Stefan Dent, Chief Alliances Officer, and Co-Founder at Simfoni, led a discussion at the Private Equity International (PEI) Operating Partners Forum, recently held in San Francisco. The session titled “Driving Maximum Value Creation through Composable Digital Procurement” explored the evolving role of procurement in private equity and how it can support company valuation.
The presentation underlined how procurement is an important value driver for Private Equity by delivering rapid savings, boosting financial performance, and digitizing local purchasing processes which ultimately improves valuations.
Private Equity PortCos benefit from access to a wide range of products and services from preferred suppliers at discounted rates—from IT (Information Technology) equipment and consumables to software and professional services. Spend Analytics are used extensively across PortCos to identify synergies, with each PortCo able to review spend and self-manage performance, with internal procurement teams providing advice and access to supply deals spend management tools to digitize purchase to pay processes. Newly acquired companies are enrolled into the spend management program, with Analytics used to identify immediate opportunities to optimize costs.
There are some Private Equity firms leading the charge in delivering value through centrally led procurement initiatives and use of technology. However, most PE firms have yet to fully realize the value of procurement.
Procurement has been neglected in PE, with PortCos “getting by” with limited procurement capability and narrow spend leverage, lacking the tools used by larger peers, putting PortCos at a distinct disadvantage. Discussion with the audience emphasized this point, with only one other identifiable PE firm having a centralized procurement capability to support PortCos.
“It’s clear that procurement is a source of value, so why aren’t more PE firms embracing tools and technology to drive savings?” asked Stefan.
He outlined three barriers that PE firms and PortCos need to overcome to derive value from procurement:
- Cost: procurement solutions have high upfront license fees and integration costs, which has historically prevented firms from embracing technology.
- Time to Value: traditional eProcurement systems can take months, or even years to implement, but the issue is that PE firms want a fast return which becomes a sticking-point.
- User Experience: this is fundamental – if the spend management solution is not easy to use then the user goes elsewhere. The user will always take the path of least resistance to get what they need!
The dialogue shifted to providing practical recommendations about where PE firms should start when approaching a strategy to generate value from procurement. Three main points emerged:
- Cost barriers are being removed, which is great news with a raft of modern technology providers offering on-demand access to analytics and spend management solutions with fees linked to consumption and savings – removing upfront costs which means that businesses of any size can access the technology used by larger enterprise organizations. The advice is clear – don’t suffer bad procurement! There really is no excuse not to digitize spend and drive savings as the solutions are available and attainable.
- Start with spend analytics, which is quick to implement and identifies savings opportunities, which allows you to deliver rapid results, which funds the wider spend automation to sustain the value from procurement.
- Don’t overcomplicate things, ensure that solutions offer users access to the goods and services they need with an ‘Amazon’ like B2C experience. The new breed of spend management applications offer cost effective solutions that are perfect for mid-size PortCo businesses, delivering online content with users able to ‘click to buy’, which drives adoption and compliance to preferred suppliers, generating bottom-line savings.
Lastly, it’s important for someone at the PE firm to ‘own procurement’. If you don’t have a central procurement capability, then this should be championed by the CFO or COO as the accountable owner. Modern spend management solutions are both accessible and affordable, so there really is no excuse to overlook procurement—rather, firms need to embrace procurement as a source of value.
Simfoni would like to thank Private Equity International and the audience for a lively and informative discussion around the evolving role of procurement in private equity.
Speak with a procurement expert to learn more about Simfoni’s spend management solution for private equity.