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Top 5 challenges facing procurement

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Top 5 challenges facing procurement

Back in 2013, Nick Martindale published an article in Raconteur (Part of The Times newspaper) entitled “Top 5 Challenges Facing Purchasing – key trends are set to influence procurement over the next 12 months”

Given that it is almost 2 years since this was published, I thought that it would be good to look back and discuss whether these challenges came to fruition and whether it is fair to say that these are still challenges today.

Cinderella must win ball – Nick wrote that although the economic downturn had helped procurement to get more spend under management, there was still vast variances in organisations’ degree of maturity around implementing and enforcing formal category management procedures. He further highlighted the need to linking any savings procurement claims to have made to the bottom line. “The reporting of £100m of savings that nobody sees is unsustainable”

Procurement was still seen to be a Cinderella function and to change this perception, procurement needs to demonstrate it can contribute to the top line as much as the bottom by acting as a strategic partner to the business.

Procurement was still seen to be a Cinderella function and to change this perception Click To Tweet

Two years on and I don’t see much difference. The degree of maturity is still inconsistent and the integration of real spend under management focus is often not evident in many organisations.

There is still a massive gap between claimed savings and tracked savings to the bottom line and procurement is still seen as a tactical function rather than strategic.

I discuss these issues in more detail in my book The COST Optimisation Formula, and identify a proven 4-step approach that can deliver a real difference to the way that the function is perceived moving forward.

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Risks on company radar – Risk was seen to be front of mind, particularly around the possible implications of supplier failure and natural disasters. By operating in a more globalised environment, the risk profile around global issues is that much greater – issues such as commodity price volatility and reputational risk is becoming a greater issue with the advance of social media.

Again, I don’t see this risk reducing. In fact, I would say that we have seen evidence of this particular risk becoming much more evident. The true impact of the recent explosions in the Chinese Port will start to be seen in the coming weeks. In the UK, the direct action taken by dairy farmers have seen supermarkets running for cover.

A recent discussion with a client highlighted this point really clearly. They had placed a significant order with a core supplier who had, as usual, placed component orders with a range of their tiered supply chain.

My client had worked closely with the core supplier to ensure an efficient and effective delivery operation only for this to be completely disrupted due to the failure of a 4th tier supplier that provided a small but essential component. This failure of an ‘insignificant’ supplier caused a multi week delay in delivery of the overall producing, resulting in a multi million pound cost to our client.

It is therefore vital that supplier risk is evaluated across the full end to end supply chain.

Sustaining ethics boosts bottom line – In his article, Nick points out that rather than seeing sustainability as a risk, leading procurement organisations will start to view it as a competitive advantage, by branding and marketing what they are doing in their supply base around sustainability.

This is an area where I’ve seen some significant activity, especially in retailers who have highlighted what they’ve been doing to remove child labour or employ ‘fair trade’ principles.

The major logistics players have started to plaster their vehicles with environmental sustainable images and messages highlighting what they are doing to reduce CO2 etc.

However, I still believe that there is more that can be done in this area, real activity rather than papering over the cracks with marketing messages.

Dawn of Social Media Technology – can you believe that it is only two years ago that Nick highlighted that technology “is set to fundamentally change the way in which procurement operates”. He highlighted that networks built around social media technology will become ever more important.

This has definitely started to have an impact, far quicker than was expected I would suggest. The role of procurement is changing – moving away from being buyers to better understanding market dynamics and be the go to people within the company for this knowledge.

Headhunting talent for new role – Nick highlighted that the skills profile for future procurement professionals will change as the need to engage more with the organisation becomes ever more important. Softer skills will be required as buyers increasingly need to influence those outside of the procurement function.

It is not surprising that this is taking longer to see real evidence of change – behavioural change is hard and the traditional ‘hard-nosed’ procurement persona is significantly away from the future desired state.

 

This has been an interesting exercise to really explore the degree of progress over the last two years. What’s been your experience? Do you share my views or indeed do you think I’m not reflecting reality accurately – I’d welcome your views and comments.

 

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