Procurement Performance Management (PPM) has become an increasingly effective enterprise value driver as organizations strive to improve procurement processes and drive better financial and non-financial outcomes. It provides myriad tactical and strategic benefits that can elevate procurement’s impact and visibility within organizations, help them achieve their goals, and drive top-line performance.
PPM’s benefits extend well beyond traditional procurement performance levers and metrics, such as greater savings identification and realization, cost optimization, enhanced relationships with key stakeholders, and risk reduction.
Here are five reasons why organizations should embrace Procurement Performance Management and reap its rewards.
1. Increased Operational Efficiency
Procurement can implement a cohesive PPM program to improve tactical execution, drive transparency across the source-to-pay (S2P) lifecycle and achieve greater ongoing strategic-level impact.
PPM solutions help teams make better, more collaborative decisions faster due to shared knowledge and early awareness of risks to target goals. Integrated spend, supplier, and contract information, plus stakeholder inputs provide procurement with intelligence to uncover risks and inefficiencies, as well as new opportunities to improve processes across the S2P value chain. Procurement teams can use this intelligence to implement process changes that increase efficiencies and ultimately improve the organization’s bottom line.
PPM tools also actively track progress and measure process improvements’ impact – in cost savings and efficiency gains. Procurement can then confidently update key internal stakeholders, notably Finance, which must align with Procurement.
2. Data-Driven Decision Making
Ardent Partners predicts that in 2023, Chief Procurement Officers (CPOs) and their teams will continue to pursue digital intelligence solutions, such as PPM and spend intelligence solutions, to become more data driven. They provide detailed reporting and analysis on enterprise-wide sourcing, contracting, and purchasing trends, and enable organizations to track progress towards procurement goals and make informed decisions on “what comes next.” Because you can’t fix what you can’t see.
PPM Solutions paired with spend intelligence drive visibility into enterprise spend behaviors and stakeholder performance and provide project oversight and controls. They identify opportunities to improve procurement goal setting, spend management, and impact measurement. Organizations use PPM solutions to monitor business units’ individual performance, identify areas for improvement, and make more informed decisions about sourcing, category management, and spend optimization. Business leaders can then ensure that procurement activities and projects are aligned with business goals and objectives.
3. Trusted Relationships with Finance and Key Stakeholders
Embracing PPM as a business solution and as a general approach to stakeholder collaboration can help procurement become a better collaborator and eventually a trusted partner to Finance and other key stakeholders.
PPM platforms provide stakeholders with a single source of truth for key supplier, sourcing, and procurement project status thanks to API connectors with third-party data providers. They provide a 360-degree view of suppliers, that, when paired with procurement pipeline tracking, savings and value reporting, collectively enable Procurement to update key stakeholders on data trends, supplier performance and risk, and project progress, and course correct wayward projects – a huge, broad-spectrum efficiency gain.
The transparency, efficiency, and easy communication afforded by PPM solutions not only impact trust but also foster earlier stakeholder collaboration. It’s easier for other business units to request Procurement’s help with beginning a new sourcing project; or tapping a preferred or existing supplier to fulfill a business need. Here, Procurement can positively impact demand management, since it’s being enlisted earlier in the process – rather than at the last round of negotiation when it typically gets pulled in. Procurement can help stakeholders optimize or align sourcing and procurement decisions that save the greater organization on costs and ultimately boost overall business performance.
4. More Ethical and Sustainable Business Decisions
PPM enables procurement to pursue non-financial performance initiatives and priorities, such as environmental, social, and corporate governance (ESG), that until recently flew under its radar.
By default, Procurement can drive more sustainable and socially conscious sourcing and purchasing by allocating more spend with vendors that can help the business meet ESG goals. But without the right intelligence, guidance, and oversight, companies will likely fall short.
Using a PPM framework and solutions, procurement can create sourcing projects to hit ESG goals, such as spending a percentage of a company’s budget with certified diverse, sustainable, or slavery-free suppliers. They can enrich spend intelligence with supplier information and performance data to validate that they’re sourcing from suppliers that align with the organization’s values and will help them hit their targets. Procurement can then use PPM solutions to track progress on annual, bi-annual, or quarterly performance goals, course correct, or double-down on efforts to drive ESG performance.
5. Manage Risk with Agility Amidst Inflationary Markets, Disruptions
Unpredictability and disruptions to plans and targets are today’s realities. PPM solutions help CPOs and teams to respond quickly to adjust savings forecasts/targets, re-prioritize and reallocate resources, and identify new value creation opportunities.
By providing real-time visibility into procurement activities and integrating supplier risk profiles, PPM platforms enable organizations to quickly identify and address potential risks, ensure internal and external stakeholder compliance, and minimize disruption to their value chain. In turn, PPM solutions can help companies avoid costs associated with unmitigated legal, operational, and supplier risks, such as:
- fines and penalties for legal/regulatory non-compliance;
- lost revenues and profit due to fraud;
- operational downtime due to business disruptions and unmitigated risks.
Investing in Procurement Performance Management solutions is a smart move for any organization looking for that next wave of value outside of S2P execution, to drive efficiencies, and to reduce or mitigate risks. They’re effective tools and solutions to drive procurement and enterprise-wide performance, including profitable, ethical, and sustainable outcomes, that should not be overlooked. Rather, they should be embraced as indispensable value drivers for the modern Procurement team.