4 Pillars of Procurement Excellence

In a bid to improve a companys competitiveness and profitability, numerous companies are chasing after procurement-excellence. But it all boils down to one simple question, how do you define procurement excellence? Another question that can arise is how can companies achieve excellence in procurement. The different pillars of supply chaintypically include sourcing, procurement, production, inventory management, transportation, and distribution. These pillars work together to ensure the smooth flow of goods and services from suppliers to customers. Sourcing involves identifying and selecting suppliers, while procurement focuses on purchasing and negotiating contracts. Production involves manufacturing or assembling products, and inventory management ensures optimal stock levels. Transportation involves the movement of goods, and distribution ensures timely delivery to customers.

One of the most important parts of the procurement process is the establishment of Procurement Centers of Excellence (CoEs).) are specialized teams or departments within an organization that focus on improving procurement practices and driving strategic initiatives. These CoEs typically consist of experts in procurement, sourcing, contract management, and supplier relationship management. They work towards standardizing processes, implementing best practices, leveraging technology, and promoting collaboration across the organization to achieve cost savings, risk mitigation, and overall procurement excellence.

Different organizations and professionals have differing views on what comprises procurement-excellence, but we all can agree that the center of procurement excellence stems from an organizations ability to demonstrate excellence and maturity in the following areas:

Spend Analysis
The importance of spend data collection and power of analytics can be exhibited by a quote from a data analytics consultant, “Without big data analytics, companies are blind and deaf, wandering out onto the web like deer on a freeway.” The professionals can only optimize spends if they are keeping track of it and analyzing it. A proper spend analysis can provide a streamlined view into spend management lifecycle, spend data classification, spend category management, spend visibility and analysis, and purchasing-team knowledge management. Such information equips supply professionals with in-depth intelligence to make informed procurement-related decisions.

Strategic Sourcing

Strategic sourcing can have a significant influence in determining the TCO along with the quality and performance of the supply chain. Strategic sourcing continuously re-evaluates and improves the purchasing activities of a company by examining supplier relationships, leveraging organizational spend, and sharing best practices across the organization.

Contract Management
Procurement professionals need to handle contract management with utmost care to ensure optimal service delivery, supplier relationship management, profitability, and compliance. An efficient contract management solution accelerates performance throughout the contract lifecycle by monitoring adherence, SLAs and KPIs, contract negotiation, and analyzing benefits that accrue from the contract.

Supplier Relationship Management
The companies that are successful and innovative are the ones who view suppliers as partners and co-create value to improve the supply chain and product performance constantly. Companies that continually measure, analyze, and manage supplier performance can enhance their competitiveness, operating efficiency, and cost structures.  For instance, Toyota with a deep belief in supplier development and collaboration, has leveraged some of their internal best practices in terms of manufacturing and lean to improve supplier production systems dramatically. As a result, it is no surprise that Toyota is one of the leading automobile company in the world with best-in-class procurement practices.

For more information on tail spend and how your organization can achieve increased cost savings: