not be an easy task, Notwithstanding, Strategy works, and the long-lasting results will be the best answer for every question and doubt.
Forbes Israel Contributors are independent writers that were individually picked by Forbes staff. The writers are experts in their field and they provide professional commentary and analysis of current events. The content is unsponsored.