Spend transformation: optimizing procurement's value
How a company manages direct and indirect spend has historically been the procurement organization’s primary focus—and in some companies, procurement still focuses on driving “committed value” from third-party spend. In other words, procurement negotiates the best possible terms from suppliers, puts in place the relevant contracts and buying channels and trusts the business to use those appropriately.
Some forward-looking procurement organizations have moved beyond “commitment to value” and are working closely with the finance organization to proactively manage the company’s spend. But this approach still leaves value on the table, because procurement remains focused primarily on price, which is just one of many levers that affect value.
To take the next step in its evolution, procurement needs to identify the full range of opportunities to remove costs that aren’t creating value by applying a zero-based perspective (ZBx) to all of the company’s third-party expenses.
With ZBx, a company forgets about the past and reimagines its cost base not from what it was or is, but what it should be if the company were to start from scratch—and then uses the resulting savings to fund investments in innovation, distinctive capabilities and specific activities that drive growth.
New ways of working: optimizing the organization
This transformation depends upon bringing together procurement, finance and the business to collaborate, communicate and make insight-based decisions about the full range of savings opportunities. Doing so “closes the loop” with planning and budgeting activities and ensures that procurement is an integral part of all purchasing decisions.
New digital tools and the skills to employ them are critical to the success of this change: Analytics, intelligent automation, AI and other frontline technologies offer a wide range of new capabilities. Many procurement roles will need to evolve to include analysis and data interpretation, while most compliance and data entry-related tasks may disappear. Building new skills, and possibly recruiting new capabilities, will be essential in sustaining the new ways of working.
This transformation will also require strong advocacy from the top. Senior executives need to reinforce the message that CLSM is a durable and repeatable process that becomes ingrained in the company’s culture and is a true decision-making and management tool that provides the visibility necessary to help align an organization around the priorities in which it will invest.