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Procurement Maturity Model: Phase One to Four

Procurement teams are constantly faced with business obstacles such as limited budget, lack of internal engagement, demonstrating their progress, and evolving to become more strategic. Whether it’s driving cost savings or identifying a more effective solution, Procurement has to be ready to add value. But the capabilities of a procurement team are tied directly to their maturity level.

Newly established procurement teams face challenges in their processes, procedures, tools, and team composition, but that doesn’t mean they can’t still provide value.

Procurement Maturity Model Phase One

In the first phase of maturity, procurement organizations are largely tactical. They respond and react to the needs of the business. Typically, procurement teams begin to develop when businesses recognize that they need a business function dedicated to helping them acquire the tools, services, and products needed for growth and expansion. More importantly, the business has recognized that the process needs to be streamlined and efficient.

Phase one challenges

In the initial stages, individuals on the team are largely operating as separate entities. There is often a lack of cohesion and standardized processes, which often leads to challenges in the following areas:

Knowledge share: Systematic sharing of information with other business units and management is a challenge at this stage. Often, there is little or no automation or tracking of purchases. Tracking is mostly manual, which leads to sparse transparency and lack of alignment with other departments.
Goal setting and tracking: Because young organizations are largely reactive — only purchasing what is explicitly needed by the organization — there is likely no goal setting or visibility into how goals are progressing.
Team cohesion: Young procurement functions are often only staffed with a few individuals who largely operate independently. There is also limited strategy when it comes to building a team with specified roles.
Strategic practices: New procurement teams are mostly faced with non-strategic work. This often involves dealing with process inefficiencies, such as updating stakeholders on project progress, leaving little time to do other work.
Proving their value: Procurement often has to spend significant amounts of time getting executive buy-in and proving their value to internal stakeholders, making it difficult to evolve to the next level.

While these obstacles are common occurrences in the first phase of maturity, there are simple solutions that can help you elevate Procurement and take your team to the next level.

Building a roadmap for success as an immature procurement team

The best procurement teams, whether young or mature, work to develop plans for a future state. If you want to grow and develop strategies that will help to positively impact the business, here are some areas you should focus on:

Goal setting. Before you can determine if you have been successful, you need to identify what success looks like. Here are some goals you should think about:

What are your cost savings targets?
How can you communicate progress to the business?
How can you make sure you are meeting the needs of different departments?
How can you ensure supplier resilience?

How can you better manage contracts?

Set benchmarks. Before you can track progress, you have to identify a starting point. Document your current metrics in one single place so you can pinpoint and illustrate growth and progress.
Identify team roles. To move beyond phase one, you’ll want to begin focusing on the structure of your team. Define the different roles on your procurement team. This will allow you to place team members according to their strengths and ensure that you have the combined skillsets needed to grow.
Define how you will communicate with stakeholders. Alignment with stakeholders is a key element of more mature procurement teams. Ensuring consistent communication is essential to gaining executive buy in and developing strategic goals.
Provide team training and education. Newly established procurement teams often need additional education to learn how to better manage purchasing and optimize processes. Training your procurement team with best practices can help to provide team cohesion and improve processes.

Get the right tools. Find a tool that provides a single source of truth and allows for easy project management and collaboration. Is this one tool? Do you need to integrate with other tools? Identify which tools will support your processes and help you to be successful. Often, a tool that provides a single source of truth for all spend is ideal.

Moving along the maturity curve is a slow process, but the progression offers significant benefits. Focus on making these progressions and you’ll reap the benefits of a more mature procurement function.

Procurement Maturity Model Phase 2

Procurement organizations are not static entities. When organizations focus on the right goals, procurement teams can grow and adapt to offer more and more as they continue to evolve. After a newly established procurement team begins to make gains and moves beyond the tasks that are common in maturity phase one, they need to shift their focus to continue their evolution along that maturity curve.

Organizations in phase two of the maturity curve have moved beyond strictly tactical tasks and begun the process of transformation. Rather than only responding to organizational needs, these procurement teams have begun to undertake more planning and anticipation and are beginning to think beyond the limitations of phase one teams. Now, Procurement is beginning the move toward strategy. How can you ensure that Procurement continues to grow and evolve? You need to identify your challenges and develop methods to overcome them.

