Purchasing is evolving

Published February 2014

As we slowly creep toward brighter economic times, the focus on cost cutting that comes naturally during austere periods is moving on too. While 88% of CPO’s believe they have fulfilled or exceeded their savings targets over the last five years, only two thirds believe they have delivered value to stakeholders, so as businesses begin once again to focus on new products and markets, procurement need to be prepared to respond.

What this means is that purchasing is evolving. Whilst cost-efficiency will remain top of CPO’s agenda, new product development and marketing and businesses expansion will come alongside it in order for procurement to support the wider aims of the business. Managing suppliers Supplier management has always been essential to purchasing, but with a focus on expansion and new products keeping up-to-date with supplier innovations is key for procurement teams. Many businesses have started to use a pyramid system, whereby suppliers are positioned in order of criticalness; this gives procurement departments who deal with hundreds of different companies the ability to prioritise relationship monitoring and risk assessments. Technology is playing a key role in supply management too. Increasingly procurement leaders are turning to Supplier Relationship Management (SRM) for a view of suppliers, with the ability to monitor performance and pricing across the entire supplier base. Data Back in 2011 data was top of the CPO investment agenda, but a drop in business confidence and fears of a double or triple dip recession put paid to many plans. Since then data management tools have moved on to become more dynamic and they’re set to go back to the top of the investment list once again. Retrospective data is vital in understanding how suppliers are offering value to a business and identifying where further savings and efficiencies can be made. However, there is an increasing move toward live and even predictive data that will see procurement becoming more proactive. This information will enable procurement to make a meaningful contribution to decision making, in the identification of strategic opportunities, early identification of risks, or more proactive management of suppliers for example. Risk Risk is generally viewed as a negative word and certainly over the last six years it’s something many business have been keen to avoid, particularly those whose pre-recession risks came back to haunt them. With business confidence on the increase and expansion plans a part of many companies immediate plans, remaining risk adverse simply isn’t an option. Heightened media coverage of supply chain risk, even over the last 12 months, means procurement is now more aware than ever of the need for risk management. Building and monitoring risk profiles of suppliers, which reach right down to first tier contractors is essential, but considering risks which are out of all control such as natural disasters and those closer to home, such as internal fraud is equally important. The progression of companies over the coming years will allow procurement to become a ‘front office’ business function, one which is critical to the overall decision making and expansion plans.