I started my journey in procurement and finance 20 years ago, and over that time I’ve seen a lot of change.
Discussions in yesterday’s supply chain and procurement world would tend to be dominated by price point. Not enough time was dedicated to managing the performance of strategic suppliers at a supplier-parent level to deliver financial benefits.
In the past, procurement has played a pivotal role for organisations looking to reduce their cost base and to drive budgets down. This created a sense of ‘short-termism’, as organisations focused on improving their price and demand positions.
I believe the opportunity for procurement teams lies in the function’s ability to not only drive true cost efficiencies but also to bring new ideas to the table. CFOs have long used procurement as a lever to manage the bottom line. Now is the time to move into the next era of procurement, delivering growth to the business and the clearest path to delivering that growth is through collaboration and innovation with suppliers.
The opportunity that awaits first movers is huge. I’ve seen it personally at some of the organisations I’ve worked at. By reimagining supplier relationships, buyers can directly influence both the top and bottom line. I have always felt that buyers hold a unique position within a business. What they buy directly influences the sort of products and services the organisation can produce. Not only that, they have full visibility into what is going on in the broader marketplace and, if they are effective, have the capacity to bring these innovations into the company and truly change the playing field.
So, how do we move away from the focus on costs to growth?
To be clear, there will always be a place for negotiations and cost reduction. It will always be a core part any successful procurement organisation. But, we have to make our colleagues aware that procurement has so much more to offer. Once the business understands what procurement is capable of, we can start delivering on these promises.
In terms of tangible steps, I firmly believe that we need to look into how procurement staff are incentivised. There will always be an element of savings as part of that, but if we want our teams to perform differently and deliver different results, we have incentivised them to do so. I’d like to hope that in the future we’ll value ‘new product identification’, ‘new idea generation’ and ‘contribution to innovation pipeline’ as highly as we do for cost savings.
From a supplier’s point of view, I think they will welcome these changes with open arms. Most suppliers are willing to invest in relationships with the companies they supply to knowing that it will help them develop their competency and put them in good stead to win further business. Again, all of this is dependant on creating a relationship which is not solely focussed on cost.
This is too exciting to miss out on. McKinsey asserts that organisations that can collaborate with their suppliers deliver twice the EBIT growth of organisations that can not. It is clear to me that organisations that can establish mutually beneficial collaborative supplier relationships are the ones that will thrive in the future. Procurement is moving into a thrilling new era.
Let’s jointly move beyond price discussions and elevate procurement’s value proposition. If you’d like to learn more about the value that procurement can deliver beyond cost savings please download our free white paper ‘Return on Relationships’ and start your journey today.