Wednesday 10 October 2012

Procurement Value Creation Ideas

Authored by: Mickey North Rizza

Much has been written about procurement value creation. When all’s said and done it is about providing company shareholder value. Shareholder value equates to profitability and return on investment (ROI). If you analyze these two components you can capitalize on a few ideas to help your business move forward.


Do your sourcing executives work closely with your sales, product and design teams and customers? Do they understand the customer’s requirements, both now and in the future? Can they articulate to suppliers the value required to bring innovation to products, materials and business processes? Does sourcing play a significant enough role in reducing time to market for new products, finding new sources of supply globally and participating in capturing more market share with the right sources of supply? Do sourcing and the internal stakeholders collaborate with suppliers to find innovative ideas to capture more market share?

Top line value from your sourcing and procurement team is a leading best practice.


Does your procurement and sourcing team focus only on product and material costs, or do they also focus on the supplier’s variable and fixed costs, total cost of ownership, and the procurement and sourcing organization costs?

At the end of the day, costs are components of a larger picture; reducing any and all costs can quickly add more bottom line value.

Working Capital

Does your procurement team understand the company DSO (days sales outstanding), inventory and DPO (days payable outstanding) equation? Does your procurement team work towards reducing or increasing DPO based on your company’s requirements? Do your supplier’s contracts and purchase orders reflect the right terms, inventory levels, and spell out forecast and demand policies? Does your procurement team participate in Sales and Operations Planning meetings? Does your procurement team work closely with suppliers on their performance and risk management practices so both the company and suppliers are addressing the right issues?

A focus on working capital creates an opportunity for greater value across the organization.

Fixed Capital

Does your procurement team participate in a capital expenditure program? Are maintenance and service standard items contained in the contracts and purchase orders with suppliers? Are projects tracked, audited and refined as needed both internally with stakeholders and externally with suppliers?

Fixed capital is expensive so doing it right the first time is imperative.

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