High Performance Procurement

Add comment January 24th, 2007 David Bush - Iasta

Supply Chain Management Review recently summarized Accenture’s research in high-performance businesses in industrial products, automotive and related industries that determined these businesses are masters of five procurement-related capabilities. Specifically, high performance businesses:

• Source more direct materials globally and in low-cost countries.
• Combine low-cost manufacturing and “buy-brand-sell” strategies to cut costs on low-margin products and extend complementary product lines.
• Elevate procurement to a strategic function to increase overall supply chain reliability and minimize total landed costs.
• Integrate purchasing earlier into the product-development process to take maximum cost out of product design.
• Deploy consistent processes and tools across business units and operating companies to aggregate and standardize spend data and improve compliance.

One of the two key capabilities here is obviously procurement as a strategy with procurement part of cross-functional team. The article points out that leading companies dedicate a small but highly skilled team of managers to take responsibility for a specific commodity. These managers, who know all about the manufacture and use of the commodity, lead efforts to standardize the grades and codes of the commodity used in the firm’s products. This concentrates the buy and gives it greater leverage in negotiations. In addition, the benefits can be extended to suppliers and contract manufacturers to lower the cost of finished products.

The article also points out that strategic procurement can drive component and module standardization and that high performance businesses maximize not only their use of standard components but also their strategic partners’ and suppliers’ use of these components. In addition, procurement can drive more supplier involvement in the design process, and suppliers who understand your needs better are in a better position to deliver.

The other key capability is the use of consistent tools and processes across business units and operating companies. This allows companies to aggregate spend data, centrally manage projects, maintain all relevant product, price, and contract data in a central repository, manage bids, auctions, and negotiations consistently, and use best-of-breed tools to determine optimal award allocations. The tools can also track orders and make sure the right product from the right supplier is bought at the right time.

Entry Filed under: General, Supply Management Best Practices, Technology