Article contributed by OfficeMax, Inc., December 2010
As the economy slowly rebounds, businesses are pursuing several new, or somewhat new, strategies for managing their spend. Some companies are pursuing a so-called "bucket strategy," where they take savings at the beginning of the year and force procurement to find that savings later. Others have been known to tie savings from one year’s budget to savings in the next year’s budget. Virtually all purchasing executives are looking to outsourcing as an option to increase value and to get more buy-in from internal stakeholders, including their own associates in purchasing.
One innovation in outsourcing is incentivizing – rewarding internal stakeholders for moving certain business functions from internal to outsourced. IBM has been experimenting with this strategy. The company outsourced a large part of its logistics operation based on recommendations from the procurement department.
The most visible trend in procurement as a whole – and perhaps one of the most important – is the relationship procurement is forging with finance. This improved collaboration is changing the dynamics of spend management. Procurement Leaders magazine reports that Pepsi has embedded a finance function within procurement and given it a dual reporting line to both the CPO and the CFO. Estée Lauder has a similar arrangement, where the close relationship with finance has given procurement added credibility with internal stakeholders.
Likewise, in companies such as Procter and Gamble, procurement is working more closely with the sales team, occasionally to the point of being present with the sales representative during negotiations with potential customers. Having the procurement department’s insight could potentially help the salesperson understand the customer’s perception of best value, which allows him to better position the company’s products and pricing.
As both procurement and finance keep a close eye on budgets, they are mindful of how their actions can affect the financial health of their suppliers. During the depths of the recession, there was not a large focus on the impact of the demand for savings on suppliers; however, astute procurement professionals have come to focus their attention on this element.
A recent study by software supplier SAP and Procurement Leaders magazine shows that purchasing professionals are re-emphasizing collaboration with suppliers. Sixty-seven percent of respondents said that collaboration with suppliers for ideas and general innovation will be very important in the future; only 35 percent said it is an important element of their strategy today.
That same study also shows that procurement is becoming a more centralized function with more influence throughout the organization. A centralized organization, combined with closer relationships with finance and a keener appreciation of the potential for collaboration with suppliers, will make future budgeting a more strategic exercise. This type of sophisticated procurement department will bring results that go beyond savings; it will have the potential to impact not only the bottom line, but the top line as well.
Source: Paul Teague, Journalist, 2010