Procurement function one of most important drivers of future business success

The procurement function has a significant role to play in an organisation’s future business success in the global market, far beyond its past role of simple order processing, said Gerd Kerkhoff, CEO of Kerkhoff Consulting, tells SmartProcurement.

Today’s economies do not operate in isolation, but are intricately interwoven with others in which their suppliers and customers operate, which has had a profound impact on the procurement function, said Kerkhoff, speaking at a seminar convened by Rethink Management Consulting in Johannesburg recently.

Kerkhoff Consulting is one the largest global consultancies specialising in procurement optimisation. Locally, it partners with Rethink to bring its methodologies and expertise to South Africa.

“Internationalisation has effectively shifted the procurement paradigm for all types of businesses. Whereas a Procurement or Purchasing Department’s responsibility in the past typically began and ended with order processing, it must today consider various trends and supply chain scenarios before making a decision,” said Kerkhoff.

“In fact, because the knock-on effect of the various crises – financial, economic, political, and social – is exacerbated by internationalisation, a Procurement Department has one of the most important roles to play in its organisation’s ongoing success as a global player.”

Kerkhoff identified four mega-trends in purchasing that are currently influencing the way Procurement professionals make their decisions.

“Megatrend Number 1 – green procurement, was only a fuzzy buzzword three years ago,” he said.

“Today, it is considered an important competitive advantage by over 50% of respondents in a recent survey conducted by the Kerkhoff Competence Center of Supply Chain Management (KCC) at the University of St. Gallen and by the Institut für Demoskopie Allensbach (Institute for Public Opinion Research).

“Furthermore, 69% of those interviewed expected that sustainability in procurement will become even more important in the future with 7% percent already thinking about how they could design their logistics to render it more environmentally compatible.

“Today, sustainability is no longer an issue exclusively for social romantics or Greens who have made it to top-management levels. But, whatever the motivation for action may be, the decisive factor is that the necessity for action exists. Certainly, the fact that it might even result in competitive advantages should provide sufficient incentive to deal with the issue of sustainability as early as possible and be ahead of the market,” he said.

“Allied to the trend for green procurement is the second mega-trend, the battle for energy and scarce raw materials. Currently, this is the most important trend according to a food industry survey conducted in October 2009 while our own research highlighted that interviewees considered the most important future trends to be the preservation of natural resources (25%), the use of alternative sources of energy (16%), as well as low-emissions production (12%).

“How does this impact the procurement professional? Well, energy costs are accounting for more and more of a company’s overall costs, and while there is global competition for raw materials, the BRIC countries (Brazil, Russia, India and China) display a disproportionately high and rising demand for energy and raw materials, thereby exacerbating international competition. Putting plans in place to secure your company’s share of scarce resources – or even specialised equipment used in your mining, manufacturing or service industries – is vital,” Kerkhoff said.

When it came to mega-trend number 3, competition for staff, Kerkhoff said the era of the purchaser as a processor of orders is over and that globalisation, inter-linkage and growing influences on procurement (for example finances, sustainability, individualisation) are changing the professional profile of the purchaser.

“Well trained purchasers are becoming an increasingly scarce resource,” he said.

“This lack of talent management in purchasing will result in ‘home-made’ shortages and unnecessary pressure on margins. This is a trend that cannot be ignored but which can, to an extent, be ameliorated by partnering with procurement specialists and investing in smart technology.

“Technology and specialists, too, can make a huge contribution to organisations seeking to deal with the fourth megatrend – purchasing as a control function within the business, which has seen the impact procurement can have on the viability of the company’s core business.

“In conclusion, the number of trends influencing the world in which we live and trade is increasing, as is the degree to which these trends are linked. As a result, competitive advantages through new, innovative products and transparent markets are becoming increasingly important in the global commodities trade and factors affecting the commercial success of a business through its purchasing policy are increasing. Purchasing must therefore be made responsible for the early identification of trends and supply chains must be well integrated and fully able to respond rapidly and flexibly to changes,” Kerkhoff advised.

Rethink Management Consulting provides a set of integrated services that are aimed at helping organisations with their ongoing performance optimisation and operational development initiatives. Rethink has recently partnered with Kerkhoff Consulting GmbH, one of Europe’s leading Procurement Optimisation companies, to bring their expertise to the South African region.

For further information, please contact Kem Tissiman at kem@rethink.co.za