Seven key strategies to compel business value within the procurement function.
How can your suppliers help you get more for less?
It's about technology, it's about innovation, it's about new business models, it is about picking the right suppliers. So what are the suppliers out there that have technologies and have innovation, have business models which you can develop and align to your business in a way where you can get this idea of getting more for less? You know? If suppliers have innovation capabilities, can you really use those to help develop your products and your services to help win with your customers in the marketplace?
Many, many organizations are looking at what is the structural cost of our business – how much does it cost to run? And I think you have to find the right balance between what does it cost and what does it deliver? And I think the smart procurement organizations today are saying, "How do we become more efficient?" It's about focus at one hand, and it's about using smart knowledge, smart technology, smart infrastructure, you know, and good data, to be able to run, you know, a very efficient organization.
If you take most business leaders and you say the word "cost avoidance" you know, they kind of look at you sideways, as if to say, "Yeah, yeah, yeah, heard all of it before." But if you think about supply markets which are under immense pressure, I think one of the roles of procurement organizations have a primary responsibility to do is to give stable, cost competitive input costs to their businesses, where they can rely on those in developing their relationship with their customers.
And also the whole idea around risk management, you really need to understand where are the risks in the supply side, and how do you build solutions which prevent you from unscheduled events, which are going to create massive discontinuities in the way you service your customers, so I think that's going to take on a new, a new level of importance.
Planet, people, and profits: profits are becoming more relevant.
I think whereas sustainability in the past has been about planet and people, I think the profit piece of sustainability, the economic side of it is becoming, is becoming, you know, much more relevant and yeah, and I think you need to have sustainable solutions which are able to recycle or have, you know, sort of cradle to grave type strategies which really means that you're reusing those materials in a very effective way.
How do you use knowledge? How do you build, you know, not just go out and analyze supply markets and try and understand them, but how do you try and create sort of much stronger sources of knowledge and predictive type thinking in terms of, you know, coming up with disruptor strategies? How can you actually change the shape of something in a way where it fundamentally improves the value proposition from that?
CPOs should benchmark their performance against competitors
You need to measure the performance of your organization and understand how that performance is helping to impact the business. And even more importantly, I think you need to understand how your performance is relative to those other companies that you're competing with. And I think any CPO should not only look at his own organization, his own strategy, but also as part of that, should maintain a very high level of external orientation and a high level of sort of benchmarking the performance of his function to make sure that the people, they're performing at the level, and you're performing at the level which makes that organization deliver, you know, a good value proposition to the company.
Technology and knowledge management drive value for organizations
Some companies don't have a lot to do with sustainability because they buy a lot of services. So how can they really create circle of supply chains? That's a little bit different, of course. But technology is a real main driver in this process. If you look at technology, Big Data, innovation, that's a big change, just that change which has to take place currently. Knowledge management is another part where procurement organizations are really still lacking the knowledge, lacking the business intelligence, to take this next step. And I think he hit the nail there right on its head, that you have to focus more on knowledge management than capabilities to get your procurement company a more sophisticated company, a more value driver for your organization.
Tim Tolhurst has been the Chief Purchasing Officer of Royal DSM since January 2010. Tolhurst joined DSM in November 2009 from Firmenich Group, where he was Global Vice President Purchasing and Logistics. Tim is highly experienced in the area of Purchasing and has held several senior positions in this field with previous employers including Thorn EMI, Mars, SmithKline Beechamand Quest International.