The pharmaceutical industry is in constant pursuit of transparency and corporate procurement functions are certainly part of that larger equation. Among its many functions, corporate procurement identifies and pursues value opportunities regarding supplier expenditures, builds relationships throughout the organization and drives process efficiency. Since 2006, the role of procurement has also advanced to provide business owners with value-added services that streamline efficiencies, reduce costs and ultimately improve business outcomes.
In the past five years as well, procurement has matured, moved solidly into the services space and continues to take a leadership role in optimizing the overall expenditures of an organization.
Procurement professionals are typically known for strategic sourcing (supplier identification, evaluation, selection, negotiation) services on direct materials and goods-related purchases. But depending on the organization served, procurement can also include category or supplier management and operational support services (requisition, PO). In recent years, the profession and talent pool have significantly matured. Procurement teams have moved beyond looking at cost per unit and have shifted their mindsets to maximizing value or return of the service as a whole.
Modern procurement professionals are leveraging a disciplined approach to maximizing external investments by focusing their efforts on indirect services, which include categories such as:
- Advertising agencies
- Advisory firms
- Business consulting
- Market research
- Project management
- Other managed service programs
Since these business requirements are typically customized to a particular situation, the declaration of “services received” can be subjective and has the potential to highlight a misalignment of expectations and results. This lack of alignment results in decreased customer satisfaction and potentially increased project costs.
Ideally, the procurement team has a unique vantage point in an organization with the ability to leverage its accessibility to the business manager, finance, IT, operations and the external market to drive a pragmatic level of due diligence on a case-by-case basis. Procurement also has the ability to proactively assess a situation and suggest various alternatives to achieve the intended business outcome based on their understanding of process enablers, considerations, policies, historical lessons learned and forward-looking trends.
Rallying All Concerned Parties
Procurement continues to step up its leadership within the organization and takes a pivotal role in influencing the positive outcomes of business projects—but they cannot do it alone. To maximize value for an organization, it takes a unified approach of all parties involved and requires relationships based on transparency, accountability and trust. The continual challenge of procurement is to rally and align these parties on the same set of business outcomes.
In evaluating a new partnership, several key considerations play into the overall evaluation. This includes a philosophy of four elements, including:
1. Cost consciousness. This is a foundational element of any partnership. The basic principle is “spend the company’s money as if it were your own.” The focus is first on the requirements that need to be fulfilled, and then the resulting operational model to support them. This helps to balance the priorities of service, quality and timeliness with cost and efficiency.
2. The business objective. The second key enabler has to do with the business owner, which is where the real decision making authority rests and where the success of the outcome is truly defined. If the business owner thinks of procurement as a trusted advisor and truly understands the value procurement brings to the evaluation of the relationship, the outcome can be significantly enhanced.
Procurement teams are working as value advocates that are continually trying to assess business needs on a macro and micro basis. Business owners should feel free to request spend analytical information, discuss what-if scenarios and openly discuss a supplier’s performance with that team. This partnership between the business owner and procurement is critical to ensuring that the business requirements are seen as first priority, and to ensure an alignment of procurement’s priorities with that of each business.
3. Supplier influence and insights. The third key enabler rests with the supplier community. Suppliers are a great source of industry insights, innovative techniques and alternative solutions to help businesses adapt to the ever-changing needs of the end customers. The market is very competitive, time for evaluation is limited and cost optimization continues to grow in the corporate listing of priorities.
In this type of fast-paced environment, suppliers should look to procurement functions as their partner to effectively navigate internal processes versus being a perceived roadblock to the business. A level of mutual respect and partnership must exist between an organization and its current and potential supplier base in order to be successful. It is also important that those suppliers provide clear and comprehensive details on scope, deliverables, cost structure and timing. Suppliers should try to anticipate the questions of someone with a cost-conscious mindset, which will reduce the back and forth discussions and streamline the overall proposal process.
4. Procurement expertise. The final enabler of positive outcomes is the procurement team itself. It is critical to continually self-assess procurement’s own approach, processes and priorities to ensure they aligned with the final business outcomes. A candid yet collaborative level of transparency with the business and supplier community helps to respect and optimize the collective level of effort invested from all parties.
Based on the subsequent business priority and capacity to participate, procurement has the ability to support the ongoing supplier management process. Leveraging methods such as scorecards, internal benchmarking and periodic business review discussions help to address any potential gaps between the negotiated and realized value. It is easy to stay focused on only cost because it is tangible, measureable and finite. However, procurement should always look at the bigger picture and focus on the outcomes and overall business value.
Advocating For Value
Procurement’s role is to advocate for and facilitate a fair and equitable process for the business to optimize value for their particular business challenge. Critical inputs to design the appropriate process are a validated business timeline, clarity of business requirements, criticality of initiative to business operations, and knowledge of the external marketplace. With the information readily available, procurement’s target should be to adapt the diligence process to meet the timeline and requirements of the business.
By understanding and valuing the relationships among procurement, business owners and suppliers, organizations will be better equipped to increase operational excellence throughout the company. Therefore, if you are an executive leader and feel that you require more from or are underutilizing your procurement assets, or a business manager that has an opportunity to drive value, or a supplier that has a process question, proactively contact your procurement team for support. As a true business advocate, which effectively balances the art of pragmatic due diligence, procurement continues to play an increasingly significant and influential role in the positive outcomes of external investments.