Use the Procurement Pyramid to Unlock More Opportunities
Are you familiar with psychologist Abraham Maslow’s hierarchy of needs? In Maslow’s model, health and safety make up the necessary building blocks at the bottom of the pyramid. By fulfilling those basic needs, you build the stable foundation required to meet “higher” needs, as you move up the pyramid.
This model is the foundation for a strategy we call the “business hierarchy of procurement needs.”
Like Maslow’s model, in a company with focused leadership, a procurement department that does a phenomenal job at managing basic transactions is likely to be asked to help at the higher tiers of procurement, such as with sourcing, supplier management, and maybe overall company strategy. And it’s at these upper levels where there are opportunities for procurement to save the business significant time and money, through strengthening relationships and streamlining supply chains.
By skillfully handling responsibilities at the foot of the pyramid, you can unlock opportunities for procurement to lend a hand at higher levels. And that positive impact will filter back down to each lower-level business deal. Here’s how:
Prove Value from the Bottom Up
The “procurement organization maturity curve” was developed by modern procurement pioneer Gene Richter. This maturity curve shows what steps procurement needs to take to become most useful to the business — from negotiating contracts, to controlling and utilizing key supply sources, all the way to getting actively involved in the company’s design process.
Like Richter’s curve, this pyramid shows that procurement can only achieve the higher levels by proving value at the lower levels of basic transaction management.
Create More Opportunities
For many small and mid-sized companies, the chief function of procurement is to handle basic transaction needs. Becoming proficient at handling these small, day-to-day dealings will increase procurement’s value and trust with business leadership, creating opportunities for additional high-level procurement tasks — like sourcing, category expertise and supplier management. And when these functions are handled well, they create even more valuable opportunities within the organization at the highest levels of strategic planning and design. As leadership recognizes this, it will begin to look to procurement for those higher value tasks.
Drive Savings from the Top
The greatest opportunity for creating value is at the top of the pyramid. Perhaps a procurement expert is able to save 5%, possibly 10%, at the individual transaction level. But by working with designers and suppliers from the start of a new initiative, it’s possible to develop products and engineer supply chains in integrated ways that drive even greater efficiency and cost savings.
When procurement is involved at the strategic level, new products can be developed using the most cost-effective materials and processes from the beginning. Company-wide initiatives can utilize strong vendor relationships that both lower costs and accelerate acquisition at all levels of the organization.
Build Trust to Earn a Seat at the Table
The only way to reach the top of the pyramid is by building trust and a solid track record at the lower levels, like transaction management and negotiations. Procurement organizations who handle these basics well, building loyalty and trust in their department, will create more valuable opportunities higher up the pyramid. These in turn, will generate savings and drive value all the way back down throughout the most basic transactions.
Once procurement finally builds enough trust to be included in discussions about business objectives, they’re in a strong position not only to save on costs but also to help everyone do their jobs more easily and efficiently. Only when procurement is able to deliver on the basics that keep the business moving forward, then will we be invited to participate sooner and higher up the pyramid.