Strategic vs. Transactional Procurement

Having led numerous deployment projects as an ERP consultant, I work with organizations to optimize the use of their software and make their business processes more efficient. I’m constantly shocked by the lack of importance placed upon the procurement function within many of these organizations. In my multitude of discussions with purchasing department employees, I find a majority to be very comfortable with, and dare I say, dependent upon, tedious buying transactions. I would expect most to welcome the reduction in time spent on transactions and the opportunity to pursue more ‘value added’ activities, while reducing costs. Regarding procurement, that would entail spending more time in the strategic aspects of the profession.

Strategic and transactional procurement activities differ in that transactional procurement consists of routine actions such as material requirements planning, invoices and documentation. While these are important, they are minimal in comparison to the value that strategic procurement adds to a business’s processes. Strategic procurement focuses more on the analytical aspect of a business operation, which in the long run, adds more value. It’s essential for a business to analyze the material requirements, sources that were selected, the relations with vendors and the expenses.

As the globalization of supply has continued to increase, market competition has become more intense, and as quality is prerequisite, it is much more difficult to carve out a niche in the market. Without the differentiators of uniqueness or exceptional quality, many products have become commodities, which places tremendous pressure to reduce the selling price. One of the most important methods to achieve this is through reduction of cost of direct materials, MRO goods and contracted services.

Many buyers are mired in lengthy transactions due to improper training in strategic procurement. As a result, they are afraid that time reduction may expose them as expendable employees, but that’s not the case. After all, the main goal for every organization should be to maximize the strategic use of resources and minimize the transactional use.

By integrating both processes, you make your organization run more efficiently, reduce waste and minimize confusion while providing better source evaluation and improved vendor relations. It’s time for every organization to realize the importance of this function and create the expectation that it strives to reduce cost through strategic activities such as TCO analysis, supplier audits and development, value analysis/value engineering, e-RFQ and reverse auctions, negotiation, supplier EDI, etc. Today, many modern ERP systems make those strategic activities easier by offering integrated modules to perform those activities, store data, and perform the necessary analytics to achieve these organizational objectives.

For more information about Revolution Group’s ERP practice, give us a call at 614-212-1111.