According to recent research by procurement strategy and operations consulting firm The Hackett Group, Chief Procurement Officers (CPOs) report that the best procurement strategy tends to prioritise cost and risk reduction, strategic alignment and transformation. Procurement strategy priorities most often cited include:
- Sustaining cost reductions achieved during the recession.
- Reducing price and availability risks in the supply chain.
- Improving the alignment between procurement strategy and enterprise business strategy.
- Leveraging supplier relationship management to get more value from the supply base.
- Better managing knowledge and information in order to support procurement transformation.
- Better understanding the organizational characteristics of top-performing procurement organizations.
The best organizations make use of a procurement strategy that addresses immediate challenges of the recent recession while maximizing forward-looking initiatives that will enable the procurement function to deliver maximum value to the enterprise as recession turns to recovery and growth. In other words, the primary focus for enterprises is improved productivity.
So, who do you go to for the best procurement strategy? Well, while there is a myriad of ways for organisations to improve productivity, take a look at these organizations which have achieved impressive results through these best procurement strategies.
Alcoa – reducing waste and increasing efficiency through digital procurement
In Q2 2015, Alcoa, the world’s third largest producer of aluminium, realized $324 million in productivity gains across all segments year-on-year, largely due to their decision to organize procurement into a globally aligned, strategic, and highly-efficient operation. Alcoa adopted a digital strategy, and were rewarded with a change in their procurement approach from a plant-level to a centre-led model which, in turn, allowed them to maximize buying leverage while realizing process efficiencies, resulting in substantial returns.
Levi Strauss – mitigating risks and threats thanks to a centre-led approach to procurement
A centralized Supply Chain uses a principal authority to make purchasing and sourcing decisions, relying on information and input from the various departments and experts throughout an enterprise. This procurement best practice can help to mitigate the risks and threats associated with unmanaged indirect spend, as well as to prevent dissident buying behaviours and wasteful spending with unapproved suppliers. Levi Strauss is on track to realize net annualized benefits of $175 – $200 million by improving the company’s productivity on a global scale. With a global spend of approximately $1.8 billion, the clothing brand knows that it’s the smaller changes in efficiency which brings in the most substantial returns.
PepsiCo – optimizing global sourcing operations through systems thinking
An essential part of an effective procurement strategy to optimize your processes is systems thinking. Understanding how your various systems interact can help you to identify opportunities to improve processes and deliver massive increases in productivity. Effective spend analytics, improved strategic sourcing, and the elimination of waste are smart starts to optimizing your current processes.
By optimizing their global sourcing operations, PepsiCo was on track to deliver approximately $1 billion in productivity savings, cementing their ability to achieve their goal of $5 billion in productivity savings by 2019. Their five-year plan includes increased investment in manufacturing automation, reengineering their distribution network, optimizing back-office services, and other steps to simplify enterprise-wide organization.
France’s Renault and Japan’s Nissan – ensuring procurement best practices via a perceptive partnership
One effective way to build on your strengths while mitigating your weaknesses is to build a strategic alliance with a smart partner. The right partnership can help you create an effective ecosystem and is beneficial to both parties thanks to a synergy in improved efficiencies such as manufacturing, sourcing, delivery, marketing, and many more. The relationship between Paris-based Renault and Japan’s Nissan is based on a cross-shareholding agreement established since 2009, and has resulted in them becoming the world’s leading plug-in electric vehicle manufacturer. In a cross-shareholding arrangement, each company is committed to acting in a financially responsible manner, and the sharing of resources decreases costs while improving overall time-to-market.
Amazon – creating win-win associations using supplier relationship management
Supplier Relationship Management (SRM) is the strategic approach to basic relationship building with the companies and individuals that provide your enterprise with the base materials and services your needs by helping to deliver your product or service to your customers. SRM can help you build on existing, or repair previously fractious relationships to create win-win associations, and will often lead to improved value and communication, reduced waste, increased productivity and improved innovation. One of the best and effective Supplier Relationship Management pros is the mega-corporation Amazon. Ranked #1 on Gartner’s Top 25 Supply Chains list for exemplifying the ideal supply chain, this e-commerce leader is the undisputed king of effective Supplier Relationship Management.
In truth, their results speak for themselves: A three-year weighted average revenue growth of over 20%, with an average return on assets of 0% for the same period speaks volumes about Amazon’s preference for the best supplier relationship management tactics. By working smarter and focusing on procurement best practices, all of the above enterprises successfully achieved or are expecting significant productivity gains and savings on cost. While you may not be able to directly approach these organizations for their thoughts on the absolute best procurement strategies, identifying the methodologies they favour is sufficient for you to start planning your own series of best procurement strategies.
The synergistic application of best practices to procurement isn’t mere fantasy. It is an achievable, realistic target and the companies listed above are proof that procurement best practices tend to lead towards sustainability and profitability.
ThunderQuote is the most comprehensive business services portal in Singapore, Australia and ASEAN , where hundreds of thousands of dollars of procurement contracts are sourced every month by major companies like Singapore Press Holdings, National Trade Union Congress and more.