Procurement is more than just buying goods and services.

It’s a key part of your business success.

At ProcureDesk, we see procurement as a way to control costs and boost your business’ performance. In this article, we’ll show how smart procurement helps small and medium-sized businesses grow and save money.

You’ll learn how it simplifies operations and guides better business decisions.

What Is Procurement Value?

Before we get into selling procurement value, we must clearly define what value-added procurement can provide for the organization.

The higher the procurement value proposition, the better procurement is perceived, and you have the elusive “seat on the table”

Procurement value can be defined into 4 different areas:

Cost Savings

This is, of course, the cost savings delivered by procurement. By cost savings, we are referring to hard savings and not savings

Compliance

This is another common aspect of procurement value add. By compliance, we refer to compliance with purchasing policies.

The policies are generally required as part of SOX compliance or identified by accounting best practices.

Risk Management

Supply chain risk varies from company to company, and the supply chain faces different types of risk. For example, delivery, quality, reputation, or other risks associated with the company.

Depending on the industry, this could be a high value-add for procurement.

Growth Catalyst

Procurement could be a great source of innovation if it can work collaboratively with businesses to find new sources of supply that can drive sustainable growth for the company.
For example, you can help the business develop new suppliers who can help reduce overall costs or develop new, unique products.

Over some time, procurement value evolves, and you can adopt the following value pyramid from the Hackett group:

Why Do You Need To Sell Procurement Value To Organizations?

You might be asking yourself why I need to sell procurement value – Isn’t procurement a critical function within the organization?

The answer is yes and no, depending on how procurement is perceived in the organization.

Is procurement perceived as a value-added partner or merely a support function whose job is to create purchase orders for suppliers and ensure that the product is delivered on time?

The answer to this question depends on how your organization perceives procurement. If procurement is very well respected and considered a value-adding partner, then congratulations, and you can stop here!

For those of us who are struggling with this question, let’s read on.

Before we get into why we need to sell the value to procurement to your organization, Let’s explore some of the use cases where you need to sell the procurement value to the organization:

You Are Hired To Start A Procurement Team

Most of the time, senior management thinks about the procurement department when they think about compliance, or they are getting ready to go IPO, or some other instance where there is a need to build strong purchasing compliance.

It is not uncommon to see that in those cases, procurement is reporting to the chief administration office or the General counsel office.

The idea of procurement reporting to these functions is that of centralizing all administrative and compliance functions.

Unfortunately, the organization also started to look at procurement as another cost center that is required to run the business and not as a profit center or a source of significant value add.

You Are A CFO Looking To Reduce Cost

CFOs in today’s world are not just responsible for ensuring that the books are accurate, but they are considered value-add leaders looking at how to grow the business.

Given the cost focus, reducing costs comes naturally to CFOs and hence the need for procurement.

CFOs understand the value of procurement from a cost-savings perspective and its impact on EBITDA.

So, they would hire a procurement professional to start building the procurement team.

The good news for procurement is that, in this case, they are reporting to finance – so assuming that collaboration with finance on cost savings should not be a problem.

The bad news is that you must still sell the procurement value to the organization.

There are only so many times you can use the CFO card, that the CFO has tasked you to look into cost savings.

In both cases, there is a strong case to highlight the value of the procurement function and elevate the function to a value-added partner rather than just a cost function whose job is to process purchase orders.

5 Ways To Create Value In Procurement

There are different ways to create value in procurement. In this blog, we’ll be sharing the top 5 ways.

By implementing these five strategies, you can create significant value in your procurement function and contribute to the overall success of your company.

Strategic Sourcing

Partner with key suppliers who offer innovative solutions, expertise, and long-term value.

What does it involve: conducting in-depth supplier evaluations, negotiating favorable contracts, and fostering collaborative relationships.

Category Management

Optimize spend across different purchase categories by analyzing data, identifying cost-saving opportunities, and negotiating favorable contracts.

What does it involve: implementing category-sourcing strategies, consolidating suppliers, and leveraging volume discounts.

Risk Management

Mitigate risks associated with supplier performance, financial stability, and ethical practices through proactive assessments and monitoring.

What does it involve: conducting supplier audits, implementing risk mitigation strategies, and diversifying your supplier base.

Collaboration and Communication

Foster strong relationships with internal teams and suppliers to identify shared goals, drive innovation, and improve process efficiency.

What does it involve: establishing clear communication channels, collaborating on cost-saving initiatives, and building trust with suppliers.

