EXPERT VIEW / BEYOND COMMERCIAL VALUE
EXPERT VIEW
O VER THE PAST FEW YEARS we’ve seen a steady shift in the role of procurement. It is moving from a function that negotiates deals on the behalf of the business to being far more strategic. This change has been dramatically accelerated as a result of the impact of the Covid pandemic on just about every supply chain. And in these difficult times, business leaders have looked to procurement to protect and strengthen their supply chains – and procurement has stepped-up to show what it can do. We’ve seen numerous examples of teams rising to the challenge and demonstrating they have so much more to offer than simply negotiated contracts. Out of this crisis, procurement has a new mandate and a broader field of play. Now is the time to keep up that momentum and adopt a new set of goals: to find, keep, grow and protect the value inherent in sourcing decisions and supplier relationships, in whatever form they come. Procurement is well-placed to help organisations unlock value through everything it does. And adopting a ‘find, keep, grow and protect value’ mantra is an important way to work towards more strategic outcomes. While we naturally lean towards ‘financial impact’ when referring to the term ‘value' it can have a richer, far more nuanced meaning. ‘Value' can arise from a range of activities, and accordingly be measured in so many different ways. Creating value could come from anything from a simple process improvement or ground-breaking innovation; from risk mitigation or improved sustainability. These things may be harder to measure but are no less important, and play a key role in helping businesses succeed. The value of sustainability, for instance, is reinforced by how many investors now look to use ESG (environment, social and governance) as a way to evaluate potential investment decisions. Financial measures are no longer the primary unit of value, environmental impact and social contribution are equally important to the wider society in which we all belong and have
BY ALAN DAY
a responsibility toward. So as we go forward with our new agenda to ‘find, keep, grow and protect value’ it should be underpinned by wider types of value that must be considered in addition to money: to protect the environment and contribute to society. Strong strategic supplier relationships are essential to unlocking all these forms of value: they make your organisation a customer of choice and we know that chosen clients receive a range of additional benefits. These include better customer experience, increased competitiveness, boosted service levels and more constructive negotiations. More engaged suppliers – those who consider you a customer of choice – are more willing to invest time and resources in going above and beyond what is contracted, and that is important to getting beyond financial value. They are more likely to work with you on solving problems, give you priority access to the best people and proactively bring you ideas for continuous improvement. State of Flux’s ‘value’ pillar is about having a clear business case aligned to your organisation’s strategic objectives. Here we look at how to find, keep, grow and protect value to help you build the business case for investment into vital supplier management.
GROWING AND
PROTECTING VALUE
Find
Having moved on from only ‘buying stuff’ to beyond strategic sourcing, procurement is now helping to move the needle on a company’s share price. It can do this in a number of ways, such as teaming up with suppliers over a new product or service and making a joint approach to the market. And finding innovation through suppliers or trading and sharing assets with our key partners can make a material difference to the way our companies run. The first step is about examining the extent of the opportunity. During this discovery phase, procurement professionals need to establish what its organisation considers valuable beyond year-on-year growth or savings. If they care about environmental and social considerations, for instance, are those values reflected in the company strategy and culture? Is someone responsible for driving that agenda forward? Is procurement encouraged to deliver contracts that also generate social and environmental improvements? A few of the more mature organisations are embracing this, but for the majority it’s an, as yet, untapped opportunity. And the majority are not all that sophisticated at working with suppliers to find new sources of value. Some have established ‘incubators’ to work with suppliers on new ideas, but often these are uncoordinated, one-off exercises. By setting up a more formal process of generating ideas – as part of supplier management treatment strategies – procurement professionals can more effectively and regularly find →
WHILE WE NATURALLY LEAN TOWARDS FINANCIAL IMPACT WHEN REFERRING TO THE TERM ‘VALUE' IT CAN HAVE A RICHER, FAR MORE NUANCED MEANING. WIDER TYPES OF VALUE THAT MUST BE CONSIDERED INCLUDE PROTECTING THE ENVIRONMENT AND CONTRIBUTING TO SOCIETY.
Procurement must set a new agenda: to find, keep, grow and protect the value in the purchasing decisions it has made. They must go beyond focusing only on financial achievements to helping their organisations make environmental and social gains.
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STATE OF FLUX
2021 GLOBAL SRM RESEARCH REPORT
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