Shifting beyond procurement’s traditional and narrow remit

By Charles Nyika | 4h ago

As the supply chain industry braces for more changes in the coming years, the already razor thin profit margins are getting slimmer.

The current world economic tailspin has not been kind to supply chain practitioners. It would appear there is a unique confluence of negative factors that seem to be pulling supply chain professionals back.

As the supply chain industry braces for more changes in the coming years, the already razor thin profit margins are getting slimmer. The supply chain landscape appears to be littered with obstacles everywhere.

The message is very clear. Innovate or die. Supply chain problems seem to be compounded by social media. It has given consumers the power to mete out instant justice to those organisations that fail to deliver, all to a limitless audience. As a result of social media, swelling customer expectations paint a complicated picture for supply chain practitioners across all industry verticals. A sense of customer entitlement is in the air. Most supply chain professionals are responding to these challenges by adopting a pathological focus on cost reduction targeted at the poor supplier.

While most supply chain professionals seriously believe in cost reduction, it is common knowledge that price is often a poor proxy for actual costs. It is just that cost reduction is often times more appealing to procurement personnel largely because it can be measured easily and with great quantitative precision.

Procurement has been the efficient workhorse for organisations, driving cost savings percentage point by percentage point, contract by contract. However, it would appear cost reduction as a procurement strategy is slowly fading from the front pages.

Procurement experts are of the view that supply chain management as a profession should move from being a purely cost driven money saver and gravitate towards expanding its horizon towards the promotion of both the top and bottom lines.

In a world that has dramatically turned into a war zone due to a dog fight for all forms of resources, saving costs will never go out of fashion. But it must also be remembered that once the low hanging fruit has been plucked, we have to climb higher and higher to find additional fruits to enjoy.

It should also be noted that cutting costs for the sake of it will unknowingly reduce variables that can make a business more profitable. The traditional approach of squeezing suppliers for lower prices ignores their legitimate need to earn fair and reasonable profit in relation to the risk and capital employed.

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Procurement should not only see the business world through the lens of cost cutting but through the lens that is focused on total value.

Cost cutting is slowly becoming a monument of the past. It is often said cost reduction “represents a tragic triumph of the tactical, taking pride in counting transactional battles won, at the expense of a war lost on supplier relationships”.

Without the shackles of yester year’s cost reduction mentality holding us back, there is need to implement procurement renewal initiatives with a view to keep the lights on. Shifting the focus away from cost reduction and gravitating towards innovation and strategic partnerships with suppliers help in ensuring the elevation of procurement’s importance beyond its traditional narrower remit.

Supply chain professionals still stuck with the concept of cost reduction as a major strategy should now realise it is time to lay the old concept to rest and embrace new ways of doing business.

This will represent a significant change of direction for a profession which traditionally was regarded as a back office function.

The change in approach and thought process will certainly represent a sea change in theory and practice. The newly accepted language of procurement should speak to an agenda driven by the need to introduce novel value addition strategies. There is need to rely on the pursuit of advanced procurement methods that focus on robust risk management initiatives targeted at creating hard value beyond unit cost reduction.

We are fully aware that as the scale of the procurement department increases in scope, size and complexity, so does supply chain related risks. The supply chain ecosystem heavily relied on many different suppliers scattered throughout the world.

It therefore follows supply chain related risks are omni-present. To mitigate those supply chain risks, professionals must stay informed about the latest market trends.

As part of risk management strategies, procurement leaders must have an intimate knowledge about capabilities of their major suppliers.

They must know whether suppliers have business continuity plans in place in the event of supply chain disruptions happening at short notice.

Apart from concentrating on cost reduction, supply chain professionals must innovate.

It has been acknowledged that working with the vendor community enables business organisations to reduce the cost of doing business.

Suppliers should be regarded as prolific sources of large pools of talented minds that can provide innovative solutions which will keep pace with end user demands in the ever changing market dynamics. Supplier driven innovation is much cheaper.

There is strength in numbers as business partners collectively put multiple minds together to share best practices.

The world of automation is upon us. The ability to thrive in a world driven by speed and scale hinges on the agility and flexibility brought about through the adoption of automation in procurement.

Today, the introduction and adoption of digital tools in procurement should be regarded as second nature.

The reliance on manual paperwork in supply chain management has seen its last days.

Procurement automation has witnessed the provision of real time access to data, introducing greater transparency and fairness to the whole procurement cycle. Supply chain professionals will have the pleasure to track every motion of the procurement processes in real time ensuring challenges are identified and addressed on the fly.

The other often celebrated benefit of procurement automation is that it is always useful in the creation of a central hub for information dissemination which will enable the sustenance of spend visibility in the whole supply chain.

Visibility of spend is very important since “it will help in ensuring compliance with existing and established contracts while centralised tracking of transactions enables full reporting on requisitions, items purchased, orders processed, and payments made.” It will introduce a glass pipeline of visibility in procurement process flows.

At the heart of procurement success is also the promotion and maintenance of cordial relationships and building trust with suppliers.

That said, there is merit in keeping your key suppliers regularly informed about where your organisation is going.

It must be remembered that suppliers are certainly not mind-readers.

Their performance levels are a function of continuous feedback from users of their products.

Regular feedback from customers will give vendors the opportunity to figure out how they fit into whole scheme of things and how they can assist in the creation of value for the supply chain network.

The need for frequent interaction cycles based on shared goals will allow the communication channels to become more organic with the intention of achieving collective goals.

It has long been acknowledged that there is a positive correlation between the presence of a strong supplier relationship management program and positive outcomes such as increases in market share, responsiveness to market changes, increased return on investment and shortening order fulfilment lead times.

With joint planning, other benefits could include exchange of best practices with suppliers, information sharing in a systematic fashion and combined problem-solving capabilities in the supply chain ecosystem.

The other key important value addition strategy is harnessing the power of talent management. There is need to focus more on new capabilities in digital and analytical skill sets. The current business environment bears very little resemblance to years past.

The yester year talent management strategies were not built with current business realities in mind. Those organizations who continue to practice talent management strategies that were relevant in the last decade will find themselves in a race to the bottom.

The old-aged business mantra that emphasizes that people will always remain an organisation’s most prized assets should motivate supply chain professionals to place more emphasis on the identification, training and development of personnel suited to today’s business realities.

Building an organisation’s talent pipeline isn’t just a strategic imperative, it’s an opportunity, it’s table stakes.