‘Keeping Up with the Joneses’ – Cutting-Edge Procurement

Jeremy Smith, 4CAssociates, leading procurement consultancy specialists, considers how businesses can ensure they are not left trailing in the wake of their competitors when it comes to procurement effectiveness.

At a first glance, procurement and innovation come across as unlikely bedfellows. Whereas one is historically focused on delivering short-term savings, the other is more outward-looking and engaged in delivering less tangible results – at least in the short term.

This outdated view of procurement’s relationship with innovation continues to persist in a number of companies despite numerous developments. An unstable economic backdrop saw procurement’s standing in countless businesses greatly increased as many turned to savings delivery as a means to drive growth. Now, as the economy recovers and procurement finds itself in a more strategic role, there is a necessity for the function to deliver beyond a remit of pure savings.

Innovating to grow

Businesses which have been able to thrive despite economic challenges, have for the most part been those not afraid to evolve. A difficult environment can translate into a great opportunity to review, optimise and challenge current processes. An example of this is companies making use of the data available to them. Although marketing departments often grab the headlines for their use of data, procurement’s position at the centre of numerous data streams means it is perfectly placed to make use of this information.

In my experience, there are also many lessons to be learnt from other industries. Learning what other sectors consider best practice, sharing tools, techniques and technologies, are all great ways to innovate. 4C Associates hosts a number of roundtables throughout the year, bringing together people from various industries and the insight these generate can prove extremely valuable.

This type of initiative works hand in hand with more traditional approaches, such as running a procurement capability assessment. By assessing the function’s performance and benchmarking against leading businesses, it is possible to see which areas are in line with best practice and where work needs to be done. Once these gaps are identified, continual improvement processes can be implemented to ensure optimal levels of performance.

Ensuring organisations have the right structure, tools and capabilities in place, means they are well positioned to identify opportunities and mitigate risks.

Thinking long-term

Part of procurement’s shift towards becoming a more strategic function is knowing when long-term benefits outweigh short-term gains. This notion is particularly relevant in terms of Supplier Relationship Management (SRM). At 4C Associates we work with a wide range of companies, within extremely diverse markets. Whereas some are still able to negotiate better deals with suppliers, year on year, others have found more value in developing relationships.

Programmes focused on supplier-led innovation have already borne fruit for many organisations. These longer-term initiatives deliver benefits which often go beyond savings, such as security of supply, better quality products and increased supply chain visibility. Companies which adopt this type of forward-thinking practice, find themselves in a much better position down the line than competitors which try to bully suppliers once a year. They are also better at mitigating risks and as a result find themselves with a competitive advantage should something go wrong.

Having said this, no one should equate the term innovation with slow progress. Some of our clients have delivered fantastic returns in just a short space of time, by enabling and encouraging supplier led innovation.

Context is king

Of course, driving competitive advantage in procurement differs greatly based on any given company’s situation. No two businesses across our client base could use the same technique to reap similar results. Whereas a focus on SRM might work for one business, concentrating on indirect spend might work for another. The key principle of remaining ahead of the game, is constantly reviewing processes in line with the latest trends and technology.

In this context, procurement is no longer simply a ‘cost cutter.’ The most effective functions are those which are able to work from a clear vision of the business’s long-term objectives. Frequently communicating with internal and external stakeholders, and bringing in a fresh pair of eyes to review key processes and planning for future scenarios, are all vital to staying ahead of the competition.

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