A professional procurement organization - an indispensable link for growth

After a few months of vacation and time for reflection, I am now, with the new year just around the corner, looking for a great new challenge at a Dutch-based company. During this past period, I have read and listened to the insights and experiences of people in my network and work environment. These conversations and insights have inspired me to dedicate a series of articles to setting up a professional procurement organization, and why I think this is essential, especially for small and medium-sized enterprises (SMEs) in the Netherlands

Why a professional procurement function for SMEs?

At the core of every growing company; and certainly in the SME sector, which keeps the Dutch economy alive; lies the need to operate strategically and efficiently. With the rapid growth of many SMEs, whether organically or through acquisitions, the procurement process often remains a missed opportunity for profitability and growth. Many companies lack a central, professional procurement function that focuses on cost control, contract management, risk management and creating valuable economies of scale. This results in inefficiencies, missed savings, and increased risks.

In addition, the regulatory burden on sustainability and social responsibility is increasing. Larger companies must be transparent about their sustainability performance under the Corporate Sustainability Reporting Directive (CSRD), but SMEs will also notice that their customers and suppliers are increasingly demanding sustainable and responsible purchasing.

The benefits of a professional procurement organization A well-structured and professional procurement organization can make an important contribution to the growth and continuity of an SME. The benefits range from cost savings and risk management to strategic growth and sustainability.

1. Cost savings: By bundling procurement volumes and maintaining strategic supplier relationships, companies can achieve significant savings. A centralized procurement function makes it possible to leverage economies of scale and negotiate stronger contract terms, thereby effectively controlling costs.
2. Reducing risks: A professional procurement team plays a crucial role in minimizing risks. By systematically selecting suppliers and managing contracts, a procurement department ensures compliance with contract terms and guarantees compliance. This reduces the risk of delivery problems, quality issues or financial instability at suppliers and contributes to a robust supply chain.
3. Strategic procurement and innovation: With a professional procurement function, supplier management becomes a strategic activity. It enables companies to respond more flexibly to market changes and stimulate innovation together with suppliers, which directly contributes to competitiveness.
4. Efficiency and quality control: A professional procurement function ensures more efficient processes and strict quality control. Through well-defined procurement processes and clear contractual agreements, companies can execute projects more effectively and better meet quality and delivery time requirements. This leads to consistent performance, fewer delays and increased customer satisfaction.
5. Supporting sustainability requirements: A centralized procurement department can help companies meet the increasingly stringent requirements in the field of sustainability and social responsibility, which in turn makes them attractive to customers and partners.
6. Revenue growth through improved competitive position: A well-organized procurement function strengthens the competitive position by acquiring better conditions, cost reductions and strategic partnerships that support innovation and market position. This gives companies a clear competitive advantage and increases their attractiveness to customers, which contributes to revenue growth and market share.

The need for professional procurement: In my years of experience in professionalizing procurement at large, international companies, I have seen how a well-organized procurement function not only reduces costs, but also adds value; the same principles apply to SMEs. The economies of scale and strategic advantages that international companies achieve are largely applicable to smaller companies, but the benefits are sometimes even more evident through the direct impact on profits and risk reduction.

This first article is the introduction to a series in which I discuss practical steps to set up and organize a procurement purchasing function, so that companies can not only work more efficiently, but also gain competitive advantages and be future-proof.

What it delivers - savings potential: When professionalizing a procurement function, a cost saving of 15-20% is an achievable goal, especially for companies where procurement processes are still unstructured and little bundling takes place. By efficiently managing procurement processes and strategic supplier relationships, both direct and indirect savings can be achieved:

• Direct savings: Measurable cost reductions on expenditure on goods and services, such as improved contract terms, discounts, and the use of bulk procurement.
• Indirect savings: Efficiency improvements through standardized procedures, reduction of quality issues, and lower operational costs.

these savings are not only realized for 1 year, but also structurally guaranteed, so that the company continues to benefit financially in the long term.

Where savings can be realized: The savings can be realized in various ways, such as:

1. Economies of scale through bundling of procurement volumes: By bundling purchases centrally, more favorable conditions can be obtained.
2. More efficient supplier selection and negotiation: conclude contracts at lower rates.
3. Tail spend and waste reduction: Consolidation and cost control reduce inefficiencies in small, uncontrolled expenses.
4. Contract optimization and management: Central contract management enables strategic renegotiations to occur regularly, resulting in additional savings in the long term.
5. Risk management and costs of quality issues: A structured approach minimizes the risks of delivery problems and quality issues, which indirectly saves on recovery costs and ensures continuity.

The Challenges: Companies often face specific challenges, such as fragmented procurement processes, ad-hoc cost management, and a lack of strategic procurement vision. The lack of a central procurement function leads to inconsistent terms, unclear expenses, and little control over supplier performance.

What’s Next? A Preview of the Series

After this introduction article, I want to dive into a series of topics that form the basis for a successful procurement transformation. The following articles will go step by step through the most important elements of a professional procurement organization:

1. procurement analysis and identifying Quick Wins: I will explain how to start performing an analysis, which provides a clear picture of the current state of affairs and opportunities for immediate cost savings (‘quick wins’). This article shows you how to take the first concrete steps towards smarter procurement.
2. A strategic procurement vision for the future: A strong procurement strategy aligns with the company goals and focuses on essential themes such as cost control, sustainability and risk management. With this article I try to show how a strategic vision strengthens the value of procurement for the entire organization.
3. Structure and roles: the basis of a strong procurement function: Such department rests on a solid structure and clear role divisions. I will explain how specialist and strategic roles can contribute to efficiency and clarity within the procurement department.
4. Supplier management as the key to success: Strategic supplier management ensures continuity in supply and offers quality guarantees. This article highlights how structured supplier management increases reliability and reduces costs. Efficient processes and contract management for long-term benefits standard processes and good contract management contribute to sustainable savings. Here I share practical tips to streamline processes and reduce risks, leading to consistency and long-term cost benefits.
5. The role of technology (including AI) in a modern procurement function: Technology offers unprecedented opportunities to strengthen the procurement function. This article discusses how digital tools such as sourcing and contract management software can contribute to more efficient processes and better decision-making.
6. Monitoring and optimization: continuous improvement By using KPIs and a feedback system, procurement performance can be closely monitored and improved. This article will hopefully inspire you to continue to optimize procurement as a strategic activity.
7. Calculating cost savings - what are the financial benefits of a professional procurement function? I will try to give some realistic examples, including a calculation model of potential savings through economies of scale, consolidation and process optimization.
8. A sustainable future: The role of procurement in Corporate Social Responsibility (CSR) and sustainability Finally, I discuss how procurement can make a positive contribution to sustainability and corporate social responsibility, which is increasingly requested by customers and partners. This article helps SMEs to focus their long-term procurement strategy on sustainability and compliance.

** Apologies if there are any mistakes in this English translation. The plan I've been writing for the past few weeks is originally in Dutch ;-)