In such a money-hungry, competitive business environment, it’s no wonder organizations focus the majority of their budgets, resources, and personnel on sales. Profits are everything in business, so business owners think the best way to boost their bottom line is to focus on generating revenue. Unfortunately, when so much attention is being put on the sales force, other important business processes get put on the back burner, neglected, and ignored, at a high risk.
This includes the business processes that are just as important as sales. We’re talking about procurement. It’s no longer just a purely administrative function—it’s a strategic business function that plays a crucial role in business. But often, the procurement processes of an organization are left outdated and do not reflect the current needs—if there are any formal processes at all.
Though sales and procurement are often at odds, they’re actually quite similar to each other and both equally critical to the success of your business. Yet, one seems to enjoy much larger levels of investment time and time again.
You should be placing just as large of an emphasis on your procurement process as you do your sales process. Here’s why.
Sustainable, Long-Term Contribution to Success
High sales figures are certainly great for a business, but this is not the only factor that leads to success. Other factors, such as available capital, brand value, and preparedness for change also enable a healthy profit and an effective organization. Procurement can deliver on these factors—it provides a sustainable, long-term contribution to a company’s success. When you step away from the thought that this business function is just “the department that buys things” and look at it strategically, you will see that effective procuring can actually increase sales margins, build brand value, and shape strategy.
Sure, the traditional view on procurement showed little value beyond securing good rates and fulfilling a need, but with a new strategic approach, the process can add dramatic value to your company’s bottom line.
Increasing Sales Margin
When you’re procuring goods and services effectively, you are increasing your company’s profit potential—which is, of course, sales minus costs. Though some third-party spend is unaddressable, some can be reduced, and when you do so with your vendors and suppliers, the money you save goes directly to your bottom line. And these savings can be significant considering how much of your budget goes to purchasing goods and services, even if you only reduce it by a few percent. Using category management and supplier relationship management can allow you to increase visibility into your spend and create long-lasting, loyal relationships with your vendors that may allow you to secure new dramatic price reductions.
Creating Brand Value
Though you often think of marketing as your only outlet for building your brand value, procurement also has a role in it. Your supply base is an extension of your organization. Your suppliers can provide value to your business that is then transformed to create new value that flows to your customers and clients. What your customers think of you is shaped by what your suppliers do and what they produce. By managing risks in the supply chain, you can build this value, and in turn, your brand.
When you switch from the traditional top-down approach to procuring goods and services to one that is proactive and strategic, it can help you shape your business strategy. When you align your supply chain with the wants, needs, and aspirations of your end customers, you can deliver value. Customers now care about a product’s overall value, not just its price point—and your procurement function is needed for you to give your end customers what they want.
Selling and procuring are equally vital to success. They both have a significant effect on profits. Thus, both functions should work together to generate revenues, reduce costs, and provide value.