Technology and Automation

Utilize procurement software and automation tools to streamline workflows, reduce errors, and free up resources for strategic activities.

What does it involve: implementing e-procurement systems, automating purchase order approvals, and utilizing data analytics tools.

8 Ways Procurement Adds Value To Your Company

Most of the time, procurement is seen as a cost-cutting department.

But little do you know, its impact goes far beyond simply securing the lowest price. In reality, a strategic procurement function can be a significant driver for your company that can contribute to your improved efficiency, innovation, and overall business performance.

Here are eight key ways procurement can add value to your company:

Procurement is often seen as a cost-cutting department, but its impact goes far beyond simply securing the lowest prices. In reality, a strategic procurement function can be a significant driver of value for your company, contributing to improved efficiency, innovation, and overall business performance. Here are eight key ways procurement adds value:

Cost Savings And Reduction

Your procurement teams have expertise in negotiating favorable contracts, identifying cost-saving opportunities, and optimizing spend. With strategic sourcing and category management, your procurement teams can secure lower prices to reduce maverick spending.

Strategic Sourcing

Did you know that procurement goes beyond just finding the cheapest option?

Your procurement teams are responsible for identifying and partnering with key suppliers who offer innovative solutions, technical expertise, and long-term value.

Process Improvement

Streamlining purchasing processes, automating workflows, and implementing best practices to improve efficiency and reduce errors. This can lead to faster turnaround times, better inventory management, and reduced administrative costs.

Risk Management

The role of procurement involves actively identifying and mitigating risks associated with suppliers, such as financial instability, quality issues, or ethical concerns. Your procurement team is responsible for conducting supplier audits, diversifying your supplier base, and implementing contingency plans to ensure business continuity.

Compliance

Procurement teams ensure that all purchasing activities comply with relevant regulations and company policies. This helps to protect your brand and maintain ethical business.

Innovation And Supplier Development

Your procurement team fosters innovation by collaborating with suppliers to develop new products, services, and technologies.

Sustainability

The procurement department must integrate environmental and social responsibility considerations into their purchasing decisions. This can involve sourcing from sustainable suppliers, using recycled materials, and minimizing your environmental footprint.

Contribution To Growth

By simply securing reliable and high-quality good sand services with competitive prices, your procurement team allows your company to grow and expand into new markets or product lines!

Selling Procurement Value

You don’t have to become a sales professional, but you must think like one.

Sales and procurement are no different except for the focus.

When you are selling externally, you are selling the value your organization can bring to the table for your customers to help them achieve their goals.

Similarly, procurement is selling the value to the internal customers on how procurement can help them achieve their goals.

Note, I didn’t mention cost savings goals, I mean overall goals for that departments.

If what you are offering can help your internal customers achieve their goals, then you have the alignment required to ensure collaboration and procurement being seen as a value-added partner.

Some basic principles about selling which apply to procurement also

Know Your Customers

In sales, we focus on understanding our customers or different customer personas the challenges they face, and how our solution is aligned with their problem statements.

Procurement has different internal stakeholders who have different challenges.

Procurement can be considered a value-added partner if the approach is customized based on the needs of the different types of customers or stakeholders.

Different stakeholders have different needs

Procurement teams deal with different stakeholders, and building a strong relationship with your stakeholders is key to ensuring procurement success.

So, what are the different needs of different stakeholders?

Finance

Based on how strong the collaboration is with finance, the needs of the finance department could vary a lot.

If you have a strong collaboration, then your finance team depends on you to keep them aware of the impact you are creating so that they can accordingly adjust the budgets.

For example, if you are helping negotiate a deal with a vendor that reduces the Opex spend, then the finance team needs that information so that the budgets are adjusted accordingly.

In contrast to that, if you have zero collaboration, then the finance department works in a silo and doesn’t expect any information from you.

We have seen countless procurement teams struggling to highlight the value added to their organizations due to a lack of collaboration with finance about booking the savings.

If you have zero collaboration with finance, don’t worry. We will cover a step-by-step process on how to sell the procurement value.

End users

End users are the employees entering the orders for the goods to be purchased.

There are two different expectations or needs categories here

Make sure the order is out.

Here, the expectation is that procurement ensures the orders are promptly dispatched. Procurement is expected to expedite orders where needed.

The relationship is tactical, and till the time your orders are on time and vendors always get the orders, these users are happy with procurement.

So here, the need is more around efficiency.

