Lessons Learned to Help Guide Modern Procurement Organizations

Procurement has undergone significant changes over the last 30 years, driven in large part by technological advancements. While technology has transformed much of what procurement does, one constant is the vital role of humans in the procurement function. We believe human touch is critical to make sense of data, drive strategic decisions and build and develop business relationships.

Over the past three decades, Arroyo Strategy has helped procurement teams across every industry transform their operations. In this article, we’ll share valuable “dos and don’ts” that we’ve learned during that time. Focusing on six core areas can help procurement organizations’ departments and their leaders avoid repeating past missteps and operate more efficiently.

Historically, procurement organizations have treated suppliers as transactional partners or even adversaries. This attitude leads organizations to guard their information, which reduces a supplier’s ability to deliver on changing needs. It also leads to a culture of narrow cost negotiations, compromised trust, and reduced collaboration.

Effective communication relies on setting clear expectations with suppliers, being proactive and transparent, and building a foundation of trust. From the outset, clearly defined expectations on performance standards, channels of communication, and exchanges of information will help minimize misunderstandings and foster collaboration.

Promote proactive and transparent communication by openly sharing forecasts and information gaps to empower suppliers to plan strategically, increasing the likelihood of success.

Internally, it’s also important to adopt an inclusive procurement strategy to strengthen relationships with corporate finance, engineering, legal, and other business functions. Procurement organizations do not operate in siloes, and a lack of coordination with business stakeholders can result in bypassing established procurement processes.

Be sure to maintain open communication, honor commitments, and ensure the information shared is reliable. This helps to preserve and build trust, which is the foundation of effective collaboration.¹

One of the biggest challenges in procurement is choosing dependable suppliers who match your standards for quality, ethics, values, and price.

Price consideration is imperative to a company’s overall profitability. Organizations can use cost analysis tools to determine important metrics, including the total cost of ownership, costs for maintenance support, and upgrades during a product’s lifecycle.

Quality is crucial for customer satisfaction, brand reputation, and revenue. Procurement teams often sacrifice quality for a “good deal,” leading to sub-par products due to late delivery or ethical compromises. When balancing price and quality, understand your supplier and their processes.

• Research their capabilities, certifications, and records of accomplishment.
• Conduct regular visits and audits to ensure they can meet your quality standards and deliver products and services on time.
• Formulate clear questionnaires during the supplier selection process to help ensure a good fit.

A rigorous focus on quality will ensure that procurement remains a valued partner to your internal stakeholders, and help you build mutually beneficial relationships in the long term.²

To excel in procurement, robust negotiation strategies are vital. Before entering a negotiation, determine your goals, including your most desired outcome, least acceptable outcome, and best alternative. These factors will enable you to make informed decisions and determine which concessions you could offer.

Create a team with designated roles and a clear understanding of the negotiation process. Consider factors such as quality, response time, logistics, and the relationship with the supplier. Work to understand the needs of both parties to help explore alternative options and find ground for compromise.

Once the negotiations begin, be sure to maintain a professional demeanor throughout. Avoid using positional bargaining when negotiating with suppliers. This means focusing only on specific points and keeping a clear perspective.

Don’t rush the process or accept unsatisfactory agreements, and don’t let emotions or a confrontational attitude affect good judgment, as this may lead to defensiveness. Avoid focusing solely on price, leading to suboptimal terms and unfavorable agreements. It’s essential to look at the agreement holistically.³

A diverse supplier is a business that is at least 51% owned and operated by an individual or group from a historically underrepresented group, such as women minorities, and LGBTQIA+. The most crucial goal of a supplier diversity program is to increase the access and visibility of diverse suppliers to your company’s spend portfolio. 

Leveraging existing certifications and certifying agencies can help purchasing organizations verify whether suppliers meet diversity standards. Organizations like the National Minority Supplier Diversity Council have resources for your supplier diversity program, including MBE Certification services for vendors and vendor lists by region and type. States and local governments also have a strong interest in encouraging a strong diverse business community, and many have enacted related programs.

Take a human-centered approach to remove barriers for minority and woman-owned business enterprises (MWBE) as your certified suppliers. You can achieve this by creating, adhering to, and routinely updating a comprehensive supplier diversity action plan that focuses on diversity metrics and the current state of your supply base.