Phase two challenges

Once Procurement has moved beyond phase one, teams begin to realize the value of streamlined processes and more efficient workflows. We see better team cohesion and some formalization of processes. Most importantly, Procurement begins to think about how to form a strong team with collaboration capabilities.

Now that the procurement team is developing team awareness and beginning to develop a stronger role within the organization, they typically experience the following challenges:

Automated knowledge share: In phase one, organizations typically begin to realize that a systematic approach to knowledge share is needed. However, this is often accomplished via email updates and spreadsheet tracking. In phase two, procurement teams need a way to enhance visibility without manual updates.
Setting baselines: Because phase one is largely tactical, procurement teams are generally faced with developing baseline metrics so that they can more accurately analyze gains and cost savings. These organizations also struggle with proper documentation to demonstrate those gains. And documenting the process to back up these numbers.
Tracking project progress: Becoming more strategic as a procurement team involves setting goals and tracking project progress against those objectives. Developing the ability and tools needed to gain that greater insight is key to moving beyond phase two.
Demonstrating accurate cost savings: Procurement largely focuses on cost savings with purchases, but because data is usually spread throughout disparate sources, there is often unreliable and inconsistent data.
Building a sourcing pipeline: Anticipating needs means developing a sourcing pipeline. Procurement must begin this process to ensure forecasting and better contract management. The pipeline is being created in response to business needs and the necessity for contract management. The pipeline is starting to be created from not only the needs of the business but also incorporating contract end dates determining which ones should be strategically managed.

Proving their value: Despite gains in process, procurement organizations still struggle with demonstrating value beyond P&L cost savings.

Addressing these challenges can help organizations progress beyond phase two.

Building a roadmap for success in phase two

Procurement teams in phase two are becoming more strategic, but there is still work to be done. If you want to work toward contributing to the business goals in this stage, here are some areas that you should focus on.

Enhancing communication with stakeholders. Let’s face it. Email is not an efficient means of communicating your project progress. You need to identify ways to demonstrate Procurement’s progress and make your results visible to the organization. Here are some ways to do that.

Identify a single source of truth for data collection and viewing. Compile everything in one place and provide visibility to your stakeholders.
Speak the language of your stakeholders. If Finance needs cost savings, then provide data in those terms. If your executive team wants to know about CSR, identify your gains in this area. Give information to those groups in terms they understand.
Create regular touchpoints with stakeholders to ensure you are being transparent in your processes and project progress.

Determine your KPIs. Defining which metrics you want to measure is necessary to align with other business functions and ensure you are making progress.

How will you track savings?

How will you communicate how you are contributing to business goals?
What additional metrics are important to business success (such as social responsibility, innovation, or environmental impact)?

Improve your cost savings. Once you have built a robust sourcing pipeline, you’ll be able to more clearly identify where savings can be made. Whether this is through cost reduction or cost avoidance, you need access to a comprehensive sourcing pipeline.
Set standards for forecasting and documenting numbers. So much of the alignment between Procurement and other business functions has to do with how you are collecting, storing, and sharing your numbers. Set a standardized process for how you will do this and make sure it is auditable. Here are some tips.

Identify a single source of truth that everyone uses. Avoid disconnected spreadsheets or systems for tracking and documenting.

Set a method for forecasting that is utilized by the entire team so that numbers are reported accurately.
Making sure it’s auditable. Using a solution that tracks Procurement’s performance creates an audit trail and easily links to documentation, notes, and the general history of each project.

Keep moving forward through your transformation and you will soon find your procurement function is more mature and advancing toward phase three of the maturity curve.

Procurement Maturity Model Phase Three

As procurement teams continue to mature, there is a continual evolution of processes and tools. Optimizations allow procurement teams to make organizational advancements that aren’t possible for younger teams. Let’s see what those challenges are and how to make the most of Procurement in phase three.

