This has been achieved because most procurement functions have a laser focus on reducing the price of what is bought by the organisation. In fact, many organisations are in a place where most areas of spending, categories, have been through a structured sourcing process where the price has been driven down to an acceptable level compared to the general market for that category.
This leads to somewhat of an existential crisis for the procurement functions, for what should their purpose be going forward, now that prices are okay? Obviously, the persistent focus on prices should continue, but maintaining existing price levels is a significantly smaller task than achieving them in the first place.
What’s beyond price?
Consequently, procurement functions must look to other aspects of optimising the external spend to justify their existence, and there is indeed a wide range of other variables to optimise other than price. At Valcon, we use those variables to categorise a procurement function’s maturity into the following overall maturity levels:
The pure price focus is grouped into a maturity level that we designate maturity level 1. At this level, price is the procurement function’s only focus. Moving over to maturity level 2, the focus expands to include total costs of buying something, including external and associate costs. However, why a given purchase has been made is still not a point of focus or optimisation. At level 3, reducing complexity and risk is included, though still with focus on the costs of complexity and risks of cost increase throughout the supply chain.
Consequently, there is a fundamental shift in approach and focus when working with optimisation of the variables at maturity level 4. Focus shifts away from the costs …
Click the link below to read the full white paper “What’s beyond price optimisation”.