Firms that claim procurement savings; interesting or corporate PR landfill?

It was rare until recently for procurement and supply chain to feature much in the financial  announcements of private sector organisations. But now, it seems to be de rigeur to throw in some comments about procurement savings, supply chain efficiency programmes and the like.  But I would argue that there are three tests we should apply to such statements; do they really tell us anything interesting or useful about what the firm is actually doing (particularly from an investor standpoint); are they a good indicator of real procurement capability; and do they illustrate good practice that might be useful to others?

If the answer to those is 'no' then I'm not interested, and I don't see why anyone should waste space featuring these claims, or time reading them.  Their purpose would seem to be purely to fill up some space in the annual report with a meaningless but apparently positive sound-bite.

Here's some recent examples, all from the food industry; let's just quickly assess how much content they actually carry.

Premier Foods;won the CIPS SM award last year. Reported in Supply Management “Procurement gains from working more strategically with our suppliers added £16 million to the grocery trading profit.”  Last  November Mark Hughes (the CPO) said, "we have actually cut our supplier numbers by 11 per cent in the latest quarter, and our top 100 suppliers, which represent 45 per cent of our spend, have experienced real growth of 33 per cent over the past three years.”

OK, so I'm getting some sense there of how this good procurement performance has been achieved, with a strong focus on major suppliers and 'working strategically'. Of course we don't know if this is shorthand for beeating the s*** out of them or genuine collaboarative probelm solving, but as long as it works that is to Premier's credit!  I'd like to know more about the savings methodology but there' s a credible cause and effect here at least.

Now Nestle from Procurement Leaders;

"Our savings, procurement strategy and leverage from growth more than compensated the cost pressures during the year, which increased in the second half. ”

Nestlé went on to report that, over the year, its distribution costs fell by 20 basis points: “This is another area of focus of efficiencies, particularly in our more distribution intensive businesses such as Nestlé Waters and ice cream. These savings are pursued as part of our ongoing drive for continuous improvement in both our financial and our environmental performance.”

Not a lot there although the distribution cost comment does have some objective measure, and might lead us to wonder how they have done this; use of optimisation tools perhaps? It would be interesting to know that. The exposure of Nestle to commodity price movements must make procurement savings measurement very difficult, so I would however like to see the methodology for baselining and savings tracking before I place too much store by these claims.

Finally Sara Lee, again from Procurement Leaders:

"Food giant Sara Lee Corporation has revealed that an ongoing efficiency project, which targets areas of the business including supply chain, has delivered savings of $194m since the beginning of fiscal 2009. The programme, dubbed Project Accelerate, is described by the company as a cost savings and productivity initiative focused on outsourcing actions, supply chain efficiencies and organisational simplification.  The company has revised Project Accelerate benefits and costs to exclude the North American Fresh Bakery* business. Ongoing cumulative benefits realised from the beginning of fiscal 2009 to date are $194m, of which approximately $50m are incremental in the first half of fiscal 2011...." Sarah Lee stated.

That's a classic. First of all it includes such a wide spread of activities we have no idea what has delivered the saving.  And, (elsewhere in the statement), we learn that operating income and earnings are actually lower than last year! Now of course that doesn't mean the 'savings' aren't valid.  The bottom line could have been even worse if the 'efficiencies' hadn't kicked in. But frankly I have no idea based on this how much credence I can place on these claims.

* Sara Lee have sold their North American Bakery Business to Grupo Bimbo.. no, really....

Voices (2)

  1. R:

    Savings!, especially ‘cumulative benefits’. Some of these firms just want to have their cake and eat it.

    Fantastic Peter! Grupo Bimbo…you really couldn’t make that up. Herewith a very small sample of the genuine names of companies (SMEs) covering a broad spectrum of services, from, you’ve guess it, the US:
    – Juan More Taco
    – Doggie Style
    – Crapo Applicance Service
    – Effin Computers
    – Salt and Battery
    – Curl Up & Dye
    – Hand Job Nails & Spa (I kid you not…)

    Something for everyone.

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