Understanding phase three of the maturity model

Organizations in phase three of the maturity curve are now beginning to contribute to the business in ways that move beyond strictly financial value-adds. Cost can only be lowered so far without sacrificing quality and service, but Procurement can offer so much more beyond P&L cost savings. In phase three, Procurement is perfectly positioned to begin helping meet non-financial business goals.

Phase three challenges

Businesses often identify goals that go beyond the P&L sheet. These may include social responsibility, environmental impact, innovation, or much more. Now that Procurement is able to look toward other value adds, these are the challenges you might expect:

Anticipating contract expirations: In phase three, organizations have likely made many cost optimizations, but it can be difficult to anticipate contract expirations in advance to enable informed negotiations. Knowing when contracts will expire empowers procurement teams with bargaining power because you can better anticipate your needs without worrying about automatic renewals based on outdated criteria. There is also potential for consolidating contracts if there is redundant functionality across providers.
Spend analysis: It’s one thing to cut cost, but another to analyze where spend is occurring, trending information, and why. Spend analysis digs deeper into costs and allows you to determine not just where cost is reduced, but also better understand volume changes, trends, and how to augment spend with diversity and other information for better reporting.
Automation: In phase three, you are building more strategic goals and managing a more diverse sourcing pipeline. These tasks can require significant effort and it is becoming more and more difficult to keep manual track of some of the more rote tasks, such as reporting, contract management, and tracking project tasks.
Identifying non-financial baselines: Once you know that tracking non-financial contributions, it can be difficult to align those with larger business goals and set baselines. This task requires collaborating with other business units to determine which objectives matter to the business and defining how you will determine success of these goals.

Tracking Procurement’s performance: How will you demonstrate your progress when hard numbers no longer tell the complete picture of all of the value the procurement teams are creating? Showing how you are performing is a huge challenge for organizations who are in phase three.

Building a roadmap for success in phase three

Phase three of maturity offers procurement teams the chance to prove their value beyond only cost savings. This is where you start to dig in and become a more strategic player in the overall business. Here are some tips for procurement teams in phase three:

Enhance contract management to enable better negotiations. Knowing when a contract is set to expire allows you to do a couple of things.

Evaluate your current needs. Has your organization grown? Have you added new partners or clients? Have you added a new tool that makes an existing one obsolete? And how will this impact your licensing needs and what changes will you need to make to ensure all of your users are accommodated for the year to come? Anticipating an upcoming renewal will allow you to thoroughly understand your needs and negotiate based on current necessities instead of past ones.
Remove obsolete tools and redundancies. Identify which tools people are using and what value they are bringing to those teams. You may find cross-functionality with other solutions or determine that some users are utilizing different tools for the same purpose. This allows you to reduce and consolidate your tools and your spend.
Leverage your sourcing pipeline for strategic improvements. With a consolidated view of the sourcing pipeline, you can easily identify who is working on which projects and gain a comprehensive view of new and existing requests to promote greater savings. This also allows you to assign the right team members to more strategic initiatives for greater impact.
Negotiate like a pro. Beginning negotiations ahead of contract renewal means that you aren’t rushed to give in to a sale just because you are afraid of losing functionality. Informed negotiations could enable you to bargain for more licenses and added capabilities at the same cost.
Reduce your supplier risk. The pandemic certainly taught us a lesson on supply chain disruption and supplier risk. Many companies were left without supplies and little recourse to solve the problem. Reducing your supplier risk means identifying suppliers that offer a lower chance of disruption. This might involve finding a local supplier that presents less of a chance of shipping delays or diversifying your suppliers to increase your opportunities.

Decrease your carbon footprint. Sustainability is on the agenda for most companies, if not immediately then certainly in the near term. Most countries have stated a Net Zero goal for 2050 and many companies are jumping on board sooner to ensure compliance. Identify suppliers that offer environmentally sustainable options and that provide options for a reduced carbon footprint.
Diversity tracking. Understand your company goals for diversity spend and set up ways to validate suppliers, identify new qualified suppliers, and easily report on the results. Companies that have aggressive diversity goals are not only reporting on the spend with diverse suppliers, but also looking for better strategies to manage the sourcing pipeline allowing them to make more informed decisions.

