shifting corporate management's attitudes towards procurement

Shifting corporate management's attitudes towards procurement

www.proximagroup.com

http://www.proximagroup.com/

© Proxima 2014. All rights reserved. www.proximagroup.com

About Proxima

Proxima is the alternative approach to the conventional in-house procurement function. It’s one that gives a profoundly different experience to stakeholders, as well as to their suppliers. One that is impossible to replicate in-house. And one that transforms performance because of how it helps align third party costs with corporate aims. For more information, contact us at:

[email protected] http://www.proximagroup.com

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mailto:[email protected]





Introduction

In a recent article published in the Harvard Business Review titled ‘Leaders Can No Longer Afford to Downplay Procurement’; Proxima CEO Matthew Eatough discussed four fundamental areas that need to be addressed by corporate management to bring procurement operations into the 21st century

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Click here to watch the on-demand version of the webinar

One of the major recommendations from this article was that there needs to be a dramatic shift in the way that corporate management, and indeed the rest of the business, views the procurement function

Therefore, Proxima hosted a live panel discussion around shifting corporate management’s attitudes towards procurement. This slideshow offers a high level overview of the session, covering the key points discussed during the debate

http://cdn2.hubspot.net/hub/28326/file-621466782-pdf/Harvard_Business_School_Review_US.pdf


http://insight.proximagroup.com/shifting-corporate-managements-attitudes-towards-procurement








Corporate virtualization

Corporate virtualization is a term made popular in a recent

research report by Proxima. The term describes how a large

majority of a company’s operations are now externalized. As this

trend continues to grow, it means that companies now spend a

greater amount of their revenues outside their own

organizations, with third–party suppliers

Previously it was generally thought that a company spent

roughly the same amount of revenues on suppliers as it did on

its internal workforce

The corporate virtualization report showed that this was not the

case. Suppliers typically consume around 70% of revenues

Furthermore, the report showed that reducing the third-party

spend could generate a bigger improvement to the bottom-line

than cutting labor costs

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What is it?

http://insight.proximagroup.com/corporate-virtualization

http://insight.proximagroup.com/corporate-virtualization


Corporate virtualization

With many senior executives severely underestimating the proportion of their revenues spent on suppliers; the business often fails to see the importance of the procurement function, and the significant impact that suppliers have on the organization in terms of:

Risk

Innovation

IP

Opportunities for profit improvement

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What does it mean for your business?


Aligning procurement with the wider business

The issue of branding

Procurement must learn to “brand” itself as a key contributor to business success

Building stronger internal relationships

Procurement must align itself with the wider organization by building stronger internal relationships

Corporate management’s attitudes towards procurement

Current attitudinal studies suggest that procurement is often not seen as a key component

Creating measures outside of savings

For some executives, savings are not an important measure. Procurement must measure its success against different factors


The issue of branding

Although procurement delivers a very important service to almost every aspect of the organization, it is often overlooked by the wider business, failing to see the value that procurement brings outside of delivering savings.

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Procurement executives often fail to ‘brand’ themselves as a key contributor to the business

Which often leads to an under-resourced function

Procurement’s historical alignment with finance could be affecting the way that the function is perceived – constantly looking at the bottom-line rather than the total value delivered


Corporate management’s attitudes towards procurement

In a study by The Aberdeen Group. CFOs were asked about the effectiveness of the procurement function in their business. The results showed that:

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Less than 20% of CFOs

consider the work of a

CPO as having a very

positive impact on

competitiveness

Only 46% of CFOs feel

that procurement

contributes to

enterprise growth

Only 57% of CFOs feel

that procurement

contributes to

enterprise profitability

Yet 61% of CFOs agreed

that procurement’s role

in strategic operations

has increased


Building stronger internal relationships

In order to align itself with the wider organization, procurement must strive to:

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Understand the strategic challenges that executives face

Understand the wider business objectives

Link itself more clearly to the values of the risk management function


Aligning procurement with suppliers

The differences between core and non-core supplier relationships:

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When it comes to sourcing core items, procurement often has established relationships with both stakeholders, and suppliers But when it comes to indirect (non-core) sourcing, the same type of attention, understanding and relationships often don’t exist

This means that many businesses are failing to get the most out of their non-core costs

http://insight.proximagroup.com/why-are-businesses-failing-to-get-the-most-out-of-their-non-core-costs-pt-1





The importance of creating collaborative supplier relationships

Two mobile phone manufacturers One had a collaborative relationship with their supplier (Business A). The other did not. (Business B) A fire at the supplier’s factory meant that production of a specific component was no longer possible Business A was already in touch with the supplier when the news broke, and was able to secure all remaining stock in the factory Business B did not hear about the fire for two weeks, and as such, was left without sufficient stock of a critical component. Production ceased until an alternative could be found There was a measureable shift in market share between business A and business B, due to sheer product availability

A supplier introduced the idea of an up-side down ketchup bottle to the procurement department of a large food manufacturer to help consumers reduce product waste The idea was presented to the wider business and introduced to product lines There was a measureable increase in sales following the introduction of the bottle

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Case study of the mobile phone The Ketchup bottle:


The problem with savings

You get what you measure. Holding the procurement function accountable for delivering savings, will ensure that savings will be the primary driver in every purchase. Yet savings are considered a poor metric of success as they:

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Are not always reported correctly Are not always believed

Are not relevant measures for some corporate executives Can be seen as a “failure” to commercially keep up with the market place


Measuring success

Capturing innovation from suppliers

Suppliers can be responsible for

putting forward great ideas

Procurement should be measured on

leveraging the ideas and R&D

investments that suppliers have

Procurement should be measured against a range of different factors – independent to savings

Stakeholder engagement

Stakeholders should feel that

procurement are engaged with their

goals and objectives

Measuring attitudes towards

procurement can be a good indicator

of success

Collaborative relationships with suppliers

The most effective relationships are

the most fruitful

Procurement teams should be

measured on their ability to create and

maintain collaborative relationships

Risk management

Suppliers are a key source of risk for

most organizations

Procurement must be able to limit and

mitigate these risks to effectively serve

the business

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Why not watch the full on-demand version of the webinar

Find out more about Proxima: www.proximagroup.com





