Law firms are continuing to navigate and adjust to the “new normal” of the legal business environment. Firms are exploring a variety of strategies, including leveraging technology, reviewing alternative staffing structures and exploring new service delivery models, in an effort to make fundamental long-term changes. Each of these tactics not only requires a significant amount of time, but often a substantial upfront investment before the benefits can be fully realized.
In the near term, firms are looking internally for opportunities to gain a competitive edge and generate immediate benefits that will also have a long-term impact. One such area that is increasingly being explored is Procurement. However, the concept of a procurement function is one that doesn’t traditionally have high visibility within a law firm and often can be met with internal resistance. In our work with law firm clients, we have discovered that resistance to procurement changes often centers around five basic misconceptions:
1. Procurement’s focus is on ordering goods and services.
One component of Procurement is Purchasing, which primarily focuses on ordering goods and services for a firm. However, Purchasing’s value extends well beyond the ordering process and includes essential responsibilities, such as managing vendor communications, coordinating deliveries, conducting product research and supporting project timelines. By having visibility into upcoming purchases, a procurement function has the ability to leverage sourcing and contract management activities to drive savings and mitigate risk.
2. Contract Lifecycle Management isn’t worth the effort.
Every firm has experienced a situation where the lack of a formal contract management strategy has create undesirable situations, such as a contract that auto-renewed without the proper review or the discovery of an agreement that was missing critical standard terms and conditions. There are two key components to Contract Lifecycle Management – managing the active contract pipeline and facilitating the contract review process. On the pipeline front, the objective is to ensure that the right people are notified at the right time in order to make the right business decisions regarding expiring agreements. The contract review component focuses on ensuring the contracts have the most favorable clauses for the firm while facilitating the internal and external review and execution processes. Both of these components are critical processes that support all areas of a firm.
3. Procurement lacks the necessary industry/product knowledge and therefore is unable to negotiate effectively.
The procurement team may not understand the inner workings of a server or be able to determine which research database provides the best information for attorneys, but procurement does excel at developing and executing successful negotiation strategies that greatly benefit their firms. A procurement function with a good understanding of industry pricing structures, supplier negotiation strategies and industry benchmark information can be very powerful in negotiations. When leveraged properly, procurement can drive significant and sustainable cost reductions across a wide range of areas.
4. A purchasing system adds more bureaucracy.
Yes, a purchasing system does add more structure to the purchasing process; however, structure supported by automation helps drive efficiencies. Purchasing systems are known for streamlining and automating various steps in the purchasing process, from generating requests, gaining approvals, dispatching POs and receiving goods. Having this process flow through a single system allows firms to increase internal controls and ultimately avoid unfavorable or potentially risky situations. Furthermore, the reporting functionality in purchasing systems provides increased visibility into business spending patterns and provides a wealth of data for analysis and decision making.
5. Procurement is just another cost center.
Procurement is one of the few operational departments that can have a tangible and positive impact on the firm’s bottom line. An effective procurement function should be able to identify and deliver savings that significantly exceed the investment in the department. To be honest, there are very few operational areas in a law firm that can claim they are “self-funding." Another way to look at it is to consider a firm with a 33% operating margin, each $1 of savings generated by Procurement is equivalent to $3 worth of new client business. The value is tangible, measurable and recurring.
While Procurement may be known internally as a back-end support function, the benefits of Procurement are far reaching and impact both the overall business and a firm’s clients. An effective procurement function provides value to the business and clients alike through operational efficiencies, cost reductions and savings, successful negotiation tactics, the mitigation of business risk and robust data analytics for decision making. The next time that you are facing internal resistance to make changes to your procurement function, you may want to remind your business counterparts about the extensive value Procurement adds to your firm by addressing these five common misconceptions.