As you continue down your transformation path, you’ll find these enhancements will offer many opportunities for procurement in phase four of the maturity curve.  

Procurement Maturity Model Phase Four

Finally, procurement teams arrive at phase four where they have developed strategic goals and are fine-tuning processes and procedures. In this phase, procurement really has the opportunity to make a significant impact on the goals of the business.

Understanding phase four

In phase four, organizations begin to focus more on automation and building relationships with executive leadership. Procurement begins to engage with the C-suite to determine the role they play in larger business goals. Additionally, automation develops to a point where procurement is able to efficiently manage the entire procurement lifecycle, including intake, sourcing, and contract and pipeline management. Most importantly, teams can focus on procurement performance management.

Phase four challenges

In phase three, organizations begin to identify goals that go beyond savings, such as CSR, innovation and diversity. In phase four, procurement begins to measure and track their progress toward these goals, gathering metrics to illustrate their gains to the business. Now that procurement can focus more on performance, here are the challenges they may face:

Gathering metrics for meeting non-financial goals: Now that procurement has identified which goals matter beyond cost savings, they need to be able to show if they are making progress toward those goals by providing data to leadership. Finding methods for measuring your strategic goals and reporting on them will be key in this stage.
Optimization of technology: Most organizations have procurement technology, but find it difficult to gain full user adoption. Identify which technology platforms are the most useful for your organization and develop a single source of truth for your savings and pipeline management.
Developing an accountability structure: Procurement has historically lacked functional technology when compared to other business functions. As a result, it can be difficult to appropriately allocate team responsibility. Identifying where accountability lies and how to track success is essential in this phase.
Engage in data-driven discussions: Having clean, real-time data is essential to conducting data-driven discussions and achieving your strategic goals. Access to a single source can support discussions that demonstrate progress so you can continue to optimize. With data coming from disparate places, this is a real challenge for procurement teams.

Building a roadmap for success in phase four

At this stage of maturity, procurement teams are looking at automation of processes, providing enhanced value, and becoming a true strategic player in business operations where they share a seat at the table with executive leadership. Here are some areas of focus for procurement teams in phase four:

Automate your processes. There are opportunities for optimizing and automating the procurement lifecycle. Develop processes to simplify tasks for Procurement by automating the intake process, contract management, and workflows. You’ll free up time and enable more efficient purchasing.
Build a refined team. This is the ideal time for procurement teams to take advantage of adding key players. Ideally, you’ll be able to expand your team to include professionals who can manage the sourcing planning and identify obstacles to help work toward the larger business goals.

Identify opportunities for innovation. As a stage-four procurement team, you now have the opportunity to innovate in addition to optimizing. Cutting-edge organizations are the ones that stay ahead and true growth happens with innovation. Work to identify ways to innovate in your industry as you work to replenish your supplies and technology.
Develop deeper supplier relationships. The partnerships you develop with suppliers are key to enabling ongoing, sustainable business operations. As you work to develop richer connections, you’ll find new opportunities for diversity, decreasing your carbon footprint, and innovation as your suppliers strive to meet your needs and enhance their value.

Phase four provides real opportunity for enhanced value. Using Procurement Performance Management, procurement teams can become a true strategic player.

Achieving Success After Stage Four

We’ve explored each step of a procurement team’s journey through the maturity curve and addressed each key area, all aimed at building out a robust strategy from the ground up. From understanding a need to streamline, to building a roadmap and right through to innovation and technology optimization, each phase is as important as the next. 

However, it’s important to remember that advancing, regardless of your position on the maturity curve, is never really over. It’s a journey that procurement teams will continue to undertake over time. To ensure you are continually evolving, it’s essential that you:

Actively monitor your company to ensure you are taking part in strategic goals.
Review and react to market changes.

Continually strive to find innovative and strategic partners that can help advance your business.
Always invest in your team’s training to develop new skills.

Finding ways to engage in the above tasks will ensure that you always remain at the cutting edge of Procurement.