Bain and Co review procurement in Asia – some confusion over the message

There’s an interesting article on the Forbes magazine website, written by Ray Tsang  of Bain and Co (the management consultants), titled “Saving To Grow: Using Procurement To Win In Asia”.

Bain haven’t been leaders in procurement consulting in Europe, but are obviously making an effort in Asia, and the report that this article is highlighting looks interesting – you can download it here, free of charge, and I will report back in more detail when I’ve read it properly.

The Forbes article itself is a mix of the insightful and contradictory. It starts by emphasising the importance of procurement and the fact that the Bain survey suggests most businesses in Asia aren’t doing it very well.

Our study found that procurement teams in Asia-Pacific often lack organizational support and prominence, tend to focus on short-term activities, rely on inadequate demand management processes and struggle with underdeveloped supply bases. For example, more than half of the CEOs interviewed feel their supply base is underdeveloped. Moreover, they lack systematic supplier management processes, reliable data systems and strong procurement talent. In fact, only 40% are satisfied with their procurement talent”.

But having outlined a pretty balanced view of strategic procurement, including mention of how procurement can support revenue growth, Bain then seem to take it back to a cost-cutting role: they’ve invented something they call 4th Generation procurement, which means ...

“ using the procurement function as a way to add value to the business year after year, boosting the bottom line by keeping costs from mounting. With dedicated effort, a continuous improvement culture and complementary capabilities, we’ve seen companies repeatedly achieve 3% to 4% savings year over year, following initial savings of 8% to 12%”. (My highlighting).

Now “keeping costs from mounting” is an important element of procurement, but that’s first  generation stuff, not fourth.  And I reserve my usual cynicism for savings claims of this nature, unless they are backed up with serious measurement systems and processes.Those savings numbers suggest that over 8 years, a firm would remove one third of their total cost base - seems unlikely, to be frank.

Anyway, the article gets back on track with some examples of what good practice firms have done, ranging from the blindingly obvious (total cost of ownership analysis) to the more interesting (advanced dashboards for spend analysis at Ford) and an “advanced category management toolkit that allows the company to see the direct effect of its sourcing decisions on the bottom line”.

So, worth reading the Forbes article, whether or not you have operations in Asia really, and we’ll come back with a review of the whole paper shortly. 

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