| |
 |
Consultant opinion
Reorganising procurement – treatment or prophylaxis? |
|
In most companies, procurement seems to be treated as something of secondary importance, something that only supports the business and that does not necessarily influence how the company performs in general.
The procurement department, if any, often works as part of the financial or production departments of a company (the latter case is common with industrial businesses). The main target of this function is confined to managing some contracts and serving various in-house needs.
It has been found that – over the past 15 years – the focal point of business has shifted from production to sales, which is actually a normal development that goes under the market drivers.
What stays in “the shade” though is that some people’s output is other people’s input, except for consumer goods and services. More precise, although buyers and sellers should see the same transaction in a balanced way, reality is not always like that. Human, financial, logistic and procedural resources that transaction parties are allocating are never comparable. The uneven balance of power often reduces chances of having a “win-win” transaction.
Now, it is true that a certain complementarity may sometimes be a benefit for the buyer (the seller takes care of everything, the buyer just pays), but that can only reduce the buyer’s control on that particular transaction.
This reduced capability of control of the transaction is reflected in:
• Products/services that are purchased in this way do not always have the best price/quality ratio;
• The internal demand gets lower satisfaction in terms of quality:
• The extensive duration of the procurement process (from the time when the internal request is initiated and up to acceptance);
• The quality of the procurement process depends on the quality of operatives and decision-makers who are involved in the process (subjectivity);
• There is a risk that suppliers fail to meet delivery deadlines and/or requirements in terms of quality of the products/services that are offered;
• The way in which company’s money is spent is not transparent enough for the corporate management;
That is why the way in which procurement is approached needs to change in order to improve the way in which the whole process is controlled, but also in order to enhance involvement and to a better influence on the result of the transaction.
Reducing costs without reducing quality, as I would define the optimisation of procurement, should be an imperative for all companies regardless of how developed they are (expanding, strengthening, declining) and also regardless of their financial status or management style.
Optimising procurement should no longer be seen as something extreme that stays in stock and is only used in a crisis, but as a measure that secures and maintains the quality of business.
The impact that procurement optimisation may have on how profitable a company is may be estimated as being even more important than the similar approach is for the sales, for at least two reasons:
• Reorganising procurement has a major component which is related to internal diligence, while external factors with a lower optimisation potential make the major component of sales;
• The benefit of cost cutting is obvious. A 10% cost reduction will impact the profit just as a 30-50% surge in sales would.
Optimising procurement may involve some work to:
• Create/change working procedures and instructions;
• Select, train and incentivise the staff;
• Change the IT infrastructure;
• Change the logistic organisation;
• Change the organisational structure of the company.
The optimisation process does not only involve the procurement department, but – to some extent – each department of the company, since procurement also covers the definition and planning of the demand, therefore any in-house beneficiary. Therefore, the “therapy” goes all around and through the company.
That is why I consider that redefining procurement as an integral part of the core business enables the organisation to make the most of a potential which has not been used properly so far and that may have implications on the "corporate health".
Viorel Cernea
Ensight
Consultant
|
|
|
|
|
|
| |
| |
|
| |
| LEGAL
BRIEF |
How
is your business affected by the legal instability?
Do you know every legal change? Ensight MC Team
analyzes all new legal changes in Ensight Legal
Brief.
|
Subscribe
for free now.
|
| |
| RECOMMEND |
| If
you belive that one of your friends or colleagues
might be interested in the information Ensight offers
through this newsletter, recommend it to him/her. |
| Click here. |
| |
| SUBSCRIBE |
| If
you have received this newsletter as a recommendation
from a friend or colleague and you want to subscribe, click
here. |
| |
| WE
CARE |
The
purpose of this newsletter is to bring you relevant
information, from fields such as IT, finance, legal
and management.
Please take
this poll to help us understand better what
is relevant for you. |
| |
| ABOUT
US |
We
are the local leader of the management consulting
market, with a team
of professionals sharing a global perspective
and offering integrated
business solutions.
Independent, non-affiliated, we benefit from the
solid, multi-disciplinary international experience
of our staff. |
| |
|
