Procurement value: going beyond cost and quality
People talk about ‘real value’ as if value is something you can touch rather than a subjective concept.
The more you think about the word value, the more you see it everywhere. Consumers want value for money. Agencies write valuable content for organisations containing valuable insights.
In 2018, a report from Procurement Leaders examining the priorities of Chief Procurement Officers and their teams highlighted the following:
“Procurement chiefs want to move away from only focusing on quick wins, cost-saving initiatives, and category-specific development, and instead prioritise efforts that will create long-term, sustainable value for the entire organisation…”
Obviously, we think this is a hugely positive statement, but we wanted to dig a little deeper into this idea of value – what is value, and what might it mean for modern procurement teams tasked with buying marketing services?
‘Knowing the price of everything and the value of nothing’
Procurement teams are often accused of this cynical failing, expressed so beautifully by Oscar Wilde: of focusing too hard on bringing down costs and achieving savings, and not seeing the positive but intangible benefits that come from healthy supplier relationships. So you might think that this focus on value is a new phenomenon for procurement teams, but in fact they have often been underestimated in this regard.
A study from the ANA as far back as 2010 (ANA Survey Research Report - Procurement: The Good, the Bad, and the Ugly) shows that while 84% of the procurement professionals sampled viewed marketing as an investment to be optimised rather than a cost to be minimised, only 25% of their marketing colleagues expected them to have this view.
Perceptions of how procurement views the marketing function
Valuable skills
The practice of marketing has changed beyond recognition in the last decade. With a much greater focus on technology, digital advertising and data, the skills required to evaluate suppliers and success have also changed, particularly when it comes to media buying. As management consultancy McKinsey points out in their case study of a large CPG company, procurement is extremely well placed to provide the analytical skills required to assess data-heavy KPIs, leaving marketing teams free to assess suppliers on cultural fit and capabilities.
“On the face of it, marketing needs precisely the robust, fact-based analysis and decision-making capabilities that a high-performing procurement function provides”
Despite not being in the media buying business, we would agree. Often our most productive client relationships are those that have achieved this synergy between marketing and procurement, valuing traditional measures such as ROI equally with the more intangible cultural and creative aspects of a supplier.
Valuing design-led creativity
It’s difficult to put a price on creativity, but thinking that it’s all about aesthetics is mistake. Working on global event programmes for our customers means ensuring that their designs will work for all elements of the programme. This means applying our creative skills to create modular designs that reuse elements and can be used in multiple ways, and that translates directly into value not just through cost savings but also sustainable use of resources.
Whose value is it anyway?
Traditionally, value for organisations has been measured principally in monetary terms: profit, efficiency, shareholder returns and the like. Many newer models, such as the Triple Bottom Line, also allow organisations to assess their sustainability performance. However as discussed in our last article, we are seeing increased interest from organisations in actively creating social value. Procurement has a key role to play in generating that value in any organisation through supplier assessment, selection and accreditation.
As public sector buying organisation YPO explains:
“Social value is about using the spend in any organisation to drive social and economic opportunities to those most in need, to the most vulnerable in society. It’s about protecting our planet one procurement at a time…”
Creating value through innovation
Value creation (as opposed to cost savings) is now a primary focus for most procurement teams, which means their role in discovering innovative technologies, ideas and approaches has acquired increased importance.
As a recent study from IBM found that Chief Procurement Officers (CPOs) are being asked to focus on improving enterprise success, not just procurement performance. The top-performing CPOs are interested in revenue growth, innovation, and competitive advantage; they serve as the conduit to the outside world to bring innovation into the enterprise.
And finally… finding the value in relationships
Procurement is uniquely placed to funnel innovative ideas into their organisation by building strong, collaborative relationships with suppliers. Increased levels of outsourcing means that organisations rely more on their suppliers as market experts and innovators. In many cases, suppliers have a more intimate customer relationship and a deeper understanding of market requirements.
It is this emphasis on strong supplier relationships that is at the heart of all these approaches to creating value. As organisations realise the potential of their networks of partners and suppliers to generate ideas, bring about positive change, and create impactful work, the procurement function has never been more important. It creates, facilitates, builds, strengthens and evaluates this network, and should be seen as the foundation of the human relationships that bring it to life.