“The initial global sourcing thrust was cost savings focused, but that was the 1980s-90s – that ‘story has been written’. Now the focus is on how we as a retailer – having cut out the middleman – can influence the manufacturing transaction for the benefit of the customers. We need to take customer data and insights to build better products.”
Gregg Forsberg, director, global sourcing international for Best Buy Asia Pacific (Limited) quoted in PriceWaterhouseCoopers recent Global Sourcing report.
Global sourcing has indeed come a long way, but as Gregg Forsberg points out – when everyone is sourcing globally, cost alone is no longer a competitive differentiator.
Purchasing Maturity Model
To continue to deliver value to the organization, purchasing needs to continue to transcend upwards, without losing the ability to capture margins and secure market prices. In some upcoming posts, we’re going to pin-point some strategies purchasing can use in order to secure this ascension.
September 28, 2008 at 7:12 am
Supply Management leaders must broaden their agenda beyond cost savings and focusing on growth and added value strategies. Tomorrow’s procurement leaders must link procurement strategies to their own businesses drivers for competitive advantage and focus on outcomes that provide advantage for their own customers. To do this procurement must become an integral part of the organizations growth strategy:
1. Create a compelling vision of procurement as a provider of competitive advantage for their customers rather than merely cost reducers.
2. Become an integral part of the organizations account management process by developing close relationships with sales and the end customer
3. Secure preferential treatment from suppliers”
a. Preferred access to capacity
b. Customer of choice for innovations
See: “building-the-foundation-for-preferential-supplier-treatment” on http://purchasingpractice.com/wp-admin/post.php?action=edit&post=140
4. Link suppliers into the supply chain to increase service to customers such as reducing time to market.
By understanding customer requirements and managing the supply base to capture the “value of growth”, procurement can generate additional funds with which to further accelerate growth by funding new investments or additional incentives for customers.
However, in order to sustain procurements contribution to growth with customers and offer competitive pricing and services, there is a constant need to add value from its services, improve the speed of delivery, employ new skills and generally manage the relationships efficiently and effectively. Procurement must excel at this.
September 29, 2008 at 11:52 am
This is all very true, yet illusive for most procurement organization.
Many procurement functions still struggle to even get on the value generation-team, let alone get a trip to the plate. At best they’re pinch hitters who are called upon when all else fails.
I saw some recent figures published by the Hackett Group; stakeholders were asked their opinion of procurements role and only 9 percent answered “Valued partner”, nearly 2/3 answered “Administrator/Gatekeeper” – I wouldn’t take this as an ultimate truth, but it does indicate that procurement has to take quite a step in order to get to the valued position.
I think that the biggest challenge that procurement is facing is explaining to their organizations which potential that actually lies unexploited in purchasing. Once past this hurdle, one can start to ascend upwards – using strategies outlined above – in the value chain.
BTW – I couldn’t get the link in the comment above to work, but there is great stuff to be found on the Purchasing Practice web site, be sure to check out their Transformation Information Letters: http://www.purchasingpractice.com/information
September 30, 2008 at 3:08 am
Many procurement leaders are indeed still struggling to get their message across. So, if procurement cannot define its own value then why should it be taken seriously by anyone else?
The gap between procurement and the strategic goals of the business must be closed, and this means moving “beyond cost savings” which perpetuates the image of procurement as an isolated support function, dealing with savings initiatives. The term initiative suggest something that starts and ends and fits the role of many purchasing organizations who are frequently asked to come to the rescue and are then subsequently shelved again once the initiative is over.
Procurement must break this cycle by shifting the emphasis from taking part in initiatives towards providing an ongoing essential process for the day to day benefit of the business. Purchasing leaders must therefore work closely with their colleagues in finance to define in business terms how its activities impact on their particular businesses and instigate the monitoring and reporting systems to enable achievements to be articulated in real terms that are meaningful to their business leaders.
BTW sorry for the bad link hope this one works:
http://purchasingpractice.com/building-the-foundation-for-preferential-supplier-treatment/
October 1, 2008 at 2:54 pm
[...] Last week, I promised that Purchasing Transformation would take a closer look on how purchasing can ascend in the value chain of a company to truly become a valued partner and fully exploit the potential which sometimes is [...]
October 10, 2009 at 7:09 pm
Perhaps we can also agree on the moral of the story is familiar: democratic discussion is difficultIndeed it is, in many fora. ,