At the recent Procurious Big Ideas summit in London ideas were put forward as defining and can support Procurement excellence, if/when Procurement is at the epicentre of the business and driving it from there instead of being on the periphery. My own experience of how this actually could and did work, and provides examples that underpin the stated theory comes from my time working for the personal computer (PC) division of an international business machines manufacturing company a couple or so decades ago. Rather than separate the initiatives I’ve amalgamated them as they intertwine and are interdependent.
Procurement’s inability to become involved with or influence business awards, when it happens may be as the result of C-suite policy decision regarding business direction. Should it make a decision on what (e.g.) its “knitting” is at a point in time then Procurement won’t have any say or sway, unless it is represented at C-suite level. Even then that wouldn’t influence business direction.
On the other hand holistic supplier collaboration, however is where Procurement can have a major influence on competitive sourcing and supplier management, provided, of course it is included in the entire sourcing process and in the role as suppliers’ advocate within the business.
This can work a treat so long as the business (R&D or Design Engineering) doesn’t think it knows better than its goods supplies how to make their products; inevitably designing cost in rather than the other way. There shall be reasons or theories suggested as to why this is, ranging from the desire for best-in-class product integrity or justifying what could be classed as “bums on seats” within design engineering or R&D. No regard for cost: they don’t care! No empirical data either; engineering arrogance only.
Impacts:
- Over specified, bespoke product in actual fact procuring nothing in terms of quality and reliability.
- Bespoke products on average being 15% being more expensive than the suppliers’ own standard, fit-for-purpose equivalents in turn being procured by the competition.
- When downturns in the industry occur, inability to have the suppliers redirect excess products to the open marketplace as they are now bespoke “company unique”, resulting in either significant storage or scrap costs being incurred.
Collaboration and development therefore goes the wrong way leaving Procurement with the major task to remove any “what does off the shelf mean?” observations or perceptions.
Once Procurement, with supplier collaboration can finally convince the company to move away from bespoke and towards off-the-shelf product supplies and having its R&D recognise suppliers’ expertise, results achieved:
- Major unit savings (25-30%) being enjoyed.
- Streamlining supply lines by way of reduced lead-times and facilitating Kanban deliveries.
- Minimising excess inventories at the end of a particular product cycle.
Proof that holistic supplier collaboration works, so long as it’s in the proper direction.
Procurement engineering or procurement engineers have been extensively used in various manufacturing industries for a long number of years; normally being the major procurement interface with R&D, Design Engineering and the suppliers’ technical groups. Remit is to work very closely with all parties; they may even be technical or cost experts thus able to hold conversations with suppliers’ technical contacts as equals and able to respond to suggestions or initiatives at source rather than these being subjected to more convoluted internal company processes that could totally dilute the opportunity saving.
Work of that ilk can be titled Value Analysis. It should be a major element of holistic supplier collaboration; primarily R&D duty to perform with close Procurement involvement, objective being to understand where any cost differentials may exist between the company’s and its competitors’ products and reasons for such. Procurement works with the supply base to have them provide analytical product data in this effort. Next step should be to influence company buy in and sanction the total advantage opportunity thus enhancing Procurement’s role and gravitas within the company.
The analysis of Delivered Cost at point of consumption is a Procurement task to calculate and recognising all of the add-on elements of cost (tangible and intangible) that need to be added to ex works cost, normally from foreign suppliers . This should then influence whether or not to locally source rather than with these companies that may provide cheaper pricing at point of shipment however when all other costs have been added on it makes better business sense to procure closer to home, even when ex works price is more expensive. Procurement could then be seen to be enhancing local employment by way of providing local work. Important in these days of sustainable procurement/CSR.
A punter’s perspective only, from working within the profession for a long period of time and across a wide breadth of industry sectors along the way.
