By Justin Pennington | Procurement Leaders
I am writing this month’s blog on my last day as I exit one of the leading supply chain organisations as defined by Gartner. So the obvious question begins, as to how would I define excellence and how has this translated into that positive industry perception?
This organisation has consistently finished in their top 5 listings in the last few years, and is generally regarded for creating leading edge procurement and supply chain strategies. So given these industry credentials, I thought it would be a good opportunity to reflect on the past 5 years’ experience working inside those functions within this high-performing institution and look more closely at the idea of procurement excellence.
Know your markets, know your competitors
Constantly investing in external industry engagement and sourcing of valuable business intelligence through third parties, is a critical success lever. Global markets and consumer patterns are constantly changing, so investing in ways to solicit this type of information is a key input into opportunity identification.
There are several channels where valuable insights can be gleaned, from industry bodies, research material, paid consultancy, benchmark studies and participation in global engagement councils. This organisation has never – in parts – been afraid to invite neutral perspectives and SMEs to provide objective feedback on inefficiencies and lost opportunities.
If you desire a comprehensive value creation system, built on hypothesis generation of collectively exhaustive opportunities, then having a solid fact base on markets, suppliers and competitors is a must. Transformational strategies in a global environment cannot be attained merely looking through the prism of your own company. Nor is this about trying to replicate someone else’s business. The driver in this organisation has been to understand patterns, trends, demographics, and to leverage this as part of their continual planning process.
Going beyond price
Traditional procurement thinking has been that price is the epicentre of capturing value to the balance sheet. This company though has widened their lens at which they define procurement value. Total landed costs has been a central perspective, and there have been several initiatives to look through the cost-prism by utilising SME’s to identify target costs as opposed to target prices.
When we run operations ourselves, we tend to have a maniacal focus on cost, and manage accordingly. Yet, once we outsource we then turn our emphasis to price management. Our success indicators transform from cost targets at every step in the fulfillment process, to a single price per transaction.
Although outsourcing can generate cost savings versus insourcing, it can often be though the suppliers ability to generate greater cost scaling of assets – not necessarily because they are more cost-productive at each step. Having supply chain and procurement engineers working together to identify desired cost-points, helps facilitate much more meaningful discussions with suppliers.
Price is merely the method of payment from one company to another, so understanding what costs “should” be, and how they translate into a price (with an acceptable margin on top), can help bridge further opportunities and avoid blanket discussions on price reduction (where you are effectively asking the supplier to reduce their margin).
Constantly challenge the status quo
As market changes continues to accelerate, we all know that assuming today’s operations are optimal is not a strategy for competitiveness. Just like governments employ “policy strategists”, so procurement and supply chain can benefit by allocating dedicated resources to constantly look out to the future, and make creative recommendations.
In the past few years, I have seen a constant mantra to take the business forward by accepting that nothing is ever truly “optimised”. Because the front-end of organisations are constantly changing (customer demands & macroeconomics), there is a real need to always look for the next set of opportunities. Having dedicated people who focus are orientated towards the long-term, help navigate procurement & supply chain functions around risks and to leverage market opportunities. Success stories in these areas are nearly always supported by organisations who take this mandate seriously.
I have been very fortunate to be part of some successful transformations in my current company. Although my new horizon takes me into a different industry altogether, it is surprising how many of these success factors & tenets are portable. Having worked in an environment widely recognised as a global leader, these are just a few pillars that I can say have proved very effective. How you leverage this “intelligence”, is now down to you…