Help me with the purchase

Here the expectation is that procurement can find the right vendors for the items they plan to purchase.

Cost savings might not be their ultimate goal, but your customers expect a faster turnaround time for the quote request.

The need is fulfilled if procurement responds in a timely fashion and provides the source of vendors for the products they are looking for.

Don’t make me think

Procurement is expected to provide a simple and clear process for purchases. The basic expectation from users is that the purchasing process is simple and well-communicated and easy to follow.

A follow-up to this is a simple purchasing experience so that users don’t have to jump through hoops to place an order.

Think of the times you have cringed when you are asked to fill out a form for a simple IT request.

The same is true for procurement- the expectation is an easy and simple, noncomplicated, and less time-consuming process.

Department Owners

By department owners, we mean the management team that owns the budget for different departments.

The needs of these users are divided into two different departments

Meeting their desired goals within the allocated budgets.

Each project or goal would have a budget assigned to it. Their objective is achieved if the final cost is under or equal to the budget.

They want to continuously know how they track against their budget, especially for professional services work where the payments must be made periodically based on the completed work.

In summary, their needs are more around spending visibility and tracking actuals against the budgets.

They want to ensure procurement is an enabler for their teams instead of a roadblock or slowing down things.

External Stakeholders

Though this article focuses solely on internal stakeholders, we want to quickly touch upon external suppliers, who are equally important as internal stakeholders.

Procurement engages with suppliers for requesting quotes, requesting responses to RFPs (Request for Proposals), expediting orders, etc.

Sometimes, the procurement team also engages in onboarding the vendor and ensuring that the supply chain runs smoothly.

So, what do suppliers expect from procurement?

In our experience, suppliers expect the following from their procurement counterparts.

Having timely communication

Suppliers want timely information from procurement to plan better and ensure that the right resources are available at different stages of supplier engagement.

Clear expectations

Suppliers want to have clearly defined expectations, the more objective it is, the better is.

Information Sharing

Suppliers want to ensure they get the right guidance and information during the evaluation process.

We are not recommending you give out information that decreases your leverage, but make sure that vendors understand where they stand and what they need to do to win the business.

How To Sell Procurement Value To Your Organization

Now that we understand the needs of different stakeholders, we know how to sell procurement value within your organization.

1. Start Small- Small Wins Are Critical

When selling the procurement value, focus on one department at a time.
Start small and start with departments that could have a high potential impact on the organization.

There are multiple reasons for doing that. First, As per HBR, the power of small wins study, progress no matter how small, is critical for high team morale and overall career fulfillment for your team.

So, if you can register some quick wins, that will help the team morale and set you up to highlight procurement value-add to other departments.

Second, it keeps your team focused. You likely have a small team at this time, so you anyways don’t have resources to go after the entire spend.

Also, you could use this to baseline the engagement model for your entire organization.

Perfect your value proposition pitch before you start selling to other departments.

How to pick a department

If you only had to pick a a department, how would you select one?

Use a matrix like this to decide.

Now, you might be tempted to pick the department with the highest spend, but that might not be the best move for the following reasons.

• If anything goes wrong, then that might not be the start you are looking for.
• If you cannot show the impact on a highly visible category, then the likelihood of other departments trusting you is low.

So, we advise focusing on a category where the spend is significant (enough to show procurement value), but it is a low-risk category.

2. Concise, Effective Communication About Procurement Value

Communicating the value of procurement is an essential step in selling the value of procurement to the organization.

Here are some ideas on how to think about communicating the value of procurement

What Is In For Your Stakeholders?

Before you start socializing the procurement value proposition, clearly define the benefits your stakeholders can achieve by engaging with procurement.

Think of yourself as a procurement consultant and how you would sell your services to an organization. Your job would be to articulate the benefits to your stakeholders clearly.

Few things that can be part of your value proposition

• Running the evaluation process for them – they don’t need to spend time running the RFP process.
• I am keeping them out of tough negotiation situations.
• Helping them reduce costs.
• Help them manage risk.

Messaging

Ensure that you have concise and clear messaging. Focus on your team’s credentials – if you have an experienced team.

Especially if you have team members who have previous experience with similar categories, that always helps build credibility with your stakeholders.

Focus On Enablement And Not Reinforcement

Take the enabler approach and not the enforcer approach. Count the number of times you have used the word policy in your slides. The fewer those words – the more you are an enabler and vice versa.

Case Studies

Think for a minute that you are in sales and presenting the benefits of your product/service to your client. Would you use case studies?

