Involving procurement personnel from day one, in product development is imperative.
Today, you can’t develop a product without having competent procurement people in the process from day one. So when you want to do a product, then you have different entities at the table. You have the marketer, you have the general manager, you have the finance people, you have an R&D person, you have sales people, you have procurement, supply chain, manufacturing, so a garden variety of people, and they all have their angle on the product. So procurement needs to be part of that inner circle, and everybody is a stakeholder, and so procurement is a stakeholder in terms of the cost.Spalcke discusses how procurement organizations can be the conduit of global commodity knowledge.
Good early involvement is not when you just get a sales forecast. Good early involvement already begins in the product creation process, and that’s a different topic, but the early involvement in the product creation process also has an element where you say, what type of business do you want to be in? So what’s your potential market? And in marketing, you build, you do scenario building, you say, okay, we’re going to bring a new product into the market. What is the total market size? What could be our share? What could be the projection for the ramp-up if this works well? So that means procurement needs to have the finger on the pulse of the actual business plan, and then, basically, we need to go, in procurement, we need to go to our supplier base and say, we have certain scenarios, so the volume could be 100, or it could be 200. Now what does that mean to your production schedule? What does that mean to your overtime pay you need to pay if the product is hot and it takes off? What does it mean to inventory? What happens if the product doesn’t take off, and instead of 100 units, we’re going to have 50 units? Who’s going to be taking care of that inventory? What if we have pushback? Can we sell the product somewhere else? Will someone else take it and dump it? What will happen with it? So that means this scenario building can only happen if you have good early involvement in the business case. You can take your suppliers along for that conversation. The more transparent you are with your suppliers and integrate them into that conversation, the better their own second and third tier risk management will be with the supplier base they have, and therefore, the cost can be controlled.
Now this person who is in the context driven environment in the early involvement stage, that person needs to turn around and look at these global sourcing entities. So that means, if I’m the person in the context, then I will look at my 30 commodity managers, some will be sitting in China, in India, in Europe and America, and we’ll contact them and say, I am developing such and such product. I need to know what’s happening in manufacturing in China and in America, because I need to look at my landed cost. I need to look at who is developing something same or similar. What are our competitors doing with their products? What supplier base are they using? So I will contact the different commodity managers that play into my product. I will have them understand what I’m trying to achieve in this context driven environment in the business plan. Once they understand it, they can do their research. In many cases, they will already have their research. I can take that research in and say, if we’re going to do this product, let’s make sure we’re going to use material A as opposed to material B. Why? Because material A undergoes such and such dynamics, and we’re thinking that now is a low point in the cost, we think from now on, the cost will go up. So as we look at the product, let’s make sure that we either build this cost curve in, or we use different material. So that means today, you can’t make a single product decision without having procurement at the table, number one, with a person who really understands the context, and all the trade-offs associated, and number two, excellent commodity management that can feed into this context driven conversation.
Fredrick Spalcke is the Executive Vice President and Chief Procurement Officer of Royal Philips. Before joining Philips, in 2012, Mr. Spalcke worked for several multinational companies in executive leadership roles, building a successful international career with a strong track record of restructuring and delivering results, based on a broad experience in Corporate Strategy, M&A, Logistics and Procurement.