SPEND MANAGEMENT: OPERATING EXPENSES
What is the fundamental responsibility of procurement? We think it is to manage spend in all of its dimensions (price, utilization, choice, logistics). Our ability to manage spend in a best practice manner is the primary criteria for whether the executive team and customers view us as strategic partners. It is impossible to measure up to this high standard if we do not deploy some level of analytics. But, how do we define this? What should we be analyzing and what goals should we pursue? Spend Analysis is the first step in establishing our prowess as great spend managers. Third party software can be helpful if deployed properly. Medium to small sized colleges and universities can accomplish a lot without a technology tool. Of greater importance is to have a solid plan for using spend analytics data. We should be trying to change behavior toward choices that benefit the university community. We do not want to become a report writing group producing output where action is not taken.
Strategic spend management can be significantly advanced by developing Category Plans. Do we want multiple suppliers offering the same products or services? Do we want to move market share from one supplier to another? Do we want to outsource some portion of what we do? Do we need to receive more innovative thinking from our suppliers? These and many other questions are tackled in a category planning engagement. Developing a Category Plans mindset and execution philosophy will move your procurement team from a reactive and tactical mode to a proactive and strategic mode. The more advanced you are in this discipline the more value you will bring to the university. There is a teachable methodology and approach to Category Plans.
Ultimately, all of our strategic thinking about spend management and category planning will get executed through strategically sourced supplier contracts. Our objective in each contract is to obtain the best value possible for the university given our goals and the competing value drivers of cost, quality and service. Do we execute at a best practice level through all of the key elements of strategic procurement including opportunity assessment, business case development, cost management execution and supplier relationship management? Great contracts and superior value result when these elements are completed to the highest degree of professionalism. There is a teachable methodology and approach to Strategic Sourcing for those who want to self-perform at a high level. You might also consider ‘outsourcing’ this activity to a group who is expert at it and can get it done for you in a focused timeframe.
Strategic Relationship Management (Suppliers & Customers)
Consider how much time and effort is devoted to RFP’s, bid documents and supplier negotiations. Your team spends a considerable amount of time establishing great contracts for the university. Our experience suggests that without active contract and supplier management, much of the value created in the contract will leak away over time. Additionally, if those contracts are with strategic suppliers, then the importance of managing them is increased. Strategic Supplier Relationship Management is the process by which you manage critical supplier relationships at a best practice level. It is important to think critically about how to organize and execute this process so that our scarce resources are not wasted on routine and perfunctory tasks.
It is equally important to devote critical thinking and execution to the process of Strategic Customer Relationship Management. Ultimately, we want procurement to deliver tremendous value to the university community and to fulfill this potential we need to be viewed as essential strategic partners. It is difficult to achieve this status if we do not engage in strategic level discussions with our customer base. Data analysis will likely show that a few of your customers control a very large percentage of your department’s workload. The best avenue for making significant value and process improvement gains lies in building deeper relationships with your strategic customers.