Often competitive advantages are created over time with the contribution of many business areas. An empowered Procurement organization collaborates with multiple touchpoints across the business. Procurement can, therefore, play a key role in building competitive advantages valued by customers.
The magic happens when your Procurement function has the capabilities to simultaneously:
- Control total cost
- Get value for money
- Leverage supplier innovation
That’s the stuff competitive advantages are made of. Let me briefly explain what I mean.
Total Cost Control
Controlling total costs is about looking at the whole picture. Reducing costs in one part of the business only to see it balloon elsewhere is a common business challenge.
At one company I saw the negative effect of not considering total costs across all related activities. Items were bought in bulk at a “low price”, not taking into consideration storage, transport, and destruction costs. The unnecessary costs destroyed shareholder value. By looking at ALL the business activities, risks,s and supplier innovation I saved the company millions and hereby restored that value.
Value for Money
Getting value for money means obtaining the right balance between quality and price. In old-school clerical Procurement functions, all that matters is price. But getting a low price at the expense of quality can become very very expensive. Imagine, for example, a factory saving money on a component only to find that sub-standard quality forces a shut-down of production. Oops! Suddenly the “saving” has been replaced with added costs and reputational risk to manage.
In the video below I talk more about the dangers of sub-optimization and what Procurement must do to add business value beyond savings.
Supplier Innovation
Leveraging supplier innovation is paramount because you can’t do it all alone. You are only as good as your suppliers. Their capabilities, innovation, and creativity help you compete in the market. The better you get at tapping into what the supply market has to offer, the more successful your business will be.
I have seen even large companies not use the full capabilities of supply markets. One company was more focused on internal processes than talking to suppliers. When I broke the mold and initiated a business-focused dialogue with suppliers, we achieved better value for money. In addition, we got access to services that improved efficiencies, and thereby competitiveness. It took relatively little resource to do this – something that’s within every company’s reach.
Eprocurement India 