We think absolutely – and why is that?

Because case studies provide social proof that your product has delivered the value of other similar customers.

So why not use the case studies for selling procurement value?

Remember we talked about the power of small wins, starting small, and choosing a spend category where you can create maximum impact.

If you have done a splendid job delivering value for that category, use that as a case study while demonstrating the procurement value proposition to other departments.

Focus on the savings delivered, categories handled and don’t forget customer testimonials. No, that is not a typo, do get testimonials from departments you have helped so far.

3. Sell With Data

“ Without data, you’re just another person with an opinion” – W. Edwards Deming.

When selling procurement value to your organization, nothing sells it better than data.

In this case, data about spending, trends, key vendors, etc.

There are two things to focus on here

Data Is Accurate And Complete

Make sure that you have complete data about enterprise spending. The granular the data, the better it is.

For example, it is beneficial for the finance team to know the key trends in vendor spending but your other stakeholders would better appreciate procurement value if you could answer questions like

• With whom are we spending money?
• What are we spending money on? It is better to have more details.
• Who is spending money?
• What are the key spending trends?

Visualization Of Data

It is not just data but how you present the data. Granted, finance professionals love Excel, but the higher you go, the less time they have to analyze the data and create their own narrative.

If you have a procure-to-pay or spend analysis tool, then you most likely have a dashboard that you can use to present spending data.

If you don’t have one, then use standard Excel functionality to create charts and put them in a PowerPoint deck.

When selling procurement value through data, ensure the data is easily accessible to your stakeholders.

It will not do any good if your stakeholders have to call you every time they need to understand their spending.

Implement a self-service model where they can see the spending data and that data is up to date.

Financial Savings: Understanding Your Numbers

If you are part of the finance team, you understand where we come from. There are two aspects that procurement needs to be good at for it to increase collaboration.

Understanding the Income statement

The best way to highlight the value of procurement to your organization is to show the impact on the bottom line of the company.

When you are getting started, it helps to understand your company’s income statement and its major drivers. For example, which vendors contribute to the COGS(Cost of Goods Sold) spend?

Once you understand the financial statements, you can build your model to understand the impact of savings on EBITDA ( Earnings Before Interest, Tax, and Depreciation).

You can easily understand your contribution to the company’s bottom line based on your net margins.

Don’t get concerned if you don’t fully understand these concepts. You can always call your friend Google or have one of your finance team members explain that to you. Take them out for lunch or a happy hour!

It is worth the cost. You need to understand the relationship between cost savings and Income statement.

Cadence Around Reporting Cost Savings

It would be best if you had an established cadence with your finance team to ensure that your finance team books savings reports.

It is of no benefit to anyone if procurement is reporting at the end of the year and finance says, “What savings?”.

There are two types of cost savings to report

• Capital cost savings
• Opex cost savings

Depending upon the structure of your organization, there might be two different teams managing Capital and Operations budget planning.

You can do one of the following.

1. Report savings as they are booked by procurement – it serves two purposes

• It ensures that finance agrees with what you are booking are real savings
• It allows the finance team to adjust their accruals in advance instead of doing that later. That would allow the finance team to create a better forecast.

2. The other approach is to set up a monthly cadence to review booked savings with your finance team. You might want to assess what works best for you and your team.

Ok, we are stating that every employee should empathize with another fellow employee.

But, with individual departments and their targets, sometimes we forget that we all work in the same team and everyone has a common goal to achieve organizational goals. Be it achieving higher sales or the lowest cost for your customers.

The procurement job is to reduce cost, but it must be done so your stakeholders feel enabled and engaged. Your stakeholders and cost savings should drive the vendor selection decision after that.

Procurement often gets too focused on cost savings, and that’s all they discuss.

Now, think from your stakeholder’s perspective. Once the high-level budget is approved, is their main focus cost reduction or selecting a vendor that best meets their specifications and has a high likelihood of project success?

Your stakeholders care about achieving depart

4. Have Empathy Towards Your Stakeholders

mental and individual goals, not cost savings.

Empathy is a key skill, so you can first understand how they look at their business or department. Once you understand that, it is fairly easy to define a strategy that can meet their goals and procurement cost savings goals.

Focus on making your stakeholders successful, which will eventually make you successful.

5. Have A Helpful Attitude

Not every conversation with your stakeholder would be about a new project or how to reduce vendor costs.
Every procurement professional should understand that your stakeholders are looking for different types of help at different points in time.

