The world has witnessed unprecedented changes in the last few decades, many of which have had a huge impact on the procurement and supply chain management profession. Transparency in business is being driven very strongly and stakeholders are demanding greater and deeper scrutiny of procurement activities: especially by Western countries like the United States of America through legislation such as the Sarbanes-Oxley Act of 2002 (SOX) and the Foreign Corrupt Practices Act of 1977 (FCPA). We have seen the prosecution of individuals and huge fines levied on companies as a result of corruption & financial malpractice charges. In Nigeria, the Economic and Financial Crimes Commission (EFCC) and the Independent Corrupt Practices and Other Related Offences Commission (ICPC) are gradually making serious inroads in dealing with corruption and financial crimes.
LESSONS FROM 2008
No other issue has been discussed as intensively in business circles as the recent collapse of some global financial institutions, which led to an unprecedented value erosion running into billions of dollars of investments and prompted many large organizations to go under. This has placed the world in a recession mode with huge adverse effects, like none ever seen since the great depression of 1929. Many economies have seen financial, stock market and mortgage institutions collapse in effect requiring government intervention (e.g. Enron, Lehman Brothers, Northern Rock, AIG, Freddie Mac and Mea, e.t.c.).
No organization or unit is immune to many of these big issues that provide both huge opportunities as well as risks and procurement leaders must begin to see the bigger pictures: carefully evaluating their impact and integrating short, medium and long term strategies and plans. Such will enable procurement and supply chain practitioners in adding the kind of value to their organizations bottom line that is capable of winning boardroom attention. Getting boardroom attention means being able to influence key decisions about managing risks and maximizing returns for the business. SCM and Procurement leaders will not be able to gain such attention by merely focusing on traditional routine activities like sourcing and tendering.
The procurement and supply chain management process can only deliver the desired benefits if it is executed as a coherent whole, and if the disparate & often dispersed people involved in procurement decisions across the organization work together for the overall interest of the organization. You cannot assume that different groups or units involved in the procurement and supply chain process will come together naturally to work things out. Experience shows that each function likes to pursue its own agenda and tends to work in silos to the exclusion of other units. A coordinated boardroom approach is therefore needed to achieve the desired synergies and leverage potential; otherwise project delays, execution failures and excessive costs are likely to result. Re-orienting procurement and supply chain management in your organization is not an easy task. It takes time and demands top level commitment and may require investment in staff training and new technology. The starting point of course is a review or an audit of your current processes and procedures to determine the exact steps that must be taken in order to move things forward. Effective procurement and supply chain management help organizations to win and sustain competitive advantage provided it is supported by the organization’s upper echelon from the outset – upgrading the procurement and supply chain management process can indeed be one of the best investments any organization can ever make.
I. Do you know how much your organization is spending externally?
II. If yes, do you know how much is spent on each category of spend and with which supplier? (A category is a range of purchase group types – e.g. Energy, IT, Logistics, Stationary, e.t.c.)
III. Do you know the total cost of the purchases you make, rather than just their price? (Such costs will include: the costs of the procurement/payment processes – as well as the whole ‘lifecycle’ costs of major purchases – e.g. Plants, Machines, Buildings)
IV. Do you know how much value your suppliers provide and create for your organization’s success and reputation?
V. Do you know who your key or top ten suppliers/contractors are? What systems are in place to capture such data?
VI. Do you have pro-active, close relationships with your key suppliers and contractors?
VII. Do you understand the risks inherent in the purchases you make? Are you managing them effectively?
VIII. Do you know what you should outsource and what you should not outsource, and why?
IX. Are you outsourcing services successfully, and how do you know?
X. Are you managing suppliers of outsourced services successfully?
XI. Do you know what your procurement strategies are; are they aligned with your business objectives and strategies?
XII. Do you have appropriately skilled people developing and managing your procurement strategies?
XIII. What proportion of your external spend is managed by your procurement professionals?
XIV. If the answer to the last question is not a 100 percent, why not? And, what are you doing about it?
XV. How do you support your procurement people to ensure they achieve appropriate benefits for the organization? How do you know they’re doing a good job?
XVI. Do you direct your procurement people to limit their focus on reducing prices by x percent each year or do you direct them to achieve cost-effective, risk-controlled added value?
If your answer to any of the above questions is a NO. Please contact us and our team of agile professionals would be happy to help you seek answers and provide sustainable solutions.