16 Procurement


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Unlocking value


With greater supply chain risks and increased complexity, do we have the right structures and people in place to realise the potential of intelligent procurement? By Nick Allen


T


I think procurement is due for a really fresh look and I believe companies need to position it differently under organisational structures ProfAlan Braithwaite


he commercial environment in which most businesses operate today is very different from the relatively benign and predictable conditions that existed just a few years ago – it is now a


landscape characterised by great uncertainty. A heightened exposure to risk throughout the supply


chain is the newnorm. Volatility in commodity prices, low economic growth,


currency issues and an increased potential for supply chain disruption are factors that the procurement function must contend with and manage if businesses are to remain competitive. But are our supply chains attuned to the radical


changes that have occurred? Is the way we procure goods and services correctly aligned and appropriate to the differentmarketswe serve? Prof Alan Braithwaite, chairman of LCP Consulting,


sees a need for change. “I’mprofoundly depressed by some of the purchasing


and procurement practices in relation to their failure to unlock value. I think procurement is due for a really fresh look and I


believe companies need to position it differently under organisational structures,” he says. “Purchasing and procurement has really adopted the


driving concept behind category management, and I don’t have an objection to that at all, because buying low pressure equipment for a hospital is a different market frombuying stationery for auniversity andmost organisations will need to buy across a number of different categories,” he says. “So you need those category specialists who


understand the supply base and understand themarket. But if you look at thewider picture of the processes that are then adopted to identify and dealwith suppliers, the argument is that category management isn’t the whole answer, because increasingly, procurement is not going to be about exercising a power relationship with a supplier, it is going to be about recognising the appropriate relationship for the supplymarket.” Braithwaite acknowledges there are plenty ofmarkets


that are efficient due to good price visibility, such as with commodities like oil and food ingredients, but he says companies are still vulnerable to volatility. “So you have got to have processes in place, right the


way back into the business, to recognise that you are going to have to deal with that [volatility] and that requires a completely differentmind-set fromthinking


that you can exert powerwhichmostly, in thosemarkets, you can’t. “So you have got to harness the


market to your best advantage to mitigate risk and you’ve got to make sure that the business is responding.” he says. In areas of supply where themarket


is very narrow, Braithwaite believes that dealing with those suppliers on a power basis only leads to the lower common denominator as a result, where “both sides retreat to the trenches and value is left in the middle”, he says. There is a need for closer


collaborative arrangements with key suppliers that are critical to the business. In advanced relationships


the sharing of risk may be re- apportioned, but then too, so should reward.


Delivered value Braithwaite cites a concept developed by Vargo and Lusch some years ago called Service Dominant Logicwhere suppliers play a deeper role in their customers’ supply chains, taking responsibility for system performance and charging accordingly, based on delivered value. “You’ve got to decidewhat it is your supplier


does, what you want your supplier to do, and how you are going to pay him for that,” he says. By way of example, Hilti has


generated a“usemodel” for power tools on construction sites. “So this is effectively looking for


completely new business