There are more choices available than you might think…
Most procurement organisations have a stated intent and commitment to do more regarding their supplier relationship management (SRM), for all the right reasons. Procurement becomes strategic and the role of the procurement function is drastically changing in today’s challenging world.
In the past, procurement management was expected to ensure the timely availability of products and services, whilst also being responsible for accurately processing transactions. Economic developments during the 1980s and 1990s prompted companies to recognise the potential contribution of procurement to meeting cost reduction targets.
Through the implementation of category management and running strategic sourcing initiatives, procurement departments were able to rationalise the supply base and consolidate volumes, resulting in significant price reductions. Global sourcing and outsourcing of non-core activities also became very popular, however, procurement was still functionally organised, with little collaboration and alignment with other business functions, which kept the price orientation alive.
The advent of the Total Cost of Ownership (TCO) concept made organisations realise that a change from a functional orientation towards processes optimisation was required, with cross functional collaboration. As a result, procurement became the responsibility of cross-functional teams while its strategic importance increased. It was recognised that the procurement function not only contributed to price reductions, but also played a crucial role in the optimising total lifecycle costs.
The next step towards procurement excellence is to adopt a value-driven orientation with external supplier and specialist expert collaboration as a key cornerstone.
As already mentioned, ensuring the best prices through strategic sourcing is no longer perceived as a strategic capability of the procurement function.
As a result of further outsourcing of non-core competencies, the procurement costs as a percentage of total cost can be between 50% and 80% for companies that develop, manufacture, trade and/or distribute goods.
Besides the financial impact, organisations are also realising that they have become more reliant on suppliers, in terms of innovative power, security of supply, corporate social responsibility, and delivering on-going cost savings. Together with sustainability, strategic partnering is at the top of the corporate agenda for many global organisations and is seen as one of the few remaining procurement topics that can still make a significant difference.
External integration – the next step towards procurement excellence
Companies are becoming increasingly aware they must integrate and collaborate with suppliers and external sector experts, to remain competitive and take the next step towards procurement excellence.
Supplier management is not a new topic, but it has always been the ‘stepchild’ of the procurement function. KPIs, just like spend reduction, were a significant factor here. Companies became proficient and mature in running strategic sourcing initiatives and created “money on the table”. As soon as category teams and buyers realised these contracted savings can be made, they immediately introduced many new sourcing initiatives, however, many have overlooked and neglected their effective implementation and on-going management.
To speak to a refreshments sector expert, with a greater range of SRM tools and suppliers, contact Thirst Link Consulting Ltd, who will arrange for one of their nationwide team of Consultants to contact you.
