The 3 Stages of Procurement Maturity

Like every other function in an organization, procurement goes through a growth journey from being non-existent to playing a strategic role in the business growth. It typically starts as a cost-center, where they focus on day-to-day purchase admin roles. But, as the spend volume increases procurement function evolve constantly in terms of processes, policies, systems, and people. In this article, we will explore the different maturity levels and how procurement teams can navigate from one stage to the next.

What is a Procurement Maturity Model?

A Procurement Maturity Model is a framework used to assess the effectiveness and sophistication of your procurement processes, policies, people, and systems. It helps you to identify your current level of procurement maturity and provides with a roadmap to progress toward higher levels of performance, efficiency, and strategic value.

3 Procurement Maturity Stages

The procurement maturity model is typically divided into three stages: Transaction and Operations, Tactical, and Strategic. Each stage represents a different level of procurement sophistication and capability

Transactional

At this entry level, procurement is mainly focused on basic administrative tasks like processing purchase orders, invoices and ensuring payments. There is little strategy or dedicated procurement team, with operations driven by financial control rather than procurement efficiency. Procurement activities at this level are often reactive and transactional

Challenges

• At this stage, procurement function is typically reactive. They focus on basic tasks like purchase orders and invoice processing. There's little to no focus on long-term strategy or cost optimization.
• Many procurement tasks are manual, so there would be inefficiencies and high error rates. It results in payment delays, disputes with suppliers, lack of spend visibility, and higher degree of maverick spend.
• Procurement operates in isolation from other departments with fragmented processes and limited stakeholder collaboration.

Moving from Transactional to Tactical

• Start by automating your routine tasks such as purchase order creation, invoicing, and approval workflows. It can reduce the manual errors and improve your process efficiency.
• Hire or assign dedicated procurement buyer who can focus on tactical tasks like setting up and streamlining processes, PO consolidation, supplier management, and contracts.
• Establish clear procurement policies and procedures to standardize you purchasing processes across the organization.
• Shift from ad-hoc and transactional interactions with suppliers to a well defined agreements that optimize costs and reduce risks.

Pro Tip: Invest in procurement softwares that automates manual processes and implement a solid procurement policy and processes.

Tactical

Here, organizations begin to formalize procurement by hiring professionals, implementing strategic sourcing, and introducing basic technology to improve sourcing events and contract management. Procurement starts to capture value by managing supplier contracts and leveraging initial technology solutions to scale operations. Procurement is increasingly integrated with other business functions, such as finance and operations.

Challenges

• Although organizations start to adopt procurement systems, they are often not integrated. It leads to fragmented data, siloed process, and poor spend visibility.
• Supplier relationships are often transactional. There is limited focus on managing supplier relationships, risks, and their performance.
• Transitioning from manual processes to a more strategic procurement function can meet resistance from internal teams who are accustomed to traditional methods.

Moving from tactical to strategic

• Implement advanced tools such as e-sourcing, spend analytics, and supplier performance management. These tools will allow you to work with better suppliers, and track spend data and supplier performance in real-time.
• Shift from tactical supplier relationships to strategic where you can start having proactive communication with suppliers, measure their performance, and address critical issues head-on. Introduce basic tools for contract management and supplier relationship management.

Pro Tip: Build strong supplier relationship and leverage data analytics for more strategic purchasing decisions.

Strategic

At this stage, procurement function becomes a strategic partner in delivering value and impacting the bottom line. Procurement's focus shifts from cost savings to maximizing value from each dollar spent and reducing total cost of ownership. As they get strategic, procurement adapts category management, giving attention to critical areas of spending. In addition, they leverage advanced sourcing methods and technologies to handle source at scale for multiple product and service categories.

Procurement teams work closely with stakeholders to identify value-creation opportunities through product and supplier innovations. procurement organizations adapt more sophisticated platforms to integrate all spend management processes. It helps them to leverage their spend data to optimize their spend, forecasting, and make data-driven purchasing decisions.

Challenges

• Category management requires buyers to be expertise in specific product/service categories and it can be challenging when you have a team of generalist.
• To deliver value procurement teams must continually innovate to keep pace with evolving market trends, technology, and shifting business priorities.
• Supplier innovation requires building strategic partnerships with suppliers, but it can be a uphill task if your organization has traditionally operated on cost reduction model.
• Moving to a data-driven procurement can be challenging for organization who are having siloed systems and processes in place.

How to sustain and continue to innovate

• Adapt advanced spend analytics platforms to make smart spending and budgeting decisions.
• Identify critical spend categories to assign dedicated category managers. They will focus on cost optimization, build strategic supplier relationships, and driving value from their purchases.
• Do regular spend analysis to identify cost-saving opportunities and optimize your supplier base.
• Work closely with strategic suppliers to drive innovation and co-create solutions. It involves collaborative product development, adapting sustainability, and joint risk management strategies.
• Review your procurement processes and systems in regular intervals to stay ahead of your competition.
• Have a strong feedback system to capture and implement critical feedback from both internal stakeholders and suppliers.

Take your procurement maturity to next level

In conclusion, the procurement maturity model provides a clear roadmap for organizations looking to enhance their procurement functions from being task-focused to becoming a strategic driver of innovation and value. Each stage has its unique challenges and moving through these stages requires investment in technology, up-skilling people, and integrating procurement with other business functions. As you progress through the maturity curve, your procurement function evolves from a cost-centric operation to a value creator.