March 11, 2022 | Procurement Software
The pandemic and resulting disruptions have set aside all doubts about the need for procurement transformation. The past two years have highlighted the need to change not just the overall scope of procurement but also the way it currently operates.
Many businesses now consider procurement as a function that can play an increasingly larger role in ensuring business continuity and meeting strategic objectives. In fact, as procurement evolves from a tactical to a strategic enterprise function, it is being judged not only on the efficiency with which it takes out cost, but also on its ability to create value for the organization.
Procurement and finance teams have traditionally worked in silos. Often, these two functions have failed to collaborate and deliver the promised outcomes.
From an overall business perspective, the need of the hour is a close collaboration between these two functions. Not only can this partnership accelerate finance and accounts payable (AP) processes, such as invoice processing and approval, it can strengthen supplier relationships by ensuring that suppliers are paid on time. Further, teams can also cash in on early payment discounts, if any.
The popular opinion is that diversifying the supplier base is the key risk management tactic in the new normal. To this end, some companies are looking to build a network of latent suppliers that can be activated at short notice, says Siddharth Poddar, vice president - product management at GEP. This additional pool of suppliers may not be actively engaged with the business. “You could spend a small percentage of your budget — around 5% — to working with these companies so they can step up to the challenge when necessary,” he says.
For many businesses, alternative sourcing strategies, such as near-shoring, have suddenly become a lucrative option. Some of these strategies may soon be implemented, given the rising uncertainty and instances of supply disruption.
But why has near-shoring suddenly gained prominence? More importantly, what now happens to businesses that continue to source from far-off destinations.
There are several hidden benefits of near-shoring, says Soroosh Saghiri, senior lecturer at Cranfield School of Management in the U.K. Near-shoring enhances responsiveness and flexibility to adjust quickly to changes in demand, he explains.
Adopting a regionalization strategy can be another sourcing alternative. In this strategy, American companies, for instance, may choose to source from Mexico, Canada or Brazil. By doing so, they can enjoy many of the benefits associated with globalization and better manage risk at the same time.
Monitoring supply chain operations in real time is considered a key element in avoiding disruption. To benefit from this, businesses must deploy the right technology that can streamline operations and provide end-to-end visibility. At the same time, having a workforce that understands how to use technology is no less important.
Analytics is increasingly likely to impact the way procurement works and makes decisions. Predictive analytics, in particular, can rescue teams that continue to struggle with spend analysis. It can provide full visibility into where the team is spending its funds.
In line with the macro business objectives, procurement is expected to play a larger role in building sustainability. The business strategy needs procurement professionals to ensure that suppliers across all levels comply with the set norms and regulation and do not indulge in unfair practices. They follow environment-friendly practices and strive to achieve long-term sustainability goals.
Consider the key objectives of your business before you decide — and make changes in — your sourcing strategy.
Is lowering costs your primary goal? Or do you want to focus on improving responsiveness, enhancing efficiency, covering risks and building resilience?
Assess these objectives, assign them weightages and then come up with a sourcing strategy that is best aligned with the overall plan.