In an era where faster product and process cycles, increased supply chain disruption risk and global competition are becoming the norm; businesses and corporate leaders should know how to make use of or benefit out of procurement services. Also known as supply management in many corporate sectors, procurement services give a firm an edge over its competitors. Global sourcing and purchasing could account for a company’s overall costs in excess of 50%. We, as procurement service providers, try to ensure that procurement becomes a strategic aspect of any business and has a major impact on the company’s bottom-line, as a result.
Procurement – A Fresh Look
Volatility in input prices and rising commodity costs are now becoming quite common. The basic materials and commodities are coming under pressure not only because of their higher demand, but also due to the increase in its alternate uses. Only a few commodities would most likely go towards the verge of real constraint or extinction. That being said, irrespective of the kind of business one is in, volatility and rising prices would soon become the norm.
These realities of the world are having its impact on businesses as well. According to a survey, several corporate executives are feeling the pinch of rising costs and which has made it difficult for them to make any strategic investment. This is becoming an alarming issue for several companies, given the fact that procurement costs account for a major portion of a company’s overall costs. The costs incurred, however, would vary across industries. Procurement usually does not form a major aspect of a firm’s organisational investment.
When the pressure relating to supply costs goes up, the chances of gaining an important untapped margin source also goes high. By adopting a more comprehensive way of handling purchases, firms can free up their funds and refocus their sources to fuel strategic priorities, without having to go through the painful process of layoffs. A comprehensive approach stands for using resources efficiently, and using a broader tool set for becoming more efficient at utilizing materials or supplies. This also means having complete company alignment and ensuring that decision rights, roles, and incentives work towards lowering the costs relating to procurement. That being said, it is not that easy to get these things done successfully. Procurement is a field that has potential for improvement and the sooner a company realizes this fact, the faster it would gain an edge over its competitors.
Finding the Flaws
We have worked with many organisations in the past, and have found that procurement firms are usually very keen on getting things right. However, such efforts quite often do not really produce the intended results. Though there are several reasons for such failures, the following are the four very common reasons why procurement improvement tasks fall short for a firm:
1. When it comes to savings, most firms are not very focused or specific about it. Most firms only set blanket targets for cost-reduction across various spending categories. Sometimes, in order to justify these targets, the firm might use high-level benchmarks. The efforts of the firm go completely wrong as they usually fail at digging out the primary cause for the expenditures. They, therefore, end up setting higher targets for some categories, and very low targets for others.
2. The complexity attached to the different categories makes it impossible for the firm to implement it successfully. The company, in such cases, would try to attack too many spending categories, changes approaches and policies, and floods the client firm with responsibilities that becomes very difficult to absorb. People tend to lose their way in the sea of fresh policy initiatives and prescriptions. As a result, behavioural change does not form its roots.
3. Most companies delegate the efforts relating to improvement to the procurement section or department alone, and not involve the finance and business teams. Quite often, the procurement department does not get a table seat in several decisions relating to the specs, volume, and mix of what has been purchased. As a result, the organizations give too much attention to things a procurement department can handle or control quite easily, like price, and leave some good amount of cash on the table.
4. The procurement efforts are not setup to achieve success in the long run. Once the initial flurry is done with, the business leaders focus their attention on other priorities; behaviour reverts, with the absence of a closed-loop procedure for sustaining the progress.
What sets us apart
Most of the top-notch global supply leaders view procurement as a means to accelerate strategies and attain cost-savings that could be a minor percentage of the overall procurement costs. Also, improvements in procurement can lead to product innovation, shorter cycle times, and increased revenue. Despite the increasing importance of procurement, there is a growing divide between the expectations of the corporate leaders and the capability of the supply management teams.
Our procurement consultancy firm has worked on several cases across the globe and in major industries, helping our clients with the reduction in their cost base, strengthening of their supplier base, and in creation of top-notch procurement firms. The approach of our firm is based on principles that we believe characterises leaders in procurement. These leaders practice supply management strategies by comprehending the role procurement can play in accelerating the strategy of the company, and then determine the requirements for speed, supplier-low cost, or flexibility. Their thinking applies across various functions, which includes finance, human resource, and other departments in the team. And finally, they see supply management as an innovation agent, drawing research and development insights from suppliers, customers, and others.
We, as procurement consultants, have helped our clients bring down their purchasing costs from anything from 5 % to 40 % whilst improving supplier performance and quality. Our company’s approach always begins with setting a baseline for spend and getting our stakeholders agreement to that spend level. We then rank opportunities based upon level of complexity to implement and savings achievable. We lend our support to clients in everything, right from negotiations with the suppliers to making organisational or process changes required for sustaining results.