Profiting from strategic procurement

Executives the world over are recognizing that effective procurement strategies are the highroad to cost savings and competitiveness.

An IBM global survey of three hundred senior executives – including 95 chief procurement officers (CPOs) – demonstrates the crucial and rapidly rising importance of procurement in the enterprise supply chain. Sixty-four per cent of the execs surveyed said enhancing procurement strategies would generate greater savings for their companies, while driving future growth and competitiveness.

Procurement has grown in prominence much faster than many other functions, according to David Stevens, a partner and supply chain management lead at Markham-based IBM Canada Ltd. He said the role of procurement personnel is also undergoing a very fundamental change – from buyers to negotiators, and from transactional order placers to strategic business managers. …the role of procurement personnel is also undergoing a very fundamental change – from buyers to negotiators, and from transactional order placers to strategic business managers. Text According to the IBM study, as technology enables global and often borderless commerce, worldwide sourcing of direct materials now tops the list of procurement strategies.

Sixty per cent of survey respondents cited China as their number one destination for supplies, and said they are planning to increase procurement volumes and upgrade sourcing capabilities in that country. Eastern Europe and South Asia ranked second and third, respectively.

To respond to the new procurement dynamic, CPOs must equip their staff with needed skills and expertise and “must do so in record time,” the IBM study said.

Significantly, CPOs surveyed ranked staff improvement initiatives highest among their strategies to enhance procurement performance. The top three strategies were all people-focused – management and retention of talent, upgrading people skills, and training staff to improve core procurement skills.

One aspect of such skills upgrade is capability sourcing, the study said. It said instead of merely negotiating the price of a particular transaction, “procurement personnel must understand nuances of the capability in question, and have the ability to assess a broader variety of factors.”

Capability sourcing means being able to apply a holistic business perspective when choosing vendors, looking at the long-term implications of supplier partnerships, the IBM study said.

In response to the study findings, IBM has launched what it claims is the world’s first supply chain business transformation outsourcing (BTO) offering, patterned after its internal supply chain processes as well as its new analytics technologies.

The offering, IBM says, will “optimize and help businesses operate end-to-end supply chain processes, from procurement and logistics to strategy and planning.”

“Our clients understand that while running a world-class supply chain may not be their core competency, building that kind of capability is fundamental to their success. This is a completely new growth opportunity for IBM, bringing with it a different kind of competitive landscape,” said Bill Ciemny, vice-president for IBM’s Global Supply Chain BTO Solutions.

While outsourcing procurement may bring key benefits to an organization, certain factors need to be considered before embarking on such initiative, according to Joanne Friedman, CEO of Toronto-based business technology management firm ConneKted Minds Inc.

She said companies looking to outsource supply chains should “not lose control” over their relationship with their suppliers. “While they may be outsourcing their supply chains, they have to remember that not all trading partners are created equal. They have large suppliers and smaller suppliers…they have to accommodate the needs of smaller suppliers in a situation where (they) accommodate the many, not the few, from the technology perspective,” she said.

To be cost effective, she said, the outsourced supply chain must be a multi-tier, multi-process solution.

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Jim Love, Chief Content Officer, IT World Canada

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