3 Ways Procurement Can Help Grow Revenues (Part 1)Procurement
Procurement’s role and status has been on an upward trajectory for many years, accelerating during the COVID-19 crisis. CEOs increasingly understand that how they spend and manage their suppliers can support a broad range of objectives. But there is one general exception. Procurement has remained an afterthought at most organizations when the topic shifts to growing revenue.
Fortunately, that is changing. And with business priorities shifting from damage control to restoring growth as we see the light at the end of the Covid-19 tunnel, the timing could not have been better. Innovative procurement leaders are positioning the function to be a driver of growth and thereby further elevating the function’s status. A new study by Forrester Consulting sponsored by Ivalua, dives into the opportunity, challenges and strategies being employed. There are 3 areas I feel leaders should closely consider:
1. Creating New Revenue Opportunities
Let’s start with the least traditional and most ambitious area – actually creating new revenue opportunities. This is where I often hear the potential questioned – as recently as 2020 a leading industry analyst questioned me as to whether this is really possible. The reality is that very few organizations leverage their spend and suppliers in this way today, but some do and more are investigating it. 64% of leaders told Forrester that identifying new revenue opportunities has grown in priority for them in 2021.
The specific opportunities vary greatly across industry and organization. And they require a level of innovative thinking. But they are also the most exciting as they have the potential to actually turn your spend and suppliers into a source of competitive advantage. For example, a commercial real estate leader is building a marketplace to extend it’s pricing to (usually much smaller) tenants, thereby differentiating it’s properties from the competition. Or look at Sprint (now T-Mobile), who configured Ivalua Sourcing to run high volume, forward auctions to sell used handsets at optimal prices rather than the highly discounted bulk prices obtained before. The initiative generated $1B in incremental annual revenue. (Yes, that B does stand for billion)
While there isn’t a simple formula to apply here, I have seen a consistent approach behind most successes. First, procurement must engage other parts of the business to collaboratively identify & execute growth opportunities. The most meaningful examples I know all involve other functions. Their knowledge is key. It is not about procurement operating in a silo to save the day, but being a proactive and supportive business partner.
Second, select and deploy source-to-pay technology that enables rather than stifles creative ideas. Innovation does not come from deploying technology but applying it. In Forrester’s survey, the top 2 obstacles to procurement supporting top line growth noted were both technology-related. Top of the list was systems that are too rigid to support new ideas (followed by lack of S2P digitization).
Sprint originally deployed eSourcing for traditional cost savings purposes. If they selected a rigid solution they could not have later configured it to also execute high volume forward auctions.
This is the one real downside to many cloud-based solutions. In most cases that convenience and speed comes at a hidden cost – flexibility to innovate and differentiate. But not always. Be careful to select cloud-based technology that can support both standardized best practices in most areas and unique approaches in strategically important ones. Especially in a rapidly evolving area like procurement, deploying a rigid solution is an extremely shortsighted and risky decision.
Once you have brought a new revenue opportunity to fruition, promote the success. Procurement is notoriously bad at marketing itself, to its own disservice. Promote successes to educate employees on procurement’s potential and to encourage proactive engagement by other functions.
In part 2 of this blog, I’ll look at 2 additional ways in which procurement can help grow revenues. In the meantime, please read the report and/or watch the webinar replay.