Opinion

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Could delivering cost-savings be holding your business back?

5 Mins

The need to help businesses advance growth while trimming away excess costs is a constant pressure for procurement leaders. Of course, driving down costs can have a significant effect on the bottom line, but the fact that procurement teams are often being asked to deliver more for less can leave them feeling disempowered and unable to deliver the kind of business improvements they are capable of.

To combat this, business leaders need to start placing more focus on the need to deliver value, and ensuring that procurement strategy is properly aligned with wider business goals.

In some instances this can lead to a dilemma for procurement teams – driving down costs can negatively impact on other priorities set out in a corporate growth strategy. In this respect, procurement teams need to tread a fine line, developing robust cost-reduction measures that have maximum bottom-line impact without hampering the overall growth strategy. The responsibility for managing this challenge ultimately lies with business leaders, who need to ensure that procurement strategies do not result in internal conflicts with other key objectives.

The solution is a simple one – in practice, it demands time and flexibility, but the overall result is a business in which all areas of operational activity are properly aligned, and where procurement is responsible for supporting their delivery.

Implementing this change requires leaders to look at how to bring these priorities together as they push a business forward, and then communicate this clearly across all business functions. Once equipped with an appreciation of the corporate strategy, it is possible for procurement teams to start off-setting cost against these wider key objectives, with overall business value the new priority.

When compared to cost, sometimes other strategic goals can seem less tangible and measurable. For example, the potential for innovation and intelligence-sharing with business partners, and supply chain and market security are all relevant considerations that a business needs to take into account to both mitigate risks and identify growth opportunities. Each could come into conflict with cost-cutting strategies, yet there is clear value to be gained from all of them.

This potential for conflict is precisely why it is essential that business leaders place a deeper emphasis on giving procurement teams the freedom and necessary intelligence to make purchasing decisions that reflect the holistic needs of the business. Over time, a procurement strategy that is solely focussed on squeezing costs will impede innovation, for example, and have a negative impact on overall competitiveness.

The natural question for business leaders is to ask exactly what intelligence procurement teams need at their disposal in order to adopt this value-driven approach. Essentially, this should consist of shedding light on the strategic decisions being made at the top of a business, as well as the market trends and business goals that are affecting operations. With such insights at their disposal, procurement can begin to move away from the traditional ‘buyer’s mentality’ and instead focus upon delivering overall business value.

Real-life market examples of how procurement can drive business value are becoming more widespread. High street retailer Zara has succeeded in remaining responsive to fast-changing fashion trends, with product turnaround possible within a two week window. While cost remains an important factor in remaining competitive, this ability to respond quickly demonstrates a successful procurement model that is supporting wider corporate objectives.

Business leaders must step up and take responsibility for evolving the cost-based buyer’s mentality that procurement has traditionally been encouraged to follow. By educating procurement teams of the company, they will be empowered to drive value and deliver long-term business benefits.

Michael Minall is a supply chain consultant at Vendigital, who specialises in working with businesses in the manufacturing sector

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