Bargains in Germany – Procurement at the Front Line of Cost Reduction

My wife and I had a long weekend in the German Alps last week, a bit of skiing and seeing friends in Munich. The exchange rate makes Germany look like a bargain now – eating out was cheaper than in the south-east of England certainly with the Euro at 1.40 (as of March 10th) to the £.

But as always, my mind was not too far from procurement matters. I took with me the new book from Gerard Chick and Professor Robert Handfield The Procurement Value Proposition - and made a start on that. We will have a full review once I've done enough to comment on it intelligently. But from what I have read already, one of its themes is an admirable focus on procurement as an engine of value delivery, rather than the cost reduction emphasis we so often see.

However, there are always two sides to the story. And there are times when cost reduction will be the main priority in certain businesses at certain times (and to be clear, Chick / Handfield certainly acknowledge this).

The picture here shows our “stash” (as the vloggers would say) from a quick excursion into a Woolworths in Garmisch – yes, they still have Woolworth, long gone from British high streets. We bought:

2 bottles of perfume, which my wife tells me are “pretty good copies of Escada” (destined for daughter)

A men's moisturiser that I could not resist as it claimed to be “anti ageing” (and cost about 99p) – a lot cheaper than plastic surgery, one feels

A rather pleasant aftershave gel (as I forgot to pack any)

An air freshener diffuser thing to counter the very slight odour of tobacco discernible in our hotel room

A large bag of Twiglet-type snacks

1 bottle of red wine (Macedonian, a little thin but surprisingly drinkable)

1 pack paper plates

1 pack plastic forks (along with the plates, required for eating cake in hotel room)

The grand total for this? €13.94, or almost exactly £10 at today's exchange rate. The wine was €1.99 Euros (£1.50). Yet you don't see drunks wandering the streets of Garmisch – as the UK moves towards minimum alcohol pricing, you wonder what it is about the Brits really when other nations seem to live with really cheap booze?

But the main point of this is that the stuff we bought got me thinking about the procurement people involved working for the firms manufacturing these products. We have to assume that cost reduction is pretty much the first, second and only priority for them given the prices they must be selling at and the margins they are likely to make. And the pressures to cut corners, to put corporate social responsibility pretty low on the list of priorities must be there when you are selling your bottles of wine for virtually pennies / cents.

But as consumers, we love it. And for those less financially fortunate than me, it is not just a novelty, low prices are essential to help enable a tolerable standard of living.

Back to procurement, and what it really shows is that there are no absolute right and wrong answers about the required focus of our profession. Every organisation is different, and the one thing we do know without any doubt is that procurement must get itself aligned with the wider business needs in order to maximise its contribution. Whether that means driving supplier innovation and collaboration, or looking to take another fraction off the price of that wine bottle, will depend on the situation and the organisation in question.

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