The stages of Procurement Maturity are generally used to assess the current state, as well as opportunities and challenges, of an organisation’s procurement functions in order to drive future developments towards increased efficiency, savings and competitiveness. But moving procurement functions from one maturity stage to the next can only be done with the right people, know-how and the right technological tools. Apart from the created value, better control and increased savings, procurement maturity and the right technology can additionally help with getting in control of an organization’s sustainability agenda, which is becoming more and more crucial.
3 Stages of Procurement Maturity
To describe the natural progression of a Supply Chain & Procurement department's maturity level, 3 stages can be outlined for the organisation to undergo. Increased maturity is both relevant and necessary as it leads to added value.
Studies show that the maturity level of procurement is directly correlated with realized savings, and as an organisation advances in maturity, so does the additional value created through e.g., operational efficiencies, risk reduction and business innovation. To advance the movement through these stages and continuously increase value created by Procurement, any organization will depend on having the right people, supported by the right technologies.
Each stage holds its own advantages, value acceleration opportunities - as well as challenges - and moving from stage 1 to 2 is often the most pivotal change journey in the lifetime of a procurement organisation. Have you ever considered what stage your organisation is in?
Stage 1 – Operational(/Tactical)
- Primarily operational ad-hoc buying of products and services, ordering and invoicing aren’t necessarily driven by Procurement.
- The company’s external cost is a black box, Procurement relies on manual processes to get access to spend data and can access only low-quality data.
Stage 2 – Strategic Procurement
- Key to unlocking stage 2 is to have spend transparency in place, to know who in the organisation is spending on what, and to have it organized according to a supplier market driven categorization. During this stage, organisations typically accelerate their digital procurement agenda to get contract management and other technologies in place.
- Procurement is mastering spend management through spend analytics, to e.g., eliminate trail spend, introducing RFx’s, procurement is running contract negotiations and with significant savings as a result. Moreover, procurement and its stakeholders start building and understanding the value of KPI objectives and key activities in a performance management process, and how this understanding drives execution to achieve strategic goals.
- With ownership of the external spend and established strategic procurement with professional sourcing processes, organisations start managing categories and suppliers rather than managing spend and start forming category strategies.
- To drive fact and data driven business cases, analytical capabilities and resources are required to increase and often automate.
Stage 3 – Business Innovation
- Having realized the full value of all categories, the now best-in-class procurement organisations and their ongoing supplier relations diverge into partnerships and strategic alliances with benefits to both parties.
- This is a catalyst for innovation at scale through suppliers, driving business innovation and truly positioning procurement as business advisors.
Why you need Technology to Advance the Progress
For some smaller Supply Chain & Procurement departments, moving from 1 to 2 is the right aspiration, whereas for large corporate organisations best-in-class stage 3 is the target (when dealing with the traditional procurement areas). But moving a procurement organisation from one maturity stage to another is far from an easy task. It not only requires the know-how and the right people, but appropriate technological tools are crucial for the transition as well.
The right technology empowers procurement to gain full control and spend transparency. With the proper tools procurement professionals can not only categorize and track their external spend a lot easier and more efficiently, but they can also manage their supply chain data, track performance over time, report to stakeholders and get actionable recommendations for maximum impact and savings.
But besides that, technology is also becoming an absolute necessity when trying to get in control of a company’s sustainability agenda and when focusing corporate climate action. With the increased requirements for carbon accounting, the necessity for a business to run a mature procurement organisation has outrun the normal pace in which you would see advancement.
How Procurement Maturity Leads to Better CO2 Emission Insights
Besides enabling organisations to optimize their external spending and drive innovation, procurement maturity also helps companies with getting in control of their carbon emissions and especially in tackling the issue of scope 3 emissions.
While sustainability is becoming a more pressing issue across the globe, companies still struggle with having complete insight into their organisation’s and supply chain’s full carbon footprint. Especially the tracking and reporting of scope 3 emissions, i.e., the emissions of your supply chain, can be a big challenge.
But, if you don’t know what you’re buying, it’s impossible to say something credible about your CO2 emissions. For the average company, external costs represent more than 50% of all expenses. This is directly linked to its scope 3 emissions which can comprise more than 80% of its total carbon emissions. And both are controlled by the procurement department.
Scope 3 emissions are an important focal point in an organisation’s green transition and emission reduction plans, as they generally make up the biggest part of their CO2 emissions. This is a huge opportunity for procurement to draw more attention to Greenhouse Gas Protocol (GHG) emissions throughout the supply chain and drive change. But carbon accounting can only be effectively done with the right technology on top of complete spend transparency. These help with the hassle of data collection, provide a solid methodology to do scope 3 emission accounting and continuously track reductions over time through permanent and “real-time” insights.
Linking external spend to supply chain emissions is an innovative approach to increase maturity and relevance in the Supply Chain & Procurement departments, which helps organisations become more sustainable and achieve their net-zero targets. As procurement functions become more mature, they increase their relevance across the entire business, deliver increased value to the organisation and ensure actionable insights supporting across e.g., operational, commercial, climate and sustainability agendas – creating bothcommercial and climate advantages.
In consequence, the right technology not only supports you in maturing your Supply Chain & Procurement departments towards increased efficiency and savings, but also enables you on your path to uncover your organization’s complete carbon footprint.