THE PRICE IS RIGHT – SO NOW WHAT? The key question asked of most chief procurement officers is something along the lines of “Do we have good prices on our bought goods and services?” And for most major Scandinavian organisations, the answer to that question is yes or at least close to yes. This has been achieved because most procurement functions have a laser focus on reducing the price of what is bought by the organisation. In fact, many organisations are in a place where most areas of spending, categories, have been through a structured sourcing process where the price has been driven down to an acceptable level compared to the general market for that category. This leads to somewhat of an existential crisis for the procurement functions, for what should their purpose be going forward, now that prices are okay? Obviously, the persistent focus on prices should continue, but maintaining existing price levels is a significantly smaller task than achieving them in the first place. WHAT’S BEYOND PRICE? Consequently, procurement functions must look to other aspects of optimising the external spend to justify their existence, and there is indeed a wide range of other variables to optimise other than price. At Valcon, we use those variables to categorise a procurement function’s maturity into the following overall maturity levels: LEVEL 1 Price attack and price down • Focus on unit price • Product focus LEVEL 2 Cost down and cost out • Focus on total cost of ownership (TCO) • Focus on life cycle cost • Focus on value chain internally (inbound) • Focus on value chain cost externally (tier 1 supplier, tier 2 …) • Category focus • Competitive focus LEVEL 3 Complexity down and risk down • Standardisation of products and assortment • Challenge specifications • Manage risk • From category focus to supplier focus • From competitive focus to collaborative focus LEVEL 4 Value and revenue up, new business • Supplier focus • Collaborative focus 3
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