In our third blog, we will be introducing the idea of aggregating procurement spend in order to strategically align to your value proposition, doing so through teamwork, insights and change management.

Preface

With spend aggregation across your vendor portfolio, the procurement office always has the opportunity to deliver increasing value-add to grow and support the business. Through this action, the SRM function can generate improved services from better vendor relationships, introduce stronger contractual agreements, all while ultimately optimizing costs.

Vendor spend aggregation is the ability to consolidate and optimize the costs generated and invested into the vendor portfolios of an organisation. This gives the procurement department the power to further develop their cost efficiencies, and grow financially stronger as a company, whilst also allowing them to gain better insight and control of the vendor relations in which are of most importance. This is key in allowing supplier relationship managers to substantially increase the capabilities of managing, reviewing and taking action upon specific vendor relations. This all adds benefits when upholding more value and increasing the finances spent across the supply chains managed on a daily basis by your team.

But sometimes, many in the procurement department can have questionable doubts surrounding the idea of spend aggregation:

• Could I lose control of my supply chain?
• Is there the possibility of lacking job creation?
• What are the benefits in the long run?
• Can it be perceived that there is a loss of margin when initiating this aggregation of spend?

You may be looking to introduce spend aggregation across a wide range of both internal (departmental groups with the organization) and external (contracted third-parties) suppliers. But this does not change the enablers which determine the value you gain from your spend-optimizing proposition.

You could also just be looking to improve your cost base and exceed your targets of value, or equally as important for your strategic alignment, trying to combine the spend between your organization and another you have recently acquired; spend aggregation can be beneficial for all industries. In addition, spend aggregation can pave the way for more efficient gains of any value propositions that may be appealing to your organization.

We have seen many cases of people struggling to enable spend aggregation and maintain value across the procurement office, but there are many solutions to tackle this problem and we have the ideology here to support you in doing so. If you are leading projects to enable spend aggregation, you need the full attention of your key stakeholders and leadership team, so what should be your action points to ensure you get their support

7. Teamwork and Expertise

Across the procurement office is the support to buy, manage and rationally enable the products and services outside of the organisation, in order to allow other departments to operate in a profitable and ethical manner, according to the Chartered Institute of Procurement and Supply. This can consist of various roles, from sourcing the raw materials and services needed for the strategic alignment of the business, to managing relationships and contractual agreements in place across the primary vendor portfolio. However, all these roles which are held within the procurement office ultimately look up to and base their actions upon the team surrounding them and the expertise at hand. That is why it is very important for the procurement office to have the right expertise and team to enable trust, and allow for those within procurement to have a greater understanding of the values and aims of the organisation. This allows for better negotiations, which are overall settled within the teams in place and with the experienced support of C-Level and team leader roles, even when the level of spend at hand is at a low.

Centralising the organisation’s decisions based on those contractual agreements you have with the vendors helping sustain continual business will also help to enable the aggregation of spend. Sharing this expertise across the organisation will only make the enablement of spend aggregation easier, improving the overall views of the SRM function and opening the communications and transparency of everyone within the organisation. This will increase the respect people have for those sourcing the products and services after decisions are made by the highest roles within the business, therefore building upon the trust procurement gain in being able to negotiate and manage these vendors. This will add to the stepping stones of increasing value, where shared expertise will matter most to increasing your chances of making spend aggregation a success.

8. Auditing and Insights

If you are losing the information from auditing and insights you gain from your vendors’ performance, as well as the performance of the supplier relationship managers, there is a big chance that you are also losing overall transparency of your spend and value obtained from your vendors. In order to avoid this, the hierarchy of the business – including the board of directors, as well as the procurement leads – have every right to request reports and informative insights showing the benefits they will gain from new or current vendors, and the performance of managing those relations from the organisation’s supplier relationship managers. This is especially important for the finance department, in order to realise the value they can obtain from having the effective procurement office, transparency and communication, and the expertise and allocated responsibility needed in order to manage those vendors in a valuable manner.

There will always be concern from the hierarchy of the organisation on if they really are obtaining full value from enabling spend aggregation, and that is why the finance department should be consistent in their requests for reports alongside the CPO for example, in order to maintain accuracy and objectivity against the business’s aims. Any shortfalls can be highlighted in these insights, and audited to analyse long-term performance, spot room for improvement, and improve upon the savings you make from managing your vendors in a centralised platform for the sake of managing your reports sufficiently also. So, it is always important to collaborate effectively with those involved in the finances and spending of the organisation, and do so with ease by keeping these insights audited without fail to continuously monitor the performance of your vendors, as well as the supplier relationship managers aiming to retain value from them and the contractual agreements in place. These insights and audit trails may not always prove promising to the strategic aims of aggregating spend, but that will only initiate the incentive for the procurement office to take action and overall prove the value that can be made through future targets to reach, in order to improve your audits.

9. A Change Management Program

The outcomes of the spend aggregation only becomes a success once you put all 8 enablers mentioned in this series into a strategic and well-thought plan, which is built around the sole focus of becoming a cost-saving, value-filled organisation. This goes back to the first point mentioned in part 1 of this series, where all of this change being proposed by the procurement office is sponsored by the highest roles within the business, pulling together the other enablers which makes his change management program a huge benefit to the system.

But, in order to support the integration of this change, it is equally important to have the HR department fully aware and involved with the procedures. This is so that they are able to communicate and establish the right policies and regulations, as well as the confirmation of purchases made to support this value-driven exercise, which helps to build upon the sustainability of your spend aggregation program. They are also there to help you continuously improve the co-operation and standardisation of the changes strategically encountered across the implementation. Therefore, without the help of your HR function, there is a much larger struggle to ensure the whole of your organisation is aware of and happy with the change being motivated by the procurement office especially, helping you to communicate the huge value that can be obtained by putting in place the right operating models.