II was recently talking with someone who was frustrated that “most of the good articles on procurement strategy in business seem to have been written five to ten years ago.” And right on cue, I came across a piece by some partners at Bain entitled “Unearthing the Hidden Treasure of Procurement.” I strongly recommend that you read the article. It’s not long and you will get a significant return on your invested time. However, if you’re inclined towards bullet points, then you can take advantage of some of the key highlights I’ve identified.
Spend is a Big Issue
The largest single expense category for most firms? External purchasing, which averages a whopping 43% of total costs.
Graph from https://www.bain.com/insights/unearthing-hidden-treasure-of-procurement/
Good Procurement Works Wonders
Bain has found the top procurement organizations can reduce an organization’s cost base by 8%-12% on average and then add 2%-3% annual savings on top of that.
Top Companies Buy Better and Spend Better
The two areas that get immediate focus when savings mandates are handed down are improved supplier selection and better price negotiation. Companies multiply their results when they take a step back, however, and rationalize their desired spend before diving into the sourcing process.
Close the Loop on Spending
Procurement manages spending on the category level. Stakeholders in business units manage their budgets across categories. The best companies make sure that category-level savings inform the current year’s budget to ensure that hard-won savings are not ill spent elsewhere.
People, Process, and Tools
Leading organizations have strong capabilities in all these areas: a capable team, running smart processes, empowered by specialized tools.
There’s a ton of great information in this piece and it’s densely packed. So if you were willing to spend the time reading this far, I’ll reiterate my previous suggestion that you read the article in its entirety.