Procurement organizations are undergoing constant change. This change is guided by the issues of a constant search for savings and synergies. These issues are forcing procurement organizations to reorganize themselves and interact more effectively with the rest of the company to promote cross-functional initiatives.
Context and challenges
At the beginning of the 1990s, in many industries procurement was a back-office function, whose main activity was focused on transactions, i.e. negotiating, placing, and tracking orders. The differentiation between procurement/supply was not always clear. Twenty years on, in most companies, this differentiation has generally been made and two different logics have been established:
- Industrializing the supply function insofar as possible to cut its costs, with procurement often being centralized, pooled, or even partially outsourced
- Increasing the value of the procurement function to optimize the Total Cost of Ownership (TCO) of "service" products and improving relationships with suppliers, with companies heavily investing in this function to attract talent.
Improving the performance of the procurement function is still an important issue, and a priority for many procurement managers, for several reasons:
- Increasing requirements for the function to be flexible and reactive in a highly volatile economic climate
- Procurement managers are rigorously challenged/benchmarked regarding the cost and efficiency of their function
- Procurement organizations must continually adapt to company-specific changes: mergers, acquisitions, changing customers, changing business models, emergence of concurrent low-cost services/products
Working on the efficiency of the procurement organization means asking the following questions:
- How is the function governed?
- How does it interact with the rest of the organization?
- Which organization and degree of centralization should be employed?
- Which processes should be employed: source to contract/procure to pay/contract management?
- What is the best size for teams?
- How can teams' skills be improved?
- Which procurement tools should be implemented, with what Return on Investment (ROI)?
- How quickly should the various components of the organization be optimized?
How can Argon Consulting help you?
Argon Consulting assists its clients in assessing the maturity of their procurement function and in defining and implementing efficient procurement organizations, which are flexible and add value at the lowest cost.