Updated: Oct 25, 2021
costDoes the wording that you use in the name of your department truly reflects its value? What is your department called? Sourcing? Purchasing? Buying? Procurement? While the definitions of these words could seem similar to the average onlooker, your department’s name could tell everyone about its unique function within your company and the high levels of maturity that it has earned. You can consider both the purchasing/buying and sourcing departments a subsidiary of Procurement definition.
The function of Procurement definition has changed a lot over the years, and it continues to evolve at a rapid pace on a daily basis. Most companies go with a savvy Purchasing Department. The Purchasing Department deals with ordering and the onboarding of suppliers. Some of the characteristics that you will typically see in a Purchasing Department are the following:
Price works as the main deciding factor
The Purchasing Department operates primarily as a cost center
Putting “the squeeze” on suppliers for a decreased price is a normal part of doing business
After they get three bids, buyers are told to go with the lowest one
It is the buyer’s job to care for ordering materials and deal with the issues surrounding faulty materials
When you increase the number of suppliers, this means more security
Specificiations go to the department so that the order can get completed
Internal stakeholders tend to complain about the Purchasing Department
Maverick buying is a common occurrence
As time progresses, the department evolves by adding Sourcing to the puzzle, bringing in brand new tools, targets and processes, and increasing the control over the company’s spending. Some of the characteristics that you should see in this particular phase include the following signs:
The Procurement Department puts more value in your company’s bottom line
Certain terms (SLA, Hedging, Risks, TCO, Sustainability, Supplier Collaboration, or SPM) get incorporated into the daily life of buyers
The Procurement Manager will report directly to the company’s CEO
Procurement helps with specifications
The department deals with procurement in every area, including unorthodox spending categories
A cross-functional team will perform most of the sourcing processes
Industry-specific technology and catalogs get integrated with suppliers
Two of the major deciding factors, along with sustainability, are value and TCO
Internal needs and supplier markets get assessed, multiple strategies for sourcing get developed, eligible suppliers – despite their location – get identified, and a thorough Request for Proposal (RFP) gets put into motion
A high amount of suppliers bring the loss of valuable opportunities
It is when you get to this particular stage that this division can be called a Procurement Department. Because of a high level of mastery of the sourcing and purchasing tools, even outsourcing a part here and there, the focus goes to strategy (answering the “how” and “why”). This increases the value at every level of your company.
Taking Your Procurement Definition To The Next Level
To get the Procurement definition as much respect as Marketing, Finance, or Production is a long and difficult path. Every step must be planned and followed to the letter, and the department must finish each development phase before they can go to the next level. The path is outlined in this summary:
As a function, the Procurement definition is sorely undervalued in companies. This is because people don’t realize the potential benefits of strategic procurement. The Procurement definition is more than just making purchases at the lowest price. It involves each and every process that has to do with finding, getting and keeping money that can be valuable for the business. Businesses have underinvested in procurement for years. This department experiences rampant understaffing and any remaining resources get channeled into daily minutiae. This leaves staffers without time to do their actual jobs and focus on sourcing. In some unfortunate cases, actual sourcing knowledge and expertise do not exist within the four walls of a company.
Due to the history of underinvestment, there are big opportunities to take in procurement. These opportunities have the distinct ability to make an impact on the bottom line for businesses that use strategic procurement in their arsenal.