Winning with Procurement in Asia – according to Bain and Company (part 1)

We mentioned the Bain and Company report on procurement in Asia (“Winning with procurement in Asia”)  a while back, and promised to return to it in more detail. The overall summary is that it is worth a read, and has some interesting points to make about the state of procurement in Asia. However, I also found it very frustrating  on a couple of counts, which we will get into as well.

The report is based on a survey carried out by Bain, who interviewed 60 business heads and CPOs throughout the Asia -Pacific region. In general, they felt that procurement operations ‘lag global best practices’. They ‘tend to focus on short term activities, rely on inadequate demand management processes, struggle with underdeveloped supply bases...’ etc. Now I suspect many in Europe or the US would say the same, but it does appear that Asia is lagging other regions. I was then hoping for Bain’s analysis to further explain why this is and what might be done about it.

However, frustration number one – I wanted to know more those reasons behind the survey results, or at least Bain’s view of them. For instance, 89% of respondents say that “we operate in a higher risk environment in our peers in developed markets”.

That’s interesting – but I want know more about what those risks are, and perhaps how organizations can mitigate them. Another startling finding (to me anyway) is that 67% of CEOs are “concerned about unfair supplier selection processes”. That seems quite extraordinary, and well worth some further analysis, which we don’t really get.

Instead, there is a lot of space given up to brief ‘case studies’ of supposed procurement success, not even all in Asia and not relating very directly to the survey. So we hear how Philips restructured procurement and addressed skills issues in 2004. A European firm, ten years ago – hardly seems very relevant.

We then get into the issue of the fundamental purpose of procurement, which Bain seem to consider to be basic cost management. The report starts with talking of Walmart and Apple and saying that ‘procurement leaders are cost leaders’. Now I’m not against firms being cost leaders – indeed, there is a strong argument that relative to direct competitors, you should always aim to be a cost leader, even if you compete in a very high-end luxury goods market.

However, does anyone really think Apple has achieved what it has principally by being a cost leader? Of course not. A design leader, a marketing and branding leader, genius at identifying what the market wants before the market knows it, a supply chain leader, and yes, probably a cost leader too. Indeed, it would be surprising if the firm wasn’t a cost leader purely given their volume.

But I’d suggest Apple’s procurement people focus on a much wider picture than just cost and are at least as concerned about risk and reputational management, logistics and supply chain forecasting and planning, obtaining the best suppliers in the world to support design, marketing and brand related activities, as they are about cost. We’re back to Michael Porter here – cost leadership is only one potential business strategy for success, and even then is rarely enough in itself, I’d suggest.

Anyway, do take a look at the report here, and we’ll be back with further commentary in part 2.

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