Procurement transformation: more than squeezing suppliers’ margins

Transferring pressure onto your suppliers’ margins is not sustainable in the long-term. In fact, it is the shortest route to supply disruption as you will risk supplier failure, Duncan Jones, Principal Analyst for Forrester Research, told supply chain leaders at SAP and SmartProcurement’s CPO Forum early in March.

He noted that successfully implementing a new procurement system into your supply chain depends on how you implement it. “Focus on adoption.”

First, the buying organisation’s own personnel need to buy into the new system.

Jones’ advice here is to align procurement goals with overall business goals – this is the key to securing executive support for procurement’ programme. Executive support will strengthen the governance and compliance culture: “my performance appraisal will review how I complied with company policy”, so make sure procurement compliance is part of company policy.

Next is to integrate procurement with finance. “Your saving isn’t real unless it reduces the relevant budget”. Perform a spend analysis and identify which budgets can be reduced and then make sure procurement gets the credit.

Second, supplying organisations need to support the system.

“Market the programme to your suppliers. Explain the benefits to them,” said Jones.

But you’ll need to put your money where your mouth is when making suppliers aware of the benefits of supporting a new system: reward them with faster payment when they invoice correctly.

On all fronts “reward doing things the right way and make it easier than doing it the wrong way”. This will make the system acceptable to suppliers and procurement personnel. “If your system includes an arduous approval of purchase orders and delayed pay to suppliers, then expect rogue spending,” said Jones.

CPO Forum

Chief Procurement Officers, Senior Managers in Supply Chain, Group Procurement Managers, Senior Buyers and Group Supply Chain Managers joined SAP and SmartProcurement to discuss the procurement environment in South Africa and the procurement initiatives in their organisations.

SAP SA is a leading producer of system applications in South Africa. Internationally, SAP has hosted Chief Procurement Officer Community Forums in New York and Amsterdam with great success. The South African forum in Sandton, Johannesburg was no different.

A forum of this nature is the ideal occasion to assess what several leaders in procurement are thinking.

“South Africa and Israel are on the cutting edge in terms of using e-procurement platforms,” Clause Jensen of SAP Germany told the forum.

He added that research indicates that Procurement has transformed itself into a profit centre and leading organisations no longer look on it as a cost centre.

Furthermore, he encouraged heated debate around centralised vs. decentralised procurement, and indicated that the latest models being followed are centre led, with procurement’s role being to negotiate and HR’s to contract.

“Centralised procurement works and is much more efficient,” said Zak von Gordon, CPO of Aveng, adding that it is people and technology that make processes stick, which in turn maintains savings.

Karen van Vuuren, CPO at Absa discussed her mantra of ‘Cost Down, Value UP’, achieved by analysing the whole basket of commodities and ensuring that the functional maturity of a procurement team is matched with commodity portfolio maturity.

She also relies heavily on supplier relationship management to release further value.

“You must manage supplier relationships to keep the savings gained through initial strategic sourcing.” She said Absa experiences a 23% value release from managing supply relationships.

Furthermore, van Vuuren said that an effective method to bring buyers on board is to speak with each one one-on-one. “When you face a person eye to eye and are frank and honest with your aims, they’ll come to the party.”

Meanwhile, “if procurement brings value to the table then it will be taken seriously and given appropriate professional recognition,” said Mira Ristovich of MTN.

She said that education and training is critical to a procurement organisation’s value proposition, and that MTN insists on a diploma level from a basic administrator, upwards.

SmartProcurement and SAP would like to thank all that attended the CPO Forum and for contributing their knowledge so openly.