Wanted: new talents and the cross-functional approach
How did the global financial crisis affect supply chains? And what are the biggest challenges that the procurement functions of international corporations need to be prepared to mitigate in the future? OpusCapita Journal interviewed a specialist in this area, Daniel Weise, Procurement Expert, Partner & Managing Director at Boston Consulting Group, Düsseldorf.
ABOUT LESSONS LEARNT FROM THE ECONOMIC CRISIS
“The big financial crisis of 2008/2009 was a real stress test for supply chains and the buyer-supplier relationships, specifically. Those companies with strong supplier collaboration handled the crisis much better. The crisis also brutally exposed risks and revealed many topics that CPOs still need to work on with regard to supplier collaboration. For example, working with unstable suppliers and the subsequent insolvencies revealed huge supply chain risks and sometimes contractual risks emerged, for instance from volume commitments that made procurement inflexible during the crisis.
“Procurement has a very strong impact on liquidity and can thereby be a crucial cornerstone for survival in crisis. With flexible arrangements companies can call off supplier volumes on a ‘pay as you go basis’ and also by insourcing production and services back into the company. Furthermore, payment terms optimization, supply chain financing and lease-vs.-buy decisions can positively impact the working capital. Especially supply chain financing has been reconsidered in many European procurement organizations after the Late Payments Directive was passed by many national parliaments, and procurement organizations find here a win-win strategy to gain liquidity for their corporations, whilst acknowledging the suppliers’ need for early payments.”
ABOUT TRENDS FOR GROWTH
“There are four main trends as the global economy is picking up: a shift of global trade, a need for more supplier collaboration, stronger investments into transparency and product cost optimization.
“Firstly, global growth in the past years also led to a shift in global trade. Some former emerging markets are growing faster, creating significant domestic markets, but also facing inflation and cost increase, e.g. Latin America, Eastern Europe and the Asian ‘Tiger countries.’ The challenge for procurement is twofold: on the one hand, global procurement functions need to establish local teams to take care of the increasing procurement spend in those countries. On the other hand, those countries that were formerly attractive sources for labor arbitrage are becoming less and less attractive. Therefore procurement needs to make tough decisions, whether to stay with the outsourced production or services in those emerging markets, move them back home or to look for new suppliers and opportunities in other areas of the world.
“Secondly, there is a stronger need for supplier collaboration and risk management. Companies are becoming more and more interconnected and thereby procurement should take the role of building up and stress testing supply chains. Anticipating and mitigating potential disruptions and spotting new supply markets are sources of competitive advantage and sometimes even survival.
“A third trend that we see is that companies are investing more in transparency, i.e. real time information as well as analytical insight to manage complex internal and external stakeholder networks.
“The fourth main trend is that product cost optimization for existing and new products will become more important. This means that product cost is optimized holistically in a cross-functional approach and continuously improved. It requires new capabilities for procurement teams in terms of cross-functional collaboration and analytical rigor.”
ABOUT FUTURE CHALLENGES
“There are three main challenges that procurement needs to keep an eye on: corporate social responsibility, maintaining high financial impact and up-skilling of the procurement teams.
“Corporate social responsibility (CSR) has become more important over the past years. The cost of neglecting CSR topics can quickly add up to millions and billions of dollars. This also means that procurement has to play a role in mitigating the risk that is arising from the supplier interface.
“The second big challenge for procurement organizations these days is to maintain a strong savings pipeline. This is challenging after the same spend has been tendered several times – sometimes with declining success. Sometimes, there is the opportunity to expand procurement services further into new categories and add further value. Procurement can implement already existing success models to indirect categories such as marketing and consulting services.
“Thirdly, procurement departments will need to bring new talents into their teams. This becomes especially visible in complex projects like the cross-functional product cost optimization, where team members need deep technical category expertise and analytical skills alike.”
ABOUT THE AGE OF THE CUSTOMER
This period of time has been described as ‘the age of the customer.’ How does this trend reflect in the B2B environment?
“It does impact the whole chain from supplier to procurement, procurement to its internal customer and then the internal customer to its external customer, who could be a business customer or an end-consumer. It becomes more important for stakeholders in this chain to not only understand the immediate next process step, but to also grasp the full complexity of the complete process.
“This implies that procurement must be able to bring suppliers, internal customers and potentially even external customers around the table and moderate a process to create solutions for complex problems. It also means that procurement is more than just a ‘cost savings machine,’ but can also trigger innovation, improve market share and impact revenues.”
Published in OpusCapita Journal 1/2016. Read the whole magazine here.
READ MORE of Daniel Weise’s answers: “Procurement departments must be prepared for constant fire-fighting”.