Not long ago, the predominant theory within the procurement community was that suppliers were there to be squeezed on costs each and every year. Doing so would keep suppliers competitive and would help the function meet ever-increasing targets.
However, as the 2008 global financial meltdown started to wreak havoc throughout global markets and put financial pressure on businesses up and down the supply chain, procurement functions began to find it increasingly difficult to find these savings.
Some of the more forward-thinking CPOs started to look for different ways in which they could add value to their businesses, beyond cost savings.
Supplier development was one particular effort seriously looked at as a way to find this value and those that looked in this direction were the likes of technology giant Royal Philips.
Such development efforts are formal programmes in which businesses meet the most strategic of their suppliers and talk to them about the products they make together, those their competitors make and the long-term goals of the business.
They break those products down and figure out what all the associated costs are and, in Philips’ case, they involve sending a team to the supplier with the intention of assessing and providing advice and support on things such as manufacturing techniques and general operations. While it has saved cash, it has brought with it a whole host of other benefits.
Speaking in a recent interview with Procurement Leaders, Hans de Haas, CEO of Bianor, a supplier of plastic parts to Philips, said one of the aims of the programme was to save 15% in costs and that they were about 60% of the way to achieving that. But, more importantly, the company’s supply chain was now much leaner and risk had also been reduced considerably.
Costs will always be at the forefront for procurement in anything the function does but if you want to attain this added value, it can’t be your main focus.
“We stress to them [suppliers] that this is not just about achieving cost savings for us," said Fredrick Spalcke, executive VP and CPO at Philips. This is a collaborative effort, he added, which involves people from both companies.
If you want to push your function to the next level and get people to think about procurement in ways other than cost-savings, this is exactly the kind of programme you should be implementing. And what better time to do that than as we approach a new year?
This article is a piece of independent writing by a member of Procurement Leaders’ content team.