Every business deals in procurement. Identifying and acquiring goods or services are the bread and butter of business operations. The traditional approach to procurement ensured that businesses used reliable suppliers to receive those goods and services at a fair price.
However, it’s time to rethink the role of procurement in supply chain management and organizations as a whole. This crucial shift will help companies take a risk-based approach to procurement.
No longer can procurement professionals solely focus on cost savings. They must also be aware of risks introduced by key suppliers and armed with the appropriate tools and technology to proactively manage them before it’s too late and risks negatively affect the organization. This evolution that’s taking place requires forward-thinking organizations to focus on the long-term strategy and impacts the role procurement plays in today’s world.
The procurement department’s role within an organization is crucial in achieving strategic objectives and ensuring smooth operations. A procurement team oversees and manages the acquisition of goods and services, but their role expands far beyond that simple explanation.
Procurement teams must also support organizational goals and objectives by managing the procurement process and supply base effectively and efficiently. Additionally, they must select the right vendors after doing their due diligence and ensuring they support operational requirements.
This has been the role of procurement departments for many years, but times have changed. As the world evolves, so must every aspect of business operations, including procurement professionals.
Third-party management is a multifaceted beast, and every department of an organization must play its part. Procurement plays a major role in TPRM.
It’s a strategic function that involves:
Essentially, procurement is designed to guarantee that an organization acquires top-notch products and services at a fair price while also managing risks and adhering to applicable regulations. Successful procurement practices can aid in cutting down expenses, elevating the quality of goods and services, and bolstering operational efficiency.
A quality procurement officer does this by overseeing and managing the vendor selection process, working with stakeholders to understand and mitigate risks, working with vendors to execute contracts, place orders, monitor deliveries, evaluate vendor performance, and managing and maintaining relationships.
It certainly seems like procurement professionals do it all. So, how can we expect them to begin doing more? The answer is that it’s a simple necessity. Roles evolve and change to meet the current business trends and objectives. Procurement professionals are no exception.
We’ve covered in some detail why procurement is vital in third-party management. Still, it’s equally important to address why their role has changed and how procurement professionals are rising to the challenge.
Maintaining healthy supplier relationships is not just about onboarding; it also must include managing risk, quality, and performance of suppliers, assuring compliance where needed, while still managing the transactional responsibilities that are historically at the foundation of this role.
This increased recognition of the vital procurement position is seen across all industries, according to Deloitte Insights…
“CPOs are successfully navigating… complexities while delivering across a greater breadth of KPIs. Although there are still heavily focused on costs, they have expanded their value propositions to influence demand, drive innovation, and work closely with strategic suppliers and partners to foster commercial compliance, increase speed to market, accelerate M&A integration/divestiture programs, and drive continuous improvement.”
Deloitte Insights
So, what does that mean in practice?
Here are some of the risks procurement officers are learning to manage:
Supplier risks that have emerged during and after the recent pandemic are (for obvious reasons) a critical component of new and elevated risks facing procurement professionals.
Lack of awareness of supply chain risks has been exposed, and the perceived level of risk has continued to rise. According to Axios research, 75% of businesses reported a supply chain disruption related to the pandemic.
According to Deloitte’s 2021 Chief Procurement Officer Survey, only 18% of CPOs had formal tracking processes to determine direct (tier 1) risks within their suppliers, and only 15% were aware of risks further down their supplier base.
In addition to the vendors you have direct contracts with, you need to know what’s going on with your fourth parties and nth parties– i.e., your third parties’ subcontractors.
Traditional procurement departments were de-centralized and focused on transactional, short-term initiatives. Organizations that still exemplify these silos face challenges when it comes to thinking holistically and managing risks from all angles.
Driving collaboration and strategic initiatives between departments is a critical way to begin to eliminate these silos while still managing a daily workload of financial responsibilities.
According to Deloitte Insights, High-performing CPOs spend 63% of their time on operational and transactional tasks, spending the rest of their time on more strategic, long-term work (most CPOs who are not as high-performing spend a higher amount of time, 74%, on operational/transactional tasks).
Procurement professionals deal with many data points related to personnel, financial, operational, regulatory, contractual, and more.
When this type of information is stored on different platforms, unorganized, or incomplete, procurement cannot gain proper insight into potential risks facing their organization.
When considering procurement, its role in TPRM, and how it must evolve to include a wider net of risk assessment and mitigation, consider all procurement components.
Most will think of procuring goods such as physical items, or people-based services such as law firms, accountants, or contractors. However, there’s much more to it.
There are indirect and direct types of procurement. Goods and services can fall under either of these categories. Direct refers to anything used to produce an end product, which includes things like manufacturing raw materials and components. Indirect procurement covers essential items for day-to-day operations such as office supplies, advertising, furniture, etc.
Clearly, procurement professionals’ role is much broader than it seems. They have always been responsible for finding the most efficient and affordable way to obtain items directly and indirectly.
But now, they must be equally responsible for doing thorough due diligence and ensuring proper risk management practices with each vendor.
As the role of procurement continues to evolve in organizations, the helpfulness of TPRM software cannot be understated. The right TPRM software will deliver a consistent process-oriented approach to managing suppliers and third-party relationships, assisting procurement professionals in succeeding in their challenging roles.
Aravo helps procurement professionals structure and organize data in an automated and efficient way, enabling them to manage risks and build resilience throughout their organizations proactively. To learn more, speak with one of Aravo’s experts today.
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