Procurement has never been one-dimensional when it comes to making decisions but it’s struggling with its perception as a price cutter. Holistic decisions can help Procurement demonstrate the value it delivers and change stakeholder perception by clearly outlining available options and trade-offs.
Procurement is a great source of value for organizations. Period. But more often than not, Procurement practitioners only sigh and smile when asked if misconceptions about their profession or the value it delivers exist. Instead of a value driver, Procurement is often perceived as a cost cutter, not a function that brings a holistic and measured perspective to the discussion.
Many in Procurement have probably once said something along the lines of “there is a cheaper option” to a stakeholder when “there is a better option” would have been more appropriate. Unfortunately, the unintended consequence of simplifying the process of comparing and analyzing supplier proposals fueled the misconception that price is the only thing that matters in sourcing and Procurement.
Procurement is inherently complex due to the large amounts of information on internal demand, suppliers, pricing, and external data it needs to process. While supplier data regarding risk, sustainability, diversity, or performance are often captured in appropriate systems, this information is usually not available to every single sourcing manager or consistently integrated into the decision-making process.
Procurement professionals know that the best value for the organization takes into account the cost of goods and services as well as other internal and external business constraints. But considering multiple of these factors simultaneously and arguing beyond price is almost impossible when sourcing events are executed and analyzed in Outlook & Excel only.
Stakeholders expect Procurement to balance competing priorities and demonstrate the available options instead of simply optimizing for price. This requires including qualitative internal and external information like supplier performance, financial risk ratings, sustainability metrics, or diversity information next to the commercial proposals in the modeling of possible sourcing scenarios. This is what we call holistic decisions.
By doing so, Procurement can evaluate and demonstrate competing strategic alternatives and their respective opportunity costs to its stakeholders. It allows the business to have fact-based discussions and bring transparency to the decision-making process.
Clearly articulating the cost of competing business requirements also allows Procurement to unlock additional savings opportunities. Most importantly though, it raises Procurement’s profile to that of a strategic business partner that drives sustainable value.