With the average media & entertainment business spending twice as much on suppliers than on its own people, we thought we would share some of our industry insights on the benefits of successfully getting your suppliers under control and offer a real life example of this happening at leading video game publisher – Activision Blizzard.
First and foremost, by simply reducing your supplier costs by 1%, you can expect a significant profit boost. Although it varies from company to company, our research has shown that on average media & entertainment companies are looking at a profit boost of 2.3%. Contrast this to the same 1% reduction in your staff costs, which will only return a 1% improvement in profit (in addition to removing IP, reducing your agility, and ultimately cutting into the operational muscle of your business).
But effective ‘management’ of your suppliers results in a lot more than just simple cost reduction. Effective supplier management will drive better alignment of your supplier costs with your operational and strategic aims. At the next level of detail, it will result in reduced risk in your value chain, deliberate access to supplier-led innovation, enhanced visibility and improved control over your cost base. Finally it will improve corporate governance and increase employee productivity.
Fundamental to all of this is the need for procurement to be able to engage with the business – starting with the executive committee and then each of the various functional heads. Why? Procurement’s true value isn’t solely its ability to deliver cost savings. Procurement, by definition, should be in the supply market day-in-day-out keeping on top of the latest trends and developments. Procurement should be best placed and most capable to provide a value-added link between business goals and demands and market supply.
However, Deloitte’s recent CPO study found that CPOs in media & entertainment businesses “feel that the procurement function has a lack of skills and resources to effectively engage with the rest of the business”. Missing such a critical step means that traditional procurement functions will remain in a vicious circle of delivering savings that their stakeholders simply do not care about (in light of other objectives).
Managing cost and business performance across your supply base requires a fundamentally different approach to conventional supply management techniques.