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Why the truth of your procurement philosophy only shows under pressure.

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Pressure is a word that has been used extensively around procurement the last few years. In the wake of the global financial crash the function was put under pressure to cut costs to help businesses try and stay in the black. Then there has been pressure to improve efforts around sustainability and supplier relationships to drive out more value in other areas. Even the best plans for growth and collaboration get scuppered when the pressure is applied to deliver quick wins.

 

But crucially, your function has a choice and it’s one that, depending on your industry, is going to rear its head when your bosses make it clear that big short-term savings are the order of the day. If procurement tries to cut costs but simply telling its suppliers that they need to reduce costs then that isn’t conducive to improving a relationship...and yet passing the pressure down the supply chain has been a go-to tactic for decades. 

 

You don’t have to look to hard to find any examples of this pressure coming to bear today and the same approaches being taken. Back in late 2014 supermarket giant Tesco was found to have a massive black hole in its finances, which related to the way in which it was accounting income from suppliers. An investigation by the Groceries Code Adjudicator (GCA) followed and it was found that the company had "seriously breached a legally binding code to protect groceries suppliers". It also found that payments to suppliers were sometimes delayed by years or that they were overcharged all to keep Tesco’s books looking good.

 

Christine Tacon, the GCA, pointed to this pressure on procurement in her report.

 

"The pressure on buyers and finance teams to meet margin targets was the over-riding pressure within the business. It was widespread. It was everywhere," she said.

 

For businesses in the fast-moving consumer goods sector pressure is always there because margins are so fine, but it is how a team responds to that pressure that ultimately determines how successful a procurement team and the business is in the long term. 

 

Get it wrong and you can end up with a reputation in tatters and arguments brewing with suppliers, regulators, even customers. Get it right and the rewards are many.

 

Take, for example, brewing giant SABMiller. Under pressure to improve margins, the procurement team looked for a different approach outside of simple supplier discounts.

 

They looked internally and wondered how by working with other functions they could make a difference to costs in packaging, a key area of spend for the business.

 

They brought a team together made up of people from across the business, each with different skills and expertise and set about tackling the problem. Not only did this project achieve what it set out to in terms of cost, it improved procurement’s reputation within the business and outside of it with the team picking up the 2015 Procurement Leaders cross-collaboration award. But, it also brought a greater understanding of the company’s supply chain capabilities to functions who had little idea of it in the first place. This is opening up many other opportunities that the company is now exploring and is sure to take advantage of.

 

Pressure is a funny thing but react to it in the right way and the rewards are there.

 

The deadline for the 2016 Procurement Leaders Awards has been extended to the 12th February. To win an award and share your best practice ideas enter here.  

 

 

Tim Burt
Posted by Tim Burt