How can procurement create value beyond cost savings?
David Millington, Certified Supply Chain Professional, Next Level Purchasing Association, offers ten procurement value creation ideas in this month’s SmartProcurement.
1. Speed up ‘time to customer’
Identify products or services that your organisation provides to its customers where time to delivery/completion is important to customers. Identify purchased products and services that are part of, or support, what is provided to customers. Then, identify ways to speed up your supply base’s delivery of those purchased products and services so that your organisation can serve its customers more quickly.
2. Improve quality to the customer
Identify products or services that your organisation provides to its customers that do not consistently meet customer quality requirements. Identify purchased products and services that are part of, or support, what is provided to customers. Then, identify ways to work with your supply base to improve the quality of those purchased products and services in a way that will improve quality as measured by customers.
3. Improve organisational efficiency
Identify the resources and time involved in each of your major procurement processes. Identify ways to reduce the number of steps, participants and time required to complete said procurement processes without sacrificing quality or integrity. Also, identify processes whose timelines are influenced by supplier performance. Identify how these processes can be made more efficient through better supplier performance or re-engineered approaches to interacting with suppliers.
4. Funnel innovative ideas into the organisation
Employees in your supply base observe the best practices in your industry and may have innovative ideas to share. Solicit, vet and introduce their innovative ideas into the organisation.
5. Minimise risk
Identify the most critical products and services that your organisation purchases. Identify all of the reasons your supply of said products and services can be disrupted. Then, identify the actions you can take to prevent supply disruptions and recover from supply disruptions if they still end up happening.
6. Enhance social responsibility
A popular marketing angle for organisations is to tout how socially responsible they are. Identify changes that you can make to your sourcing that can inspire your marketing department to tout your organisation’s socially responsible sourcing on product packaging and/or promotional materials. By aligning its efforts with marketing initiatives, procurement can actually help grow revenue, not just reduce costs.
7. Be more agile
Identify products and services that your organisation provides to its customers that could potentially have unpredictable demand. Cultivate a responsive supply base that can quickly fulfil unusual increases in demand and also sustain itself during periods of unusual decreases in demand.
8. Improve reliability
Procurement plays a pivotal role in many organisations’ reliability. When a supplier doesn’t consistently deliver inputs on time, your organisation will struggle to deliver outputs on time as well as cost effectively. Identify where your supply base has been unreliable in terms of cost, delivery and quality, then implement changes to ensure that improved reliability flows through the supply chain to your organisation’s customers.
9. Increase ethical standards
Whether to correct a historical problem or to prevent future problems, ensure that your organisation has up-to-date procurement ethics standards. Though it is difficult to quantify the financial value of well-constructed ethical procurement practices, the phrase an ounce of prevention is worth a pound of cure applies here.
10. Achieve cost savings
Achieving cost savings is the classic way for procurement professionals to create value. Use negotiation, strategic sourcing and other methods to reduce the prices your organisation pays for goods and services. Additionally, seek out suppliers, products and services that offer efficiencies in energy use, warehousing, maintenance and other cost-driving areas to achieve the lowest total cost of ownership.
David Millington is a Certified Supply Chain Professional, Certified New Product Development Professional, Certified Strategic Planning Professional and a Certified Lean Six Sigma Black Belt. Millington holds a Master’s Degree in Quality Systems Management from The National Graduate School of Quality Management, Falmouth MA, USA. His expertise equips him with mastery of vast bodies of knowledge and best practices. Millington brings hands-on experience to VP, Director and Manager levels, guiding and facilitating the development of strategic and tactical solutions to intricate organisational, product and service challenges.
Read more about: How to get to 100% value creation with suppliers
