How to create value in procurement?

Value creation in procurement
Updated on February 17th, 2022
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Value creation is a major competitiveness issue for companies and will be one of the top purchasing priorities for the next decade. As the external resource manager at the heart of the company's ecosystem, the procurement department is uniquely placed to make a contribution in this area. Indeed, a new approach and management of the customer-supplier relationship are likely to produce significant and long-lasting results.

To achieve this, buyers must be given a proactive role in promoting value creation, based on four best practices:

1. Put the strategy on the agenda of exchanges between the procurement department and its partners

In order to improve value creation, every procurement department must assume that it has the potential to accelerate strategic execution through the support and expertise of its first-tier partners. To access this potential, the first two best practices are to:

  • Know what the purchasing department is looking for as a priority;
  • Build a dynamic of co-innovation with your partners.

To involve suppliers who are recognised as strategic in the company's value creation and growth, it is recommended to share with them elements such as:

  • Prospects for the development and marketing of new products and services in the medium and/or long term;
  • Priorities for action aligned with corporate strategy to promote growth;
  • Issues on which your partners can make a positive contribution.

Against this backdrop, buyers are invited to take a fresh look at their key suppliers, clearly seen as stakeholders in the long-term success of the corporate strategy.

2. Only consider the customer-supplier relationship on a reciprocal basis

A supplier, whether they are a stakeholder in the company's strategy or not, remains a supplier. To contribute to value creation, buyers are not expected to abandon the fundamentals of their profession; good supplier management involves supplier evaluation!

But the value-creating buyer approaches the evaluation with an approach that changes everything: reciprocity. The evaluation is mutual:

  • I evaluate you;
  • You evaluate me.

It is this shared vision of effective collaboration that structures the trust between a company and its partners. The challenge is no longer to penalise any breaches of contract but to calmly embrace a perspective of continuous progress. Value creation is based on a challenging and long-lasting customer-supplier relationship!

3. Recognise the efforts of suppliers in line with their investment

Recognition is a well-known motivational lever in management. But it’s true in other areas as well! Just as a procurement manager motivates their team by communicating their satisfaction, a buyer encourages innovation transfers and value creation by praising the results of their best partners' efforts.

Ideally, supplier recognition follows a structured process. On a yearly basis, the company can select a given number of suppliers across all purchasing categories (head purchases, mid-tail purchases and long tail purchases). The criteria can be varied: product quality, compliance with delivery times, the competitiveness of the offer, etc.

The recognition for each winner can take various forms:

  • A "supplier of the year" trophy;
  • A gift of company products;
  • A personal message from the General Management;
  • Preferential opportunities for discussion with the procurement and marketing teams throughout the year;
  • Internal communications to highlight these partnerships to employees.

4. Be inventive and structured in the organisation of your ecosystem

No worthwhile partner will engage in value creation for a company without confidence in the strength of the customer-supplier relationship. This is why the fourth best practice should only be addressed when the first three are already in place.

To encourage collective intelligence, the procurement department must be creative in the tools it puts in place to foster the emergence of new ideas and practices.

Here are some such initiatives that contribute to a positive dynamic:

  • A dedicated suggestion box for suppliers, with a 50/50 split of the profits generated by the innovations implemented;
  • A “speed dating” event reserved for indirect procurement suppliers with a focus on specific issues (e.g. the digitalisation of the relationship and its benefits in terms of supply chain fluidity);
  • Direct procurement suppliers, on the other hand, can be brought together more regularly for several days of workshops dedicated to innovation, bringing together the company's representatives with tier 1 suppliers and even tier 2 and 3 suppliers.

In conclusion, value creation is the new mission assigned to the procurement department, which should be associated with partner management. While this strategy may not be applicable to all your suppliers, it does foster an ongoing dialogue with your key partners, not in order to discuss problems but to consider solutions to promote mutual growth. Through this approach, procurement has everything to gain, both now – in the context of economic recovery – and in the future!

Download our white paper "Lean procurement and value creation"