Marginal gains | making your procurement process more efficient

When the GB cycling team left the 2004 Olympics behind in Athens and flew home, their carry-on luggage contained a respectable 4 medals, including 2 golds. However, when they left Beijing four years later, their airplane probably needed a special compartment to contain their 14-medal haul – 8 of them of the gold variety.

For many, this remarkable turnaround in fortunes was largely put down to the theory of ‘marginal gains’ – extracting efficiencies from everywhere, improving processes by 1% in lots of areas until the cumulative effect produced dramatic outcomes.

In the past, marginal gains for procurement professionals meant cutting costs. Looking for those 1% savings in every deal was their bread-and-butter, and one of the most straightforward ways of measuring performance.

This may no longer be the case. In Deloitte’s 2021 Global Chief Procurement Officer Survey, 78% of respondents said driving operational efficiency was their primary goal, edging out the traditional cutting of costs. It’s easy to see how this is now the case after the year we’ve had, from the continuing pandemic to volatile commodity prices to Suez Canal mishaps.

Agility, resiliency, and efficiency are becoming the watchwords of the forward-thinking CPOs of the world, but what are the steps they need to follow to take up this new mantle?

Review your procurement process through fundamental pillars (new and old)

It’s hard to do something different tomorrow if it’s not the way it was done today, but the first step on any journey towards greater efficiency is reviewing current processes thoroughly, ideally using a new lens to look at them through.

While CPOs have never had so much on their plate, they will need to make room to carry out a review of how they are executing their strategies, and whether improvements can be made. Four fundamental pillars you need to review are 1) the suppliers you’re using, 2) the people using your systems, 3) the system itself and 4) how CPOs actively manage this system.

1. Review your supplier lists

Increasing efficiency from your suppliers is all about creating economies of scale and leveraging good, consistent relationships to have a truly collaborative supply chain. Over time, though, maverick spending from individuals within the company can mean preferred suppliers are not used, and those benefits are lost.

Taking a thorough review of your supplier lists will allow you to create categories of spending (if you’ve not already done so), cut out suppliers who have erroneously become part of the system, and drive that spending towards preferred suppliers. It’s also an opportunity to look for new solutions that may not previously have been available. While onboarding a new supplier will take time and effort, the efficiencies their solution may create could boost efficiency in your procurement process significantly over time.

2. Create internal procurement training sessions

How many times does the procurement department talk to everyone in the company? In truth, it’s usually interactions between department heads on a case-by-case basis where communication occurs, or during annual meetings in a ten-minute slot.

If CPOs want to drive spending towards preferred suppliers, then they have to reiterate that message consistently and regularly.

Internal training sessions outlining the strategy, and the strategies’ purpose, will give people the ‘why,’ while practical initiatives such as creating a preferred supplier list that people can easily access will give them the ‘how.’

3. Automate your Purchase-to-Pay (P2P) process

One of the quantum leaps made in procurement over the last decade or so has been the automation of processes and the embedding of technologies that increase efficiencies right across the supply chain.

The philosophy behind P2P has always been to create an efficient purchasing process by integrating purchasing and accounts payable systems. In the past, this was done manually by purchasing officers, often having to micro-manage every step of the process.

An automated system cuts down a big portion of administrative time, while also reducing spending outside of preferred suppliers and giving transparency over the entire process. Without one, you can quickly become drowned in a sea of paper and administrative knots that are hard to untangle.

“Finance teams need a single interface that improves access control and better visibility over spending” says David Hughes, Chief Commercial Officer of TransferMate, whose automated purchasing system enables organizations to automate and digitize the entire payments process, from mass payments to automated reconciliation. “Delays receiving funds can be a nightmare when managing cash-flow, and manual reconciliation is a significant administration burden on the team. Transparency, ease-of-use and efficiency are the key components.”

4. Develop an agile mindset

If the past two years has taught us nothing else, it’s that we need to be agile in the face of adversity. The ‘supply chain crisis’ has become part of the public vernacular, which is a clear sign that the problems CPOs are dealing with right now are not of the ordinary kind.

CPOs are being asked to innovate their processes, drive digital transformation, deal with geopolitical factors such as Brexit, and societal factors such as climate change. To gain a competitive advantage in this landscape, an agile mindset is needed – your team needs to be prepared to shift strategies, and quickly, when shocks to the system occur. What’s more, the processes themselves need to be agile to adapt to those shocks.

Operational efficiency is not just about creating an efficient system for today, it’s about creating an efficient system that will deal with the change coming tomorrow. As such, an agile mindset should be the default one for CPOs.

Winning the procurement race

The pursuit of ‘marginal gains’ became a calling card of not only the GB cycling team, but subsequently for businesses, after the apparent success of its philosophy was demonstrated so clinically on the cycling track. In the end, however, it is not a new philosophy.

Japanese auto-workers would point towards ‘Kaizan’ – a philosophy of continuous improvement – that made their factory lines so much more efficient than their Western counterparts and allowed them to become the predominant manufacturers of high-tech goods in the world.

Whatever terms of philosophy you want to put to it, CPOs have moved beyond cost-cutting as their primary function and into new areas to add business value. After all, if you want to take home the gold medal, you need to go that bit further than your competitors.

This article originally appeared on SpendMatters.com.

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