The inimitable Mathew Schulz posted on LinkedIn last week about how the best procurement pros chase value instead of savings. This got me thinking about savings vs. value, and the differences between a procurement team who thinks tactically vs. one who thinks strategically. One reason I left a previous employer was that a change in leadership led to an emphasis on savings and tactical accomplishments over value and customer relationships. Let’s explore further thoughts on savings vs. value, with Mathew’s excellent thoughts as a framework.

Mathew Schulz says that value is created when procurement teams:

– Offer strategic foresight

– Create simple processes

– Build strong relationships

– Deliver exceptional service

– Become sought after partners

– Drive transformational changes

Strategic Foresight

When I think of strategic foresight, I think of the entire supply chain cycle and especially the planning pieces of that process. A procurement team builds value when they are looking at historic purchasing behavior, talking to sales/engineering about upcoming expectations, and then communicating those trends to key suppliers. A procurement team focused on savings is simply trying to get suppliers to shorten lead times (often without offering any additional incentives) so they can meet deadlines. The team focused on savings also constantly wonders why they only hear about upcoming projects when engineering drops the requisition into a purchase order queue–with suppliers already selected, of course. 

Simple Processes

There are three major places processes occur in the supply chain: within the supply chain team itself, at the internal customer level, and with suppliers. A team focused on savings is trying to use a procurement policy to reduce maverick purchasing card spend, and has very long and bloated processes full of approvals where no one actually takes accountability for the result. A team focused on value:

• Combs through their internal processes (such as cutting a PO) step-by-step and click-by-click to get rid of the waste. I can’t tell you how many times I’ve seen a PO process involve a sequence that looks like, “open this window, then type a ‘1’ into this box, then close this window.” And it’s always a “1”! Every time! Make “1” the default entry in that box and then get rid of three steps! 
• Closely evaluates the requisition and bid request process from a customer viewpoint to make that process as easy as possible. The purchasing card should be hard to use (in contrast to the PO/requisition process) for everything except travel. This drives spend control into procurement, where the procurement team can be constantly looking for value and opportunities.
• Eliminates parts of the bid process where the supplier must enter data that is non-critical or not otherwise used. This includes reentering basic information for each bid, providing 10 years of credit history when the internal audit team only needs 5, etc. Each piece of information a supplier has to track down and provide is precious and high effort, so a team seeking true value is looking to get rid of noise and unnecessary steps.

Strong Relationships

Strong relationships in procurement are everything. A strong relationship with internal customers means procurement is involved in purchases and bids early, when they can capture the most value. A strong relationship with suppliers means they offer innovative products and value-added services as a supplier partner and not just a “vendor.” A team seeking value builds the relationship first, and then focuses on value to be gained from that relationship. 

Exceptional Service

A supply chain team is ultimately a customer service team. I was once part of a team who called our stakeholders within the company “internal customers” regularly, as a reminder that we were constantly called upon to provide customer service. The team members who were most successful in satisfying customers, driving true and sustainable savings, and building value for the business were the same team members who provided excellent customer service. In contrast, a procurement team focused on savings becomes the “law enforcement” of the company, constantly telling internal stakeholders they are out of compliance with procurement policy instead of figuring out the stakeholder’s true need and seeking to provide it the best way possible.

Partners

Last week’s article was about supplier partners vs. vendors, and this certainly applies here. The first point in this article also talked about talking to sales and engineering about upcoming projects/trends and then providing that information to suppliers. All of that comes from a value-based mindset instead of one solely seeking savings. A team seeking only to provide savings is often scrambling to “rescue” a negotiation started by a non-procurement team instead of being invited in at the beginning. 

Transformational Changes

The procurement team interacts with every other department in the business. This means as any individual department (or the whole company) initiates transformational change, the procurement team is involved in that change. A savings-minded team tends to fight the change because they understand the current metrics and how to achieve them. A change means changing current skills, with retraining and new systems. A value-minded team seeks to pivot their own offerings as internal stakeholder partners to better fit with the transformed business. Value-minded teams are constantly retraining their skills to meet changing world conditions regardless of transformation initiatives. Lastly, value-minded teams are using their process-building skills already mentioned to apply to the new systems, ensuring smooth implementation (after having negotiated a strong implementation and maintenance contract!). 

Mathew concludes that offering value helps the procurement teams:

– Get a seat at the decision table

– Get recognized for their efforts

– Help the c-suite strategize

– Be well known employees

– Have more opportunity

– Get promotions

And that a value-added approach then drives savings. 

I have one last major caveat to all of this, based on my own experience: if you are the procurement team member trying to drive value in a savings-minded team with savings-minded and tactical managers, it will be very hard to succeed. I have seen multiple times when an excellent category manager says, “But look at this non-monetary value! Look at how happy my customers are with my work!” only to be told, “You need to get your savings numbers up.” If this is you, it’s time to move. If you find yourself saying this to your team members, take a moment and ask yourself what kind of leader you want to be. 

If any of this resonates with you, schedule some time on my calendar and let’s talk about value vs. savings in your organization.