Ross Dawson, Operations, Procurement and Supply Chain Practice Lead at Eton Bridge Partners, highlights the reasons why a robust and strategic procurement mindset is essential for businesses facing a series of supply chain challenges.
With the effects of Brexit becoming apparent, the hangover from the pandemic yet to be truly seen, and the war in Ukraine causing a global impact, the world of supply chain is challenged in every respect.
- Manufacturing has reduced
- There are commodity shortages, or significant price increases
- All types of freight are compromised with continued lockdowns, air paths closed, drivers isolated, container backlogs – and, therefore, more costly
- There are temporary, or maybe permanent, shifts in consumption patterns.
All this leads, for many, to an inevitable revised focus on cash and risk management.
Procurement teams can no longer simply navigate price disruptions and category shortages. They need to shift the focus away from cost savings and reactive buying, and on to a more strategic set of objectives.
These include supplier diversity and strong strategic relationships in support of the company’s D&I agenda, risk mitigation and resilience. They also need to find ways to capture value while focusing on savings where possible, increasing transparency, avoiding costs and considering the offshore-v-nearshore supply options. (1) Bain & Company, Rich Sheinfeld and Adam Forman
Strategising and streamlining the procurement process is key to supporting the wider business strategy. It provides a bedrock on which the whole company’s functionality sits. It provides visibility for all stakeholders within the chain, so that they can plan accordingly when it comes to decision making. (2) University of Lincoln
As suppliers incur significant price increases, they will need to raise prices more broadly. It will take an experienced buyer to understand the potential impact, the reasons behind the rises, and the measures that can be taken to revert once inflation abates.
Procurement must be central to a revised business structure
Over the past 12 months, there has been a significant amount of M&A and divestment activity. This has led, and will continue to lead, to simplification or centralisation initiatives. Given the fact that this is taking place in a time of increased demand, labour shortages, rising labour costs and general inflation, procurement must be a key consideration in a new organisation structure.
Many organisations need to invest in improving a strategic and operationally strong procurement function. Others need to invest in creating one from scratch.
Eton Bridge Partners and our associates have supported a number of companies to create a greenfield procurement site, or to transform their procurement function to ensure they have the tools in place to support the business appropriately. We have seen significant financial and operational benefits every time.
Anyone can buy anything in an organisation. There may be some controls, but they’re easy to work around. However, reputational risk should be of particular concern right now. Apply the Daily Mail test: If it was publicised that you deal with suppliers that are seen to behave unethically, would this be particularly damaging?
People have considered the way they were treated during the pandemic and this has led many to seek new employment. Consumers and PE funds look for ethics in supply and, although cash is king, the focus on ESG has never been so prevalent.
Organisations rely on strategically important suppliers but, if the relationships and performance are not formally managed, how can you be sure you’re getting the best deals, the right level of service, priority of supply or, indeed, any additional value? When you need to move quickly, if high-value agreements are not managed by professional negotiators, what could the damage look like?
If companies have no contractual due diligence, limited formal supplier selection, and no transparency over the supply chain in negotiations, they are unlikely to have the basics in place to ensure the required outcomes in the years ahead.
How you can ensure successful procurement transformation?
Sian Ellingworth is an associate of Eton Bridge Partners, and an experienced commercial procurement transformation consultant who has created greenfield procurement sites for two of our clients. What does she believe businesses, and specifically CFOs, need to do to support the success of greenfield procurement and transformation?
- Ensure there is a clear process to make decisions and approve new policies
- Ensure the rest of the board is on board in advance
- Agree how to prioritise several change projects that may be happening at once to ensure resource is appropriately assigned
- Budget for the project taking longer than planned
- Hold regular reviews and steering meetings, and hold people to account for agreed actions
Another Eton Bridge Partners associate, Dave Seddon, who we placed to create a greenfield procurement site for an energy client of ours, added that it’s essential to ensure there is absolute clarity around outcome priorities and key deliverables of the project before it starts.
Although this may be covered by the point ‘Ensure the rest of board are on board in advance’ by interpretation, from our experience it’s beneficial to go into quite a bit of detail as to what the expectations are to ensure the value is returned and the objectives are achieved.
Often the problem is that there is no strategic procurement presence to identify what these should be, and Eton Bridge Partners and our network are well versed in supporting companies establish a clear set of agreeable outcomes and taking the business through to successful completion of those.
A fit-for-purpose procurement offering or function simply must cover people, process and technology. Businesses need to invest time and resources, and must sincerely want to change.
The mindset shift is often the hardest part – but it is essential. Without a change in attitude, the process will fall away or never be adopted; the tech won’t be up to scratch because the value in the investment won’t be understood; and the wrong people will be hired, or the right ones will leave.
By investing in procurement early, you can redefine value management, commercial strategy, sustainability, and supplier management. This enables procurement to add transformative value and, consequently, support the business to thrive in 2022 despite the ongoing challenges.
If you’d like to discuss your procurement or supply chain capability, please contact Ross Dawson at [email protected] or call her on 07710 884004.
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