As organizations centre less around efficiency and more on resilience, procurement becomes integral to the procedure.
For ages, the focus and the core strategy for every other business have always been efficiency. They ran operations as close to total capacity as they could. They ordered from suppliers in ways that firmly lined up with their production plans. They even endeavoured to reduce costs under the direction of the CFO and delivered profits quarterly. In numerous ways, this has been the framework that has functioned admirably. However, ever since the pandemic wreaked havoc all across the globe, it has made one thing crystal clear that businesses have been adopting the wrong strategy for decades. Instead of making efficiency their focal point of methodology, they should be focusing on resilience. This is exactly what is set to change, stepping forward in a new normal world. To endure seasons of emergency and flourish over the long haul, firms should move their essential thinking from ‘just-in-time’ to ‘just-in-case. So how can organizations foster the resilience they’ll need to strategically and successfully address new challenges now and then? It’s by enabling the CFOs and CPOs and investing it in procurement.
Procurement today means more than the demonstration of getting or purchasing goods and services. Many times, the terms ‘procurement’ and ‘buying’ have also been utilized reciprocally. However, even though they seem to be similar, they mean way different. Right from purchase planning, distinguishing and choosing merchants, building up installment terms, standards determination, to strategic vetting, value analysis, financing, selection and exchange of agreements and buying, procurement is an element of business management that incorporates all these that a firm needs to achieve its essential goals.
Hundreds of years ago, the word ‘procurement’, had a more extensive sense, involving the process of bringing something about. Now is the time that business leaders need to start considering it in that sense again today. If deployed strategically, procurement can assist the organizations with building whole constellations of significant worth rather than simple chains of value, where stakeholders of all sorts are associated with each other comprehensively and progressively. According to McKinsey’s recent research report – Risk, Resilience, and Rebalancing in Global Value Chains – disruptions lasting a month or longer now occur once every 3.7 years. On average, organizations can lose more than 40 per cent of a year’s profits every decade. Within this frame of reference, procurement functions have a double objective: Margin and Business Resiliency.
HOW CAN INVESTING IN THE RIGHT PROCUREMENT PROCEDURES MAKE A FIRM MORE RESILIENT?
Unfortunately, numerous businesses either misjudge or even neglect the significance of procurement’s role within their organization. Optimizing procurement is advantageous on many levels, such as:
Business Continuity & Network: With a full-fledged procurement strategy, organizations keep the business going and growing. Not only this, investing in the right procurement procedures can improve the brand value, which can help them expand the business network in the right direction.
Cost reduction: Effective procurement management will empower a firm to reduce costs by procuring supplies, services, and agreements at the best price. Legitimate management of procurement also allows an organization to take advantage of guarantees or discounts that are neglected often. Furthermore, a viable buying process will give an entity better visibility into the company’s financial plan and spend anlaysis. This enables a business to utilize extra income by broadening payment terms and aiding entrepreneurs gauge for the future.
Enhanced efficiency: An organization with a completely functional procurement process will deliver quality goods and services on schedule. This additionally assists the firms with discovering answers for unexpected conditions—for instance, shortage of labor or surplus, natural disasters, and economic inconsistency. A successful procurement process empowers the companies to recognize the difference between effective vendors and underperforming ones. Consequently, the organization’s overall supply chain will be improved. And it is plausible of being remunerated by underachieving sellers who fail to deliver goods and/or services within agreed-upon parameters.
Driving innovation: The entrepreneurs look for any strategic advantage they can accomplish to improve their products or services due to stiff market competition that they have to face. The robust procurement process permits an organization to search for creative and innovative products or services. Through this, the firms have the option to protect exclusive deals with suppliers.
As organizations centre less around efficiency and more on resilience, procurement becomes integral to the procedure. It enables well-coordinated long-term value-creating systems that can serve incompatible value holders, resist accidental shocks, share loads, and develop dynamically. A significant illustration learned here: When resilience is the priority, procurement done right can be a strategic advantage.
Source: Business World