5 Steps to Building a New, Value-Driving Procurement Department  

As a CFO, Controller, Procurement leader, or executive with Procurement oversight, you’ve been instrumental in rapid company growth. But that growth comes with a cost: It’s become increasingly difficult to have full visibility into what those costs are today and where they will be in the future. You’ve heard Procurement delivered significant cost savings at other organizations but aren’t sure how or where to start within your own company.

If your company recently stood up a Procurement function or plans to do so soon, below are five steps to building a value-driving team: 

1. Use Data to Inform Your Path

Nothing can be actioned until there’s visibility into all vendors and spend. Gathering this information can be expedient if a Procure-to-Pay (P2P) system (like Coupa) or data integration capabilities (like an ETL and Snowflake) already exist. Unfortunately, many companies still have data scattered in numerous spreadsheets.  

Aggregating and organizing spend data by categories enables teams to pinpoint immediate opportunities for supplier renegotiation and consolidation, while also identifying the organizational needs required to build the Procurement department (how many buyers vs. strategic sourcing personnel, how to align the team, how to connect Procurement to AP and Finance).  

The best organizations have deep connections between Finance and Procurement in which the annual budget feeds Procurement-related decisions (Plan-to-Pay). While this capability will not happen overnight, any new Procurement department should explore how to tie objectives and actions to the annual budgeting and planning activities across the company. 

2. Build and Sell Your Strategy

It’s important to immediately prove value to the organization. One of the first keys to this – even if Procurement reports to the CFO – is to step out of the accounts payable (AP) organization and position the new function as a strategic value-driver to the business.  

Then, it’s important to broadcast the goals of Procurement in line with overall company goals. For example, if the company is focused on generating cash, Procurement should identify ways to improve the company’s cost structure.   

Support from the business will be critical to the success of the new organization. Procurement leads must spend time with the business not just verbally explaining the value of the new function but proving value through hands-on experience.   

For instance, in the cost improvement-focused goal above, the Procurement department could help the business with building sourcing strategies, bringing market intelligence, developing RFx documents, and conducting sourcing events on their behalf. The Procurement organization then should have KPIs that showcase its value through data (e.g., savings generated, time saved for the business, etc.). 

Lastly, establishing governance from the start is critical. Procurement leads should work with the business to define decision rights across the Procurement lifecycle through a RACI (responsible, accountable, consulted, informed) document. Procurement’s role in sourcing, contract management, supplier management, and purchase order (PO) and invoice processing must be well-defined and understood by the organization as you move from decentralized decision-making to a more structured and controlled way of buying. 

Consider what percentage of spend should be directly influenced by Procurement. Which categories of spend (e.g., IT Services, Real Estate, Professional Services) will you lead vs. support? You’ll need coverage from executive leadership to advocate and champion these ways of working to make them stick. 

A reminder: Some business functions, such as IT and Marketing, may have built mini-Procurement teams in your absence. Strong alignment with these functions on the vision of Procurement will enable you to add value to existing structures and ultimately gain traction for new changes and objectives you plan to implement.

3. Generate Quick Wins to Stop the Bleeding and Gain Momentum

There are some relatively easy actions – many self-funding – organizations can take to generate immediate value through Procurement.  

Some are as simple as tightening policies around spend. For example:

• Putting controls around spending.
• Instituting requirements around the use of POs (No PO, No Pay) for the majority of spend areas.
• Documenting allowable exceptions.
• Leveraging Procurement catalogs for repetitive, low-dollar purchases like IT peripherals, office supplies, and general business admin. Catalogs can make buying faster and easier without disrupting normal operations.

Tightening policies can help reduce maverick buying that’s common with organizations that lack sophisticated Procurement departments. 

Sourcing is another opportunity. By examining spend data from step #1 above, RFx events can be conducted for key indirect categories (e.g. computer hardware) in which spend is higher than expected and/or desired. 

4. Review Digital Capabilities and Technology Architecture

Technology, data, and automation can be a catalyst to anyone building a new capability or department. You may be the only person in the entire company with “Procurement” in their job title. Or, there may be no dedicated Procurement function at all – just activities that ladder up to the CFO or Controller.   

In either case, you’ll need all the help you can get, and the more you can automate activities, integrate data, and simplify reporting, the more time you can spend with business stakeholders and suppliers on strategic, value-add activities. The great news is that there have been significant advancements in Procurement technology over the past 10 years that can provide built-in automation and reporting capabilities. That said, technology should be seen as an enabler to process. So, where do you begin?  

Start by examining the current technology architecture and flow of data.  

• What sits in the ERP? Think through Sourcing, Contracts, Vendor Master, Requisitions, POs, Receipts, Invoices, and Payments.  
• Are there other Procurement support tools in place, such as SharePoint as a contracts repository or Service Now as a routing tool? 
• How are contracts, POs, or invoices approved today?  
• What sits in offline spreadsheets?  
• How do you retrieve data from each system and tool?  
• How should it look in the future?  

Not sure where to start? Take a blank sheet of paper and draw an unconstrained view of a streamlined end-to-end P2P process that minimizes human touch and has the desired end-state technology architecture. How would live data reporting be automated in this desired end state?  

It may take time to achieve the technology target state, so answering these questions early is critical. The value of digitizing Procurement goes beyond efficiency benefits and can improve the experience the business and suppliers have with your Procurement department. 

5. Build a Multi-Year Roadmap

Time to put it all together. There will be so many things that you could do, but what should you do, when should you do it, and how?   

Some best practices include: 

• Build an 18-month roadmap. Anything shorter doesn’t have enough lens into the big picture, and anything longer is too long to plan for. 
• Prioritize 3-4 quick wins. These are initiatives (e.g., sourcing events for key categories) that take less than three months but generate noticeable value. They often include wins like defining decision rights throughout the process, updating policies, cleaning up vendor records, updating the approvals process, and installing a scanning tool or invoicing portal.  
• Organize initiatives by people. What roles and skills are needed in Procurement to fuel process and technology-related activities? 
• Prioritize initiatives that add the most quantifiable value. This is often cash generated, time saved, etc. Don’t boil the ocean and don’t get into initiative overload. 
• Work in agile sprints. Instead of conducting sourcing for 10 categories at once, do them in sequenced waves. 

With this framework, organizations can build a Procurement department from scratch the right way or optimize their current Procurement activities to fit the needs of the business and reporting structure. 

To get started on your Procurement transformation journey, contact Biovell .