If your startup makes or sells something physical, you obviously understand why you need people who are professionals to buy things and even run a supply chain. How about software startups? Don’t they just subscribe to tools and software online? What happens when you start to scale? What values do procurement professionals bring, be it hardware or software? Why will a startup eventually need procurement professionals?
1. Procurement professionals can review your hardware, software, and services deals
Many people think of procurement as back-office button-pushers who just process paperwork. However, many of today’s fortune 500 companies have a Chief Procurement Officer. Apple is known for valuing procurement professionals, and their CEO and COO both come straight from the supply chain.
Procurement professionals not only cover hardware purchases and the supply chain, but they can also be very specialized in procuring various kinds of software, infrastructure, and services. For anything a company needs, they have subject matter expertise, can bid out projects to different vendors, know how to properly structure a deal, and eventually negotiate the price and the best commercial terms. A good example for software companies will be outside services such as an outsourced engineering provider. Procurement professionals know how to structure a deal into a deliverable-based one as opposed to just paying for hours. Even if you are just paying for hours, they know what the labor costs are. If you spend significant dollars on any kind of hardware, software, engineering services, or even significant gear for prototyping or office use, they will figure out a way to evaluate the purchase and save.
2. The best way is to create competition
When people get busy, they tend to just go buy things. However, for significant projects, a procurement professional can help you set up a proper RFP–request for pricing. Basically, you will need to have alternative vendors and have them compete against each other. This is the only way you will have the leverage to negotiate the price and terms.
Many engineering teams tend not to adhere to this practice–who’s got time for that? But all you need is a bit of planning and understanding value from this exercise. Saving money means extending the runway. So, why not do it?
3. When you don’t ask, they won’t drop the price
Oftentimes, you can be “single-sourced”—for whatever reasons, you don’t have to, or don’t have the time to find an alternative. Subsequently, you basically just have to have professionals who can negotiate. Procurement professionals are trained to leverage various internal and external sources to negotiate. For example, competing projects and internal financial approval are always good to use to ask the supplier to drop the price. Externally, if the supplier is trying to meet a sales quota by quarter or year-end, that’s great timing to negotiate. Last but not least, people are always shocked to see that, sometimes all that it takes is to ask. Ask nicely but assertively. If you don’t ask, they for sure won’t give it to you.
4. A dollar saved is two dollars earned
Those familiar with the income statement know what’s the top line and the bottom line. While procurement won’t contribute to the top line (sometimes they may be creating partnerships or strategic alliances that contribute revenue directly, but that’s a topic for a different day), procurement can definitely contribute by reducing expenses and costs and increasing the bottom line. That’s why some argue they should be called “Chief Bottomline Officer”.
Modern procurement practice has evolved from a pure back-office function to a very strategic and even data-driven practice. Procurement teams use data and automation to evaluate the industry landscape, access vendors, create spend and savings reports and eliminate manual processes. The most advanced organizations have deployed things like Robotic Process Automation.
5. It’s not just about what you buy for what, what happens after also matters
Many think once you place the order for something that’s it, but what happens next can often be critical to your operation.
For hardware, needless to say, you need to have the right delivery, warranty, and liability terms in place. Even for software and services, people often get into fights about IP rights. For example, if you hire an engineering services provider to help you customize some software tooling they build for your specific use case, who owns the IP?
For services, clearly defined deliverables and penalties for failure to deliver can be critical. Otherwise, your supplier can either drag their feet or deliver sub-par products, and still get paid.
A lot of these terms need to be reviewed by a lawyer. Here at Trusli, we can help you get the right kind of lawyers to review these contracts. But sometimes, a procurement professional knows what commercial terms to challenge or look out for. Their subject matter expertise, combined with the lawyer’s legal knowledge, can get you to the best spot.
6. Eventually, you will need systems and data
As your company continues to grow, eventually you will need to implement various systems to cover the supply chain (if you are a hardware company), marketing and customers (a CRM will come into play), procurement, finance, HR, and payroll (collectively they are called an ERP, enterprise resource planning system), and many other smaller pieces such as inventory management and compliance. Without the right people in place to plan for these things, your company will run into chaos and everyone will be confused. The right procurement professionals know how these things tie together and can help you select good systems and hire people to put them in place. Once they are all up and running, you will have a much better handle on your organization’s efficiency, productivity, and finances. You can have data and generate insights about what to spend money on and where to save.
All of this sounds nice, but a full-time CPO sounds far-fetched? Don’t worry, here at Trusli, we have assembled a team of rockstar procurement professionals to help you. They can be deployed on a time or project basis. If you are interested, send us a note at email@example.com.
This blog was originally published on https://gloriaqiao.medium.com/why-startups-will-eventually-need-procurement-professionals-a23366ce640f.