I am writing this piece on long-term value for our stakeholders and clients following a day of strategic sourcing discussions. It is strategy-driven procurement principles that produce sustainable practices. So, to answer your next question …
What does long-term value mean?
Long-term value relates to the overall strategy of the organisation. When you think about goods and services as on-going and long-term, you think about your suppliers as long-term partners. This focus develops your procurement team, as well as your relationships with departments and suppliers. The process not only reaps benefits to the internal organisation but also external shareholders such as the wider society, the environment and the economy. You may ask, how do we get the best price and produce savings, while thinking long term?
What does it mean to us here at iDDea?
At iDDea, we work with a number of different clients across a broad spectrum of industries. Procurement overlaps in all cases and so too should the long-term value element as it ties into all departments in an organisation.
Long-term value is considered as a value to the business as it provides cost savings across categories and is not limited to one specific area. It becomes sustainable by touching off all areas including services, goods, and utilities. The objective is essential when creating a long-term value strategy as this needs to be deliverable through the process.
What do you want to achieve?
Many factors need to be considered to make it worthwhile. Time and resources are needed to negotiate, research the market and assess any possible risks.
Very often in organisations procurement is not entirely understood by other departments. There is sometimes a resistance around the subject as it can be viewed as process-focused primarily centred around cost savings rather than positives outcomes for all parties involved. There are a set number of steps in the procurement methodology of iDDea, which of course come from the principals of procurement.
How do procurement professionals provide value in a sustainable manner?
Bord Bia CEO Tara Mc Carthy was featured on The Grocer recently highlighting the potential impact of Brexit on the Food industries as imported stock may hold significant tariffs when going into Ireland.
Procurement professionals need to provide value beyond cost savings. The ‘buyer’ element is becoming obsolete and procurement is an important cog in the wheel of any organisation.
People are one of the most important parts of the process. Speaking with people in the relevant department is essential as they add value and expertise that people outside of the department can not match. They help you to define exactly what you need to consider, when creating your procurement plan. More often than not, there are a number of different parties involved in the procurement process. Although the execution responsibility may solely be with the buyer, the road along can involve finance, managers from various categories, NPD experts all with individual objectives which need to be heard in the process.
Procurement in practice
If we take the example of a procurement professional responsible for purchasing a number of products in an organisation, different departments will focus on different needs;
Cost: The Finance Director asks for a fit for purpose product with the lowest price
Quality: The Quality and innovation department want the best product to reflect the brand, in the best way
Margin: Category managers want a product which will provide a sizeable margin for them to meet their annual targets.
How do you meet these expectations?
Above all, the client’s needs must always be met, and through negotiation and compromise, it is possible to meet most (if not all) of the requirements.
One way of doing this is by using….
It is about sustainable outcomes, not the end result. Purchasing departments also need to consider CSR and how to create long-term value in the process. This is particularly relevant for public sector industries as polices and the public can be affected by this process.
As the ‘fit for purpose’ approach does not always work, start with category management. Whether its goods or services, they need to be sorted into categories. Set expectations are baselines for achieving costs. This often creates supply-chain efficiencies as a result.
Innovation needs to be part of the strategy to encourage growth and competition. Long-term value needs to be fair and equitable for all parties involved both internally and externally in the wider community.
By thinking of procurement as a long-term initiative, you can make real gains for each department and get the most out of our suppliers. By focusing on people instead of numbers, you can create long-term mutually beneficial relationships.
Latest posts by Suzie Lynch (see all)
- Procurement Management NFQ Level 8 - 6th July 2018
- Interview: Suzie Lynch explains why Procurement is her dream career - 18th September 2017
- Long-term value at iDDea - 14th June 2017