Over the past few years, I have come across several senior sourcing and procurement professionals across industries who wonder: How do I balance the demands of my end-customers with organizational priorities and goals? They are keen to ensure optimal utilization of resources while playing the role of a strategic business partner within the organization. Their apprehension may find echoes globally as procurement functions everywhere grapple with the rapidly changing business models and buyer behavior brought on by a very disruptive digital revolution. Increasingly, digitization is being viewed as the key force behind business success in the future.
Online shopping, the star of digital revolution, has democratized access to both products as well as consumers whose peer reviews matter more than advertising. This has inadvertently handed the purchasing power to the business end users who, armed with product information, have the confidence to make independent purchase decisions. As a result, end users are often dissatisfied with purchases made by procurement when compared to online websites like Amazon or eBay. The reaction of the procurement professional has been along predictable lines - the corporate purchasing plan ensures better quality guarantee, return policy, and payment term, etc.
Nearly a decade ago, I was closely working on a procurement function transformation project with a leading Hi-Tech company. There too, we had the same problem. End users would complain that the books we were purchasing using the company inbuilt punch-out catalog were priced higher and did not offer options that were available online.
However, in those days, we lacked the technology to tightly integrate with some of these market places or offer payment modes that are available today. We were left with very little option but to identify outliers within a range of ±10 percent through random audit or requestor inputs and negotiate with these vendors to meet the competitor website pricing. Not a very great approach, but it was the best we could do at that time.
However, come to think of it, are we not always trying to aggregate to get a better price point and payment terms, especially in non-mission critical purchases?
I found the answer to this conundrum in the ingenuity of a gentleman I met at a global procurement conference. As head of a procurement function with a couple of billion dollars under indirect purchases, he believed in empowering his end users. His logic was simple - if you can't beat them, join them. He was talking about online sellers, of course. He argued that this would not only take the procurement function to the next level, it would in fact streamline the process further and make it more agile.
His proposal included identifying a bouquet of products that were non-mission critical, capping the prices using internal benchmarks, and offering them to the end user for purchase at the front end. The payment should also be streamlined by leveraging virtual cards and new generation of payment gateways to further reduce the cost of transactions. However, purchase would need be aligned with company policies and procedures as well as approvals and accounting principles laid down by the organization.
As result, we get a satisfied end user who can make independent purchase decisions and yet fall within the ambit of corporate governance. That would leave professionals like you and me to chase that next big deal where we can save our organization that alluding extra million dollars.
To read more, refer to the detailed point of view on 'Adopting e-Commerce for Transformed e-Procurement'.