Procurement leaders should ensure their business case for supplier management goes beyond the financial benefits that can be achieved.
Procurement functions are under increasing pressure from business leaders to demonstrate the tangible, commercial value they can deliver from investment in Supplier Management.
What is meant by ‘value’ may vary from one organisation to another, but economic value is a given. Operating in a commercial world means the majority need to show shareholders or business owners a clear financial return.
The best supplier management programmes, however, go further than that. They incorporate other forms of value that connect to their business’s broader objectives.
A challenge for today’s CPOs is to align with what their organisation is trying to achieve while delivering commercial improvement. Is it reduced risk, for instance, increased innovation, environmental or social improvements? Once they have identified this, they need to explore with suppliers how together, they can deliver them.
Speaking at a webinar on value hosted by State of Flux, Laura Lee, Head of Procurement, Place and Corporate at Essex County Council, said generating social value was a focus for the authority; while Jarrod Glover, Head of Procurement and Cost Management at Santander UK, said managing risk was key. Some of the bank’s suppliers are also its clients, so Santander lent £4.6bn to business customers during the pandemic to help keep them afloat.
Lee said to get buy-in for plans you needed to get people involved early in the process by employing the right narrative. “I think about it in terms of ‘head’ (those who respond to facts, figures and data), ‘heart’ (those who have an emotional connection to a subject matter) and ‘hands’ (those who respond to a call to action). It has to go beyond only financial value.”
Once procurement leaders have identified what their organisation cares about they need to understand which suppliers can help; who is most motivated to do so; and pull together a cohesive plan that expresses its combined potential impact.
The more organisations outsource work, the more important it becomes to work with suppliers to achieve value. How supplier X delivers value for money is great; but how supplier X also contributes to your corporate vision and strategy is even more enabling.
Taking a holistic approach that incorporates both financial and non-financial aims will achieve greater, more sustainable benefits. This should in turn encourage senior level executives to adopt supplier management as business imperative, rather than a standalone initiative.
The big opportunity is to ensure that procurement and supply chain is recognised as a key function that can deliver corporate objectives through how it mobilises and works with its strategic suppliers.
The key takeaways from the first in our webinar series on 'Unlocking the commercial value of Supplier Management in 2021' are:
- Demonstrating and delivering financial value through a supplier management programme is a given
- The best programmes also achieve other forms of value - be it environmental, social, reduced risk, improved innovation and so on
- Be holistic in your approach; show you understand your organisation’s goals beyond economic benefits
To discuss how State of Flux can help your organisation deliver value through supplier management, contact us here or at enquiries@stateofflux.co.uk
