The success of your organization’s procurement function is no longer about cost-savings. Procurement is now a core business function which is increasingly expected to deliver value across the entire organization. Understanding how cost and value interact in procurement to deliver maximum business benefits is crucial.
At ProcurePort, our mission is to help your business unlock your procurement potential and increase value across your whole supply chain. Efficient, streamlined processes lead to direct cost-savings, automation reduces risk and error leading to less waste and data provides insights that contribute to determining good buying practices.
Cost vs value: What are the differences?
Cost is a discrete measurement of the financial resources used to deliver a product or service.
Value is a less specific measure of the return on investment a business gets as a result of purchasing those products, materials or services. It is an equation of value = benefit – cost.
Cost, therefore, is an imperative aspect of delivering value. When cost increases, value naturally decreases – but it is possible, and essential, for businesses to understand that the reverse is also true. Value generation from the supply base can only occur with price in mind, but with focus extended to driving efficiency, collaboration, innovation, and continuous improvement.
Value delivery feeds reduction of costs naturally but can be awkward to quantify.
The concept of opening up opportunities to increase value in a broader sense can be difficult to deliver to the C-suite in terms of defining the ROI of the recruitment process. It is hard to sell the wider business benefits with a lack of convenient data, but it is logically easy to justify turning down the short-term bottom-line impact of a cost reduction in a piece of hardware in favor of sourcing of a more reliable, more energy efficient piece of kit with an increased lifespan. Value is all about the bigger picture.
Procurement’s raison d’etre has evolved from a transactional numbers game to a strategic role that is changing how we do business. Procurement is more about relationships than costs, and building great, mutually beneficial partnerships with vendors is one way to drive value through innovation.
Preferred buyer status should be the goal to unlock maximum value
Never mind your preferred supplier list, it’s whose preferred buyer list you can make it onto that counts these days. Becoming a customer of choice, or preferred buyer is fast becoming the goal of forward-thinking procurement departments who understand that you get out what you put into relationships. Preferred buyer status can be achieved through paying on time every time, transparent and open communication and though maximizing spend.
Spend management solutions can marry together the concept of rationalizing spend whilst maximizing client activity. Through achieving spend clarity, opportunities to consolidate contracts or deals with suppliers where there is inter-business or inter-department crossover can help achieve preferred buyer status, and breed innovative and collaborative buyer-supplier relationships.
This kind of forward thinking supplier relationship management can lead to opportunities for adding value that can provide a true competitive edge for your organization.
eProcurement systems can provide the framework for your procurement team to establish what best practice means to your organization, and give you the tools to add value across your entire supply chain and greater business.
A fully integrated Procure-to-Pay solution gives your business oversight and control of all areas of spend, sourcing and supplier management from RFX to inventory management, contract management and spend analytics.
Cost is not the only measurement of a successful procurement contribution. Your procurement team deserves recognition for bastions of value and enterprise in your business, and at ProcurePort, our industry-leading eProcurement tools can help you harness your procurement power. Investment in digitalizing your procurement process is the only way to unleash the value hiding in your data and potential supplier relationships.
ProcurePort’s team of industry experts can answer your questions about how we can help your business start actualizing your procurement potential. Contact us to arrange a demo.