Home > Procurement - it’s not just about cost cutting

Procurement - it’s not just about cost cutting

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According to Barry Thomas, these days effective procurement is also about establishing and maintaining valuable business relationships.

The perfect storm of a GFC and increasing supply pressures and commodity costs impacted businesses across the globe. One outcome is that today, in this new age of corporate austerity, procurement plays an increasingly important role in organisational performance. 

The challenge for businesses is to ensure that their procurement process is not obsessed with just cost reduction, but focused on the creation of enduring business partnerships which deliver greater value in the long-term.

Recently, we have seen a tectonic shift in the overarching role of procurement – it is no longer only regarded as an extension of the accounting department that crunches numbers.

Indeed, according to the 2012 KPMG report The Power Of Procurement: “Not long ago procurement was considered to be an add on service; it was the business that decided which suppliers were core to the organisation and little more was expected of procurement than to battle some cost out of the contract and then hand the relationship back to the business to manage.”

Regardless of whether your organisation has an in-house procurement team or engages external partners, the procurement “middleman” facilitates much more than sourcing the cheapest suppliers, receiving externally purchased goods or overseeing orders and approving payments. Procurement is fundamental in providing sustainable business solutions and, in turn, fostering relationships with identified business partners.

With procurement playing such a central role to profitability and performance, organisations need to invest the appropriate level of resource to elevate and empower their in-house or external procurement teams to ensure that corporate expectations are communicated, values are aligned and relationships with partners are enhanced.

Interestingly, Remko van Hoek, a global procurement manager at PWC said that procurement/partner relationship management is becoming a growing priority; that the focus has moved from a cost centric approach to a larger recognition of the importance of relationships.

In tandem with this, we are also seeing organisations becoming more reliant on procurement to identify the most suitable strategic partners that not only contribute to fostering innovation but also help to maintain a competitive advantage. This is especially relevant as more businesses are outsourcing services that fall outside of their core business remit.

As part of a strategy designed to empower and elevate procurement staff, organisations need to re-evaluate how they set up and train their nominated teams. Procurement training should clearly communicate key corporate expectations which may include striking a balance between prioritising cost reduction targets, while simultaneously engaging partners that reflect organisational values including ethics, reliability and flexibility.

Within a procurement training strategy, it is beneficial to emphasise the importance of investing time and resource for face to face interaction with partners to establish trusted relationships which may subsequently reduce risk in supply chain management.

A robust training program should also include a communications plan to ensure procurement is effectively educating nominated partners about organisational values and expectations. As part of this, each party should be encouraged to outline their KPIs to encourage transparency. Procurement will be tasked to measure supplier performance and effective communication will facilitate feedback to ensure that partners can refine their services to meet unique organisational needs.

It is important to consider that while businesses may be increasingly reliant on procurement to identify and engage partners, due diligence is key and businesses should not solely depend on procurement to garner key information.

Employees need to support procurement teams and one way is providing direct feedback. To facilitate this, businesses need to structure their organisation to ensure that internal staff have appropriate access to nominated procurement teams – this will not only elevate procurement’s position, but will also encourage engagement and transparency. 

[Barry Thomas is the Vice President and APAC Managing Director of Cook Medical Australia.] 

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