Agile Procurement  Going Way Beyond Traditional Procurement

Agile Procurement — Going Way Beyond Traditional Procurement

April 22, 2019 | Procurement Strategy Blogs

Companies now operate in an environment that requires them to be adaptable to changes and make the best use of opportunities. Agile procurement is positioned to be the driver of this adaptability, comprising a team that is forward-thinking, collaborative, data-driven and action-oriented. It refers to the method of purchasing outcome-based solutions from potential providers rather than considering a single solution, which results in cost savings for organizations. An agile approach provides specific solutions aimed at solving intended problems and helps to maintain a cordial vendor-client relationship.

Agile procurement caters to big picture business needs, resulting in the selection and implementation of a solution different from the one adopted in the past, yet fulfilling the same objectives. It takes into consideration the cost pressures and opportunities of the supplier market before collaborating with vendors. This method of procurement tries to align the interests of the organization with those of the suppliers and values the importance of speed as well as savings. A recent research study shows that organizations have a 70 percent chance of being in the top quartile of organizational health, which is the best indicator of long-term performance. Agile responds to changes positively and provides increased visibility of a project’s progress.

The key differences between traditional procurement and agile procurement are:

  • Traditional procurement involves fixed deliverables, extensive documentation and a comprehensive project plan. Agile procurement is based on an analysis of the working functionality at the end of each sprint, rather than on fixed deliverables.

  • The acquisition of commodities is facilitated by the scrum master in case of agile procurement after identifying the items that need to be procured. For instance, in an ERP system such as SAP, an operations manager requiring a new factory equipment sends a request to the procurement team. The procurement team, in turn, coordinates with the finance team to get the funding to purchase the equipment. The entire process is therefore divided into other processes that must be followed for acquiring the new equipment. Traditional procurement is undertaken by the project manager and the organization and does not comprise a separate procurement team.

  • Traditional negotiations can sometimes get challenging and stressful, damaging relationships between buyers and sellers. This is avoided by agile project teams that believe in maintaining a positive and cooperative relationship between both parties right from the start of the procurement process.

  • Traditional procurement makes it difficult to switch vendors after the start of a project, as the new vendor has to first understand the previous vendor’s work-in-progress status before starting his work. Agile projects are divided into sprints that make it possible to cost-effectively change the vendor at the end of a sprint.

  • Traditional as well as agile project teams ultimately aim for vendor success. Traditional projects emphasize on compliance and their parameter for defining success includes checking off documents and deliverables. Agile firms, on the other hand, define success in terms of working functionality.

Agile procurement results in a transparent organizational structure that gives importance to skills over experience, encourages an open flow of information and communication, and elicits a fluid resource allocation by employing people who are adaptable and responsive to changes. 

Multiple factors are taken into consideration while operating in an agile environment, as the one-size-fits-all solutions are no longer suitable in a fast-changing world. Some of these factors are project conditions, an organization’s risk appetite and contract phasing. Nevertheless, the one thing that remains constant in a traditional as well as an agile organization is the focus on customer collaboration over contract negotiation.

Companies that successfully scale up agile see major changes in their businesses, as they are better able to comprehend changing conditions and priorities, develop adaptive solutions and avoid crises that frequently hit the traditional organizational hierarchy. Adoption of agile is an ambitious and step-by-step process. It acts as a path of progress even when the future is uncertain.

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