February 2014 |

Shifting sands of procurement

As the global economic recovery gathers pace, more and more businesses are turning their sights from cost reduction to growth. How well an organization’s procurement team supports this shift will materially impact overall business performance.

The transition from defending cash to spurring growth is not as simple as flicking a switch. And few procurement teams, as they are currently constituted, are well enough equipped to succeed in the face of two tough challenges:

  1. Funding growth needs capital, so achieving value for money and freeing up cash remain priorities. These needs don’t disappear, but the focus shifts
  1. Large portions of every company’s operations today are performed by suppliers – as our Corporate Virtualization research shows. To grow and compete in today’s global market place, a company’s suppliers have to perform exceptionally well. New suppliers will be needed, as they are a source of innovation, flexibility and ultimately competitive advantage

Flourishing in the face of these challenges requires intelligent management of the non-core cost base. What is needed is an approach that is very different to the strategies that are employed during recessionary times.

The implications of all of this are explored by business analyst firm HfS Research (HfS), which has released a new report that guides executives on the importance of effective supplier management. The report entitled Cost-obsessed CEOs will fail if they ignore the shortcomings of their supplier management capabilities suggests that as executives shift their focus from cost to value, behaviors around supply outcomes must also shift.

But experience shows us this shift too frequently fails to happen.

Aligning suppliers with growth

Unsurprisingly, how one manages suppliers, determines how value additive (or subtractive) they are to a businesses’ profits, innovation, risk, productivity and the growth agenda.

Effective supplier management is no walk-in-the-park. A recent McKinsey article suggests that in procuring IT software and hardware alone, very different approaches to procurement are needed – approaches that are apart from traditional supply chain techniques and methodologies.  

The McKinsey article paints a good picture of what a procurement operation should be capable of doing today – such as “creating tight integration” between the business and the supply market.

However, procurement teams are still overwhelmingly being measured on their ability to squeeze suppliers on cost and deliver savings. All the other facets surrounding the stakeholder experience, value for money and supporting the business’s growth agenda, are too readily forgotten.

The HfS report sums all this up well stating that as executives (and business models) begin to shift their focus towards growth mode, successful procurement leaders will be the ones who “treat their suppliers as strategic partners and judge them on capability rather than low cost.”

Knowing how to forge collaborative relationships, align suppliers with business aims, share knowledge and insight, draw out innovations and strike win-win deals is essential for success. Access to a broad range of resources is essential as well. Any small fixed in-house procurement is going to struggle with these demands.

The HfS article offers two solutions:

  • Build the capability in-house, or
  • Use a supplier, like Proxima, as a way to tap into a ready-made, tried and tested solution.

No prizes for guessing which one I’d recommend…