For procurement and supply chain executives in sizeable organisations, there is an increasing number of uncertainties to manage, especially in today’s tough economic environment.
We are living in a world of severe market competition, shorter product life cycles, tougher customer demands, higher cost-reduction pressure, longer supply chains, and heavier reliance on outsourcing.
Procurement consultants like us are required to be highly creative and innovative to resolve business issues across broader management disciplines. Are there any definitive boundaries that procurement should not cross?
If you think so, you are probably too conservative. Let’s run through some insights from our (admittedly dated) original video with Jonathan Zhang and see how they hold up.
Procurement is an Integral Part of the Total Supply Chain
The boundary between supply management and demand management is getting more and more blurred these days. The time when procurement was spoon-fed with a demand forecast has long gone.
For example, today’s buyers are getting more and more proactive in contributing to the demand planning process and in reducing potential cost and loss.
It is imperative for us to raise procurement’s profile within the total supply chain and the whole organisation. This sometimes requires us to overcome cultural resistance and break down functional barriers.
There is No Perfect Procurement Model or Organisational Structure
Global operation as a result of global competition requires procurement to think globally and act globally. An efficient procurement function should be one with a cross-functional view and a cross-locational presence.
The question is: how can we use technology to process and support the structure we choose? Let’s not underestimate the cultural diversity, language barriers, and skill imbalances that may exist in any global procurement organisation.
Relationship Management is the Key to an Effective Procurement Function
Procurement should focus on long-term supply sustainability rather than just short-term cost saving.
To nurture your supply base into a fully committed and fully supportive external entity requires a lot of time and effort, and it means a great deal to the success of your own business.
Equally important, having a truly collaborative working relationship with your own R&D, sales, marketing, and operations teams will help the company focus on long-term positive outcomes.
Over the years, how have we distorted the aim of strategic alliance and cost transparency? And how much confidence do we have left to give back to our suppliers after constantly asking for cost reductions for our own short-term benefit?
Cross-functionality and Versatility are Two Characteristics of Today’s Procurement Function
Procurement is a cross-functional discipline that manages multi-faceted supply issues. For a design engineer to join a procurement project team should no longer come as a surprise.
Today, procurement’s contribution is not only measured by its direct control over the bottom-line target, but also by its input to top-line achievement.
It is Time to Revisit the Role of Key Performance Metrics
Having a dozen metrics is probably just as good as having 50 of them in a procurement context. The real value of a proper performance measurement system lies in self-realisation through benchmarking. We need to be diligent, but not fanatical, about improving KPIs across the board.
Let’s be reminded that there are many other factors — such as corporate strategy and market dynamics — that can impact procurement performance. When strategic and structural changes happen, we need to question the legitimacy of using rigid performance metrics that only work well in normal circumstances.
This will help us avoid endless debate and short-sighted corrective efforts, especially in a dynamic business environment.
Procurement Tips for Your Strategy
There are many tips that can help with your strategy, such as ensuring your procurement strategy supports overall organisational goals and conducting a spend analysis.
We have some more tips taken directly from a procurement consultant — from our discussion with a friend of Logistics Bureau, Trent Morris, which can be seen below:
A quick summary of Trent’s tips:
- Know the business strategy: understand what the business wants to do and how it wants to do it.
- Establish who has the authority to do what within the business.
- Understand the business’s objectives around capital.
- Understand the cost of capital.
- Ensure that your supplier relationships can actually deliver on those business requirements.
- Understand the principles by which you want to engage with the market:
- Are you looking for a more collaborative approach?
- Are you looking for strategic partnerships?
- Or do you simply want ready access to certain suppliers (for example, a preferred airline for travel)?
Hopefully the tips and insights provided above give you a little more understanding of how strategies are developed within logistics. As always, feel free to comment if anything is unclear!
