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Published on May 19, 2016 |
A detailed examination of your supply chain—the structure that links vendors, manufacturers, products, and sales—can illuminate areas of potential improvement and significantly affect your company’s bottom line.
One area is procurement. For many companies, it’s the largest cost item—with some seeing almost 80% of their expenses allocated to suppliers. Thus, it’s often one of the first areas targeted for potential cost cuts. Such a view, however, sees procurement as buying resources for the lowest price—not as the complex web of providers that helps a company realize its strategic objectives.
Objectively evaluating procurement requires some rethinking. On one hand, it’s critical to see suppliers as an extension of your company. On the other, it’s key to see delivering on company objectives—not cutting costs—as the first priority of procurement. With this foundation, you can begin to transform your firm’s approach.
> Establish a steering committee—Build a trusted leadership team to create and implement a company-wide plan.
> Audit your procurement process—Identify key decision points and principles rather than focusing on functional areas.
> Assign ownership—Empower those who are responsible at each point within the process.
Throughout, there are key questions to ask: What is procurement’s role in the organization? What metrics determine success? Do we have the internal leaders we need or do we hire and form partnerships? What incentives will build our relationship with suppliers?
By carefully evaluating and redesigning the process, you can increase effectiveness at every access point—unlocking the door to greater impact and profits.