Procurement professionals have the ability to drive their company’s performance, profit margins and ensure they stay competitive. With raw materials accounting for over 65% costs in some industries, and indirect spend over 50% in others, the impact of any fluctuation to market conditions can be huge. We have identified 5 best practices seen within high performing purchasing teams.
Culture of Continuous Improvement – It’s critical the leadership team is fully committed to continuous improvement. A mindset requiring relentless focus on equipping staff with the skills, data and tools to develop their capability, improve processes and enable good, simple decision making.
A continuous improvement culture should be echoed by suppliers too. Long-term, trusting relationships with suppliers and aligned objectives enables CI ideas to flow freely from both sides of the relationship and creates value for both parties.
Harnessing the Power of Data – Many forward-thinking companies now use advanced data analytics to drive performance improvements right across their business. Purchasing teams should be no different. Although spend analytics has been around for many years (and should be a minimum stake in the game), making this permanently visible to the team and enriching this with other data sets – e.g. commodity prices, currency rates, credit rating/risk profiles and ideally data shared by suppliers – has a transformational impact. Procurement teams can quickly act upon real-time insights and collaborate with suppliers and internal customers to make better, quicker decisions.
Worth noting - there is no longer a need for expensive system roll-outs or integrations, often this type of visibility is available on a monthly subscription cost.
Building Long Term Relationships - Purchasing teams are expected to reduce the company’s costs, although too often this can be their only focus. Bullying suppliers on the assumption that our business is essential enough that suppliers will offer heavy discounts is an old school approach, which, in the long term, can create antagonistic supplier relationships. In these uncertain economic times, we even risk putting good our suppliers out of business; definitely a lose-lose. Good faith negotiations and aligned objectives yield better results in the long term.
Reducing the Tail - Reducing the number of supplier relationships and shifting the focus to building strategic, long-term relationships liberates time and energy, creates a positive framework to reduce costs, boosts efficiency and substantially increases profit margins. Easy said, difficult to do – but spending time on the tail in the short term produces huge medium and long-term benefits.
Collaborate, Measure and Exceeding Company Expectations – It’s not just about price and lead times, to establish the right KPIs with your supply base you first need to determine what KPIs are required. There are 2 aspects to this;
- Work with sales and marketing teams to determine how end-customers measure your Company’s performance.
- Better understand what internal stakeholder objectives are
Here are a few examples on how your business might be measured;
- What amount of cash should be tied up in raw material inventories to ensure good work flow and schedule adherence?
- What lead times are acceptable to ensure customer satisfaction?
- What is the maximum/tolerated failure-rate?
- What is the impact of late/short deliveries?
- What are anticipated/acceptable returns volumes and costs?
- How are currency/commodity price changes managed?
- What happens to obsolete stock when new products are launched?
- What support might be expected for new product/territory launches?
Once relevant KPIs are determined (which is likely to be a moving target at least initially), ensure the correct reports and reporting structures are in place to share performance and open dialogue across all parties. This enables each stakeholder to understand not only performance, but also the implications of the KPIs they are requesting and over time this will simplify the aligned-objectives requirement, in turn improving performance of both individuals and the business overall.
As your department and people evolves, ensure your processes and practices evolves with you.
Author: Ian Yates, Founder of Barcanet - Ian has over 25 years experience of helping businesses reduce their costs, automate processes and create efficiencies. Barcanet analyses over £22bn supplier spend. To book a call with Ian e-mail him on info@Barcanet.com