Some procurement professionals say that if this is not about savings, it is my less important priority.

The way to look at this like in sales, you have to work with prospects throughout the whole sales cycle to get them to sign on the dotted line, the same is true for procurement professionals.

You have to work with your stakeholders and help them in whatever they need help with. Then you can gain their trust and they start seeing you as a trusted advisor. Savings eventually follow if you have a helpful attitude.

What other help they might need?

Issue resolution

As a part of the vendor lifecycle, your stakeholders might have issues with vendors that might need escalation. You can act as a neutral party, understand the issue, and then work with the supplier to get to the resolution.
This is also an opportunity to better understand the transaction background and the business. Ask for the background on the vendor, how it started, and how we reached where we are.

Updates about key vendors

Be helpful by providing updates to your stakeholders about the key vendors. You, anyways, should be tracking your key vendors; you have to provide the same updates to your stakeholders.

If you are not doing this already, here is how to get started

The easiest way is to set up google alerts, set it once and google will do this for you.

Here is an example

Google will keep sending you alerts as and when they happen and you can pass the relevant information to your stakeholders.

Contact Details

Stakeholders always have questions about existing contracts. Some obvious questions that get asked are

• When the contract is up for renewal.
• What is covered and what is not covered in the contract?
• Very common in software – what if we don’t renew the maintenance contract?
• Whether there is a termination for convenience.

FAQs

How Do You Measure The Value Of Procurement?

Measuring the value of procurement goes beyond just your cost savings. It’s also about understanding how your procurement activities contribute to the success of your organization.

Here are some of the elements you need to keep an eye on. Tracking these metrics will make it easier to understand how each impacts your organization and how it affects your overall performance:

• Direct savings: Comparing negotiated prices to market averages or previous agreements.
• Indirect savings: Reduced inventory costs, lower supplier management costs, and improved contract compliance.
• Cost avoidance: Identifying and preventing risks like fraud, supplier price increases, or disruptions.
• Procurement cycle time: Measuring the time from identifying a need to receiving the goods or services.
• Reduced process errors: Streamlining purchase orders, invoices, and approvals.
• Increased automation: Utilizing technology to automate routine tasks and free up resources.
• Identifying new suppliers and technologies: Sourcing best-in-class goods and services that enhance product quality or operations.
• Collaboration with stakeholders: Working with internal teams to find innovative solutions and optimize business processes.
• Supporting company growth: Sourcing materials and services that enable expansion into new markets or product lines.
• Mitigating supplier risks: Assessing and managing risks associated with supplier performance, financial stability, and ethical practices.
• Ensuring contract compliance: Monitoring supplier adherence to agreed-upon terms and conditions.
• Supply chain resilience: Building flexible and adaptable procurement strategies to withstand disruptions.
• Improved profit margins: Increased cost savings, efficiency gains, and innovation contribute to higher profitability.
• Enhanced customer satisfaction: Reliable, high-quality goods and services lead to happier customers.
• Competitive advantage: Strong procurement practices give you an edge over competitors in cost, innovation, and resilience.

What Is Procurement Value Creation?

Procurement value creation goes beyond just buying things at the lowest price.

It is also about seeking and securing goods and services that meet your business needs and goals.

Procurement value creation usually involves the following:

• Sourcing strategic suppliers
• Negotiating favorable terms
• Managing supplier relationships
• Identifying cost-saving opportunities
• Contributing to sustainable sourcing

What Are The Values Of A Good Procurement System?

To have a good procurement system, it must embody the following values:

• Transparency & Fairness
• Compliance & Ethical Conduct
• Efficiency & Streamlining
• Data-Driven Decision-Making
• Scalability & Flexibility
• Collaboration & Communication

By incorporating these values, your procurement system can become a powerful tool for driving efficiency, reducing costs, and creating value for your organization.

The Bottomline

It is a common complaint by procurement professionals that procurement doesn’t have a seat at the table.

We don’t hear often what is required to get a seat at the table. If procurement value is only cost savings, guess when they will call you – when they have cost reduction pressure.

But if the procurement value-add is that of a sound advisor, then they think of you all the time, and procurement gets to get involved in the process early and deliver on the savings target.

It needs effort and some sales skills to sell the procurement value.

As they say, “Hope is not a strategy,” which is true in this case, too.

You can’t hope that one day your organization will understand the value of procurement; you have to sell the procurement value to your organization proactively.