Whether your company’s most urgent directive is to look into cost efficiency, supplier relationships, risk management, innovation or sustainable practices, you can not ignore the impact of value creation.

While it is true that procurement teams are traditionally focused on cost reduction, a new wave is on the horizon. More and more have come to see the value of creating value as a driver of company success.

The Expanding Definition of Value Creation in Procurement

Throughout history, the contribution of a procurement team to a company has almost always been measured by cost savings. While it is true that cost savings greatly contribute to company success, being limited to such a narrow focus may lead to unwittingly compromising or sacrificing quality, strain in supplier relationships, exposure to risks and stagnation.

A healthier and broader view should recognize that procurement can contribute value in various other ways, including:

• Optimized Growth: When a company obtains goods and services without sacrificing quality or performance, everybody wins. Optimization may even extend beyond the date of acquisition. Over and above a purchase price, value creation may come in the form of total cost of ownership, optimum maintenance and end-of-life disposition expenses.
• Improved Performance: When procurement leaders tap vendors and products that exceed quality and standard requirements, the value creation benefits operations in the form of efficiency and customer satisfaction.
• Boosting Sales Growth: Procurement plays a vital role in ensuring the availability of high-quality materials and services at competitive prices. Procurement can help your company deliver a superior product or service by working closely with suppliers to improve quality and efficiency, ultimately driving sales growth.
• Mitigating Risk: Can you team weather supply chain disruptions, quality issues, and price volatility? They should, as all these pose significant threats to any business. Value creation from risk mitigation introduces reliable suppliers, agility and regulatory compliance to a company. A proactive procurement team should be equipped to develop strategies that mitigate these risks.
• Promoting Sustainability: In 2024, a company can no longer do without ensuring environmental, social and ethical checklists are in their purchasing agenda. Value may be derived when a company works with socially responsible vendors who adhere to ethical and sustainable practices, engage in fair labor practices or support local communities.

Recommendations for Value Creation

At this point, it is imperative that procurement players actively adopt a value creation mindset. Work towards:

1. Gaining a deeper understanding and appreciation of your organization’s overall goals. This step goes beyond just looking inwards within Procurement Teams. Engage with the company’s top-tier decision-makers, key stakeholders, leaders and department heads to understand how the Procurement initiative also impacts other departments.
2. Realigning Procurement’s objectives to the performance indicators like cost, quality, risk mitigation, sustainability, etc.
3. Implementing Supplier Relationship Management (SRM) and forging long-term partnerships for continued cost savings and value. Work closely with vendors and suppliers to ensure that, as the purchasing arm of the organization, you procure only the best products and services possible.
4. Identifying new processes, technologies and solutions from vendors and suppliers themselves. This partnership lightens the load of driving continuous improvement that ultimately benefits the organization itself.

Conclusion

The role of procurement is undergoing a significant transformation. By embracing a value creation  mindset and implementing the strategies outlined above, your procurement team can become a strategic partner driving innovation, growth, and overall business success. 

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Recommended Reading:

• Best Value Procurement – Procurement Value Creation Workbook
• Unlocking the Power of Value Stream Analysis
• Cultivating Procurement Value
• Best Value Procurement