Turning Ad-Hoc buying to Managed, Optimized, and Innovative Sourcing
Every business purchases goods and services to operate, and each purchase a business makes provides an opportunity to add value. As an organization grows and matures, the race to increase value through balancing the organization’s people, processes and technologies require skillful navigation.
This blog details a Procurement maturity model to help the organization understand where they stand today and when to plan for moving to higher stages towards best-in-class to spend smarter by tapping into the power of advanced sourcing negotiation to drive business innovation.
Procurement Maturity Model by Stage
Stage 1 – Tactical and Operational
In Stage 1, organizations are buying goods and services, but there is no strategy in place behind these purchases, and work performed is purely tactical and operational.
Purchases are made by employees who source their own solutions. The finance team manages budgets that are tasked to process invoices and pay suppliers—and not ask questions around pricing, service levels, demand management, or quality.
With no formal Procurement team members or processes in place, at this stage the organization does not have any sourcing, Contract Lifecycle Management (CLM), or P2P (Procure-to-Pay) technology in place and relies on the ERP for very limited spend analytics, mostly driven by GL expense accounts.
Stage 2 – Sourcing Mastery
In Stage 2, organizations begin to capture value from the purchase of goods and services. They start hiring procurement professionals to support purchases, manage contracts, and oversee contract negotiations. Organizations begin to think about business spend as an opportunity to create value.
Finance and procurement teams reach out to help stakeholders run a handful of formal sourcing events—building Sourcing Mastery. These events quickly generate value for the business and build support for adding technology to increase the number of events held per quarter and the value delivered.
At this stage of maturity, it quickly becomes clear that technology is needed to scale the wins from early sourcing events and to manage multiple sourcing events per quarter. To streamline processes across P2P, organizations at this stage look to add Business Spend Management (BSM) technology and Contract Management solutions to streamline processes across sourcing, procurement, contract management, invoicing, and payments.
Stage 3 – Category Strategy
In Stage 3, with more advanced resources and capabilities for procurement and sourcing processes, organizations can add additional value by focusing on Category Strategy. The value that category managers provide at this stage can be limited by the technology available to support scaling.
Lack of or limited technology can impede not only the number of events run but also the scenarios that can be modeled to achieve the best results for the business, as well as the analytical capabilities to provide multiple award scenarios to the business based on facts and data.
Strategic sourcing technology should be considered at this stage to help category managers quickly increase the value of the organization and provide transparency and optionality when it comes to award scenarios, using various constraints. At this stage, procurement is equipped with advanced sourcing capabilities, allowing for multi-factor award scenarios, expressive bidding by using RFP management solutions, and business constraints.
Stage 4 – Business Innovation
In Stage 4, organizations have captured the maximum amount of value from each category.
Procurement and Sourcing leaders are working closely as partners within the organization, helping stakeholders not only get the most value out of their purchases and ongoing supplier relationships but also identify opportunities to drive business innovation in partnership with suppliers.
Best-in-class organizations have all of their spending flowing through one BSM platform with Invoice Management solutions that manage all spend and spend processes—including sourcing, procurement, invoicing, contracts, risk management, payments, and expenses—in one place. It also taps into the power of “community intelligence” data, enabling organizations to spend smarter, benchmark performance, access supplier insights, and optimize all aspects of spend.
Advancing in the Procurement Maturity Model
Success in developing any organization is achieved by refining three key elements by the procurement team: People, Processes, Technology.
Moving to the higher stages of the Maturity Model lets the organization manage spend effectively and optimize the way that the company purchases goods and services, delivering results straight to the bottom line. While some organizations are ready to move to higher levels of maturity, moving from Stage 1 to Stage 2 may be the right objective for a smaller organization with limited spend. A company gains significant value over time by moving the organization toward best-in-class (Stage 4).