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Creating Lasting Value throughPEPortfolio Procurement Programs
Many private equity firms don’t capitalize on a significant source of operating value creation - portfolio procurement programs. There are myriad reasons for this - poor spend visibility, limited resources, a misperception that extensive cross-portfolio coordination is required, and a reluctance to dictate portfolio company operational decisions. Unfortunately, this results in significant operating value being left on the table. In our experience, a pragmatic portfolio procurement approach can lead to lasting operating value creation without significant PE resource commitment or portfolio company “arm-twisting.”
Our most successful PE clients do the following:
1) Utilize external purchasing leverage. Instead of pursuing cross-portfolio RFPs for common spend categories like office supplies, our clients utilize existing GPO contracts. This way, portfolio companies benefit from volume consolidation without cross-portfolio sourcing.
2) Strategically optimize portfolio company procurement. Effective PE leaders prioritize aggressively, identifying portfolio companies with high spend and low procurement sophistication, and pursuing procurement transformations with greatest EBITDA impact.
3) Pursue opportunistic cross-portfolio collaboration. For spend categories that are common across multiple portfolio companies but don’t have available GPO contracts, cross-portfolio procurements are effective.
4)Leverage procurement-enabling technologies effectively. Instead of viewing procurement technologies as a “cure all,” effective PE leaders understand these are tools that enable goal realization and select accordingly.
5) Share Procurement Best Practices Across Portfolio. Each portfolio company procurement organization has its strengths – encouraging CPOs to share best practices is a valuable way for sister companies to learn from each other.