Dollars and cents: what are we really saving?

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DiegoDeLaGarza_100.jpgBy Diego De la Garza

It might have started with dollars and cents, but what should procurement really be saving now? It is time to shift the dial.

For years, procurement was stuck in the old way of doing business. It was the role of the profession to beat down suppliers and the only consideration was cost. However, the proponents of this methodology are fast becoming extinct as procurement undergoes a new evolution. While savings will always be an important element in what we do, the important question we now need to address is: What are we really trying to save?

I have previously spoken about how strategic sourcing in procurement can help us change the world, but it is easy to believe that issues such as modern slavery and environmental pollution are still beyond our reach. They are buzz words or problems too big to solve; they are issues that are unlikely to find a solution within a single career.

But that is not true! Every day we are seeing political mandates, new regulations and social pressures that are driving change at an unprecedented pace. However, the window for change to actually solve environmental issues is closing fast - meaning we cannot sit back and focus on cost alone if we are really committed to change.

Saving vs. the social good
When we talk about optimising our supply chains, there will never be a time where cost does not form part of the conversation. Even if you are not solely focused on cost-cutting measures, there needs to be the ability to invest in solutions that will drive positive outcomes in the years to follow - and that cannot come without the budget to back it up.

In fact, when we look at how much money we are able to save through strategic sourcing for large multi-million dollar companies, compared with how much their net value can fluctuate on the stock market from day to day, the savings are actually negligible.

What we are really able to do when we are effectively reducing costs within our supply chain is reinvest that money back into the organisation. This macro-level approach to cost-saving lets you support the needs, beliefs or even employees of your company to help bring about change that will actually make a difference. Whether you are looking for widespread industry reform or to bolster your own company initiatives, cost will always join the conversation.

Saving and the successful supply chain
At Source One, a Corcentric company, we counsel our customers to constantly improve and optimise the way their companies develop supplier relationships. To achieve the best results as well as a positive, long-lasting supplier relationship, there needs to be an element of a partnership between procurement professionals and their supply chain.

Good supplier relationships help to create value for both sides of an agreement - whether it is a new product, a new process or an improvement that can make everything more efficient. The key piece of supplier and vendor management that is often overlooked is the ability to be creative and innovative to help challenge the status quo.

We have seen that by following and developing procurement best practice, and encouraging our suppliers to think about the problem that we are trying to solve together, we can enable these things to have a bigger influence in a tangible and evident way.

What changes the way a company acts?
Not all companies are started with a social responsibility guidebook in place. The organisational stance on environmental, social or political issues usually develops over time and, as such, there is rarely a budget set aside for supporting global issues. New regulations or social pressure can both have a bearing on the way a company acts.

A company's reaction to these pressures is either going to change the way the company is perceived - in market share or reputation - or it will change how the company will need to do business going forward.

For example, a new worldwide mandate will come into effect on 01 January 2020, where all ships and vessels operating anywhere in the world will be required to use fuel with a sulphur content of less than 0.5%, compared with the current regulation of 3.5%.

While those operating in the shipping industry can change to a cleaner type of fuel, they will find that these are more expensive owing to increased worldwide demand. Likewise, they could utilise 'scrubbers' to essentially clean their current fuel source, but this will come with its own ongoing investment.

Those who do not comply with these new regulations will face hefty fines - so no matter which solution a company implements we are looking at $30-billion worth of investment across the industry.

What we are really saving
This type of regulation will fundamentally change how a company does business as they will now have to factor in the increased cost of fuel to operate once it comes into effect. This also presents an opportunity for procurement to support the ability of shipping companies to comply, which will present its own positive solutions to environmental issues, while also absorbing some of the cost of finding other ways to mitigate, diversify or reduce their exposure and help lead the way to a more sustainable future.

Procurement really can make a difference, but these outcomes are best achieved when they are working with and supported by our cost-saving measures rather than being seen as the antithesis to an optimised supply chain. Sure, you can have one without the other, but by reinvesting in the future of the world around us we will find the best way forward.

Source One, a Corcentric company, was one of the key sponsors of the Big Ideas Summit Chicago 2019 and Diego De la Garza was a keynote speaker. If you want to catch up on Diego's Big Ideas for Procurement and Saving the World, join the Summit's group.

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