When it comes to procurement, managing directors are often overwhelmed with a lot of concepts, suggestions, and quick win opportunities. And all that can lead them in the wrong direction where they underestimate the influence of an efficient procurement. Short term solutions like reducing costs of purchased materials and tough negotiations sound pretty attractive. But at the end of the day, MDs are disappointed with a limited added value contribution that those solutions bring in.
During my managerial and consultant work, I realized that all good solutions should have good roots, good challenges and what’s most important – the right questions which then lead to the right solutions. And before going into details, always get back to the most basic concepts, on which you can build a strategic framework.
2 vital questions a CEO should ask about purchasing:
- Does my company procure the right products/services?
- Does my company pay the appropriate price for the product/service it buys?
These 2 simple questions can turn the CEO onto the right procurement track. First of all, the internal clients responsible for developing specifications, not the procurement manager, become the epicenter of procurement activities and the basics of procurement costs are in their hands. Then the CEO realizes that the specifier should be managed as part of the procurement process. That’s when the CPO comes to the stage. What the CEO has to decide then is whether he/she is willing to give the CPO the necessary authority, formal or informal, to manage, challenge or impact, (not define), specifications. And do it in such a way that there isn’t a doubt in anyone’s mind that the company is buying the right products. Of course, authority to manage every aspect of procurement costs is not just given away. A CPO needs to deserve it with his wide knowledge, skills, holistic approach to procurement management and with a skillful team.
The second question is related to the purchasing skills of the buyers. They need to find a way to get the most optimal price for the right products available. Today that process can be quite streamlined, due to the availability of strategic procurement software that is equipped with analytics that supports Category/Supplier/Risk Management. And in addition, it can fortify the necessary transformations within the procurement department.
Even though these questions may seem really basic, once they are asked, all the important subsequent details will spring from them.
And sometimes it is really important to get back to basics before rushing forward aimlessly.
“Life is really simple, but we insist on making it complicated.” – Confucius