Why Your Business Should Invest In Procurement

Posted 02/08/2017

So, is it worth doing anything about procurement in your organisation?  Only if you wish to secure supply in uncertain economic conditions, continue to innovate to set yourself apart, and keep focus on what you’re buying, from whom, to keep your costs right to retain high margins…

Recently The Times published its first ever special report on Future-Proofing procurement.  This is because Procurement has become a hot topic – not least of course because there is a recognition that there are uncertain times ahead – and business leaders are recognising that Procurement is a major, and still for many, untapped source of potential competitive advantage.  For any business operating in the UK, with the Brexit road so unclear, procurement people are preparing themselves for any eventuality.  And on the world stage we have the election of President Trump that surprised many, and brought with it yet more uncertainty for procurement people sourcing goods and services from all corners of the globe. But many of their internal customers – and especially those in Finance – will want some certainty, not necessarily around who or what is bought but on how much is needed to buy it – in other words - budgets.  Faced with that conundrum, most procurement professionals will opt for safe strategies, that protect the company from budget upsurges…but this ‘safe’ approach could also mean that the downsurges can no longer be enjoyed. And a system of status quo emerges.

But for many businesses this status quo environment is simply not an option, as the uncertainty doesn’t just affect the input costs, but will undoubtedly affect sales and revenue also. It is a simple equation, long since understood, that achieving increased profit is much easier obtained by reducing input costs through efficiencies and working differently with suppliers, than finding many new customers. Alan Sugar, renowned business mogul, has made no secret that he attributes business success to managing margins and once gave some advice to the Supply Management readership that procurement is the third most important element to any business. “First is the product, the second is the selling and the third is the buying.” Alan Sugar recognises that his ability to sustain success, that is to obtain and retain high margins, was about procurement – whether that was from innovating with his supply base to create new products, or new products made cheaper than anywhere else, or having preferred relationships to get to market first. He firmly believes that “you have to build supplier relationships…so that in good times and bad times you have support.” (SM, 2006) and also asserts that “the focus should be on costs”…”Have a wakeup call with yourself about what you’re spending, every day if necessary…” (Business Advice, 2017)

If you go on any business course, they might wrap it up in more highfalutin language but business success has always, since time immemorial, been about having control (or power) over your customers (i.e. they want/need to buy from you at the highest price) and control (or power) over your suppliers (they need/want to supply you at the lowest price).  But what Alan Sugar and others like him will highlight is not only how we can assert control over the supply base for our own ends to control input costs, but how the building of relationships with the supply base can create top line value to help the whole chain gain control/power over the ultimate customer.

So, wise procurement will keep your business running – in good times and bad – if you’ve got a strong supply base with strong relationships you can pull on, the supply base can help you innovate on a number of levels: to offer something first to market, to offer something cheaper than anywhere else. Put simply procurement is:

  • a major source of risk mitigation (which supports any safe strategies to manage the current economic and political uncertainties), and
  • provides a key source of innovation – whether by quality, delivery, cost or other – to help you compete stronger and harder in these uncertain times to drive more revenue

In a recent global survey undertaken by Future Purchasing Leaders in procurement are shown to be generating 173% more benefits than Followers - nearly double in fact, but what should make us all take stock is that all state so much more value is left on the table that current operating model constraints prevents them from unlocking. In fact, the same report showed that Followers could increase the benefits to their organisation fourfold (up to 400%).

Future Purchasing Category Management Leadership Report 2016-7

So, is it worth doing anything about procurement in your organisation?  Only if you wish to secure supply in uncertain economic conditions, continue to innovate to set yourself apart, and keep focus on what you’re buying, from whom, to keep your costs right to retain high margins….

If this is making you think the time is right to transform your procurement capability, get in touch with Allison Ford-Langstaff , Director of Procurement Transformation.  Or if you would be interested to hear the results from your particular sector between the Leaders and Followers.  And look out for our next blog in this series, where we will explore the No.1 procurement process driving business success.

Want to know how to build your business case for transforming procurement performance?


Tagged by topic: Category Management , Category Management Survey , Learning and Development , Procurement Transformation

  by Allison Ford-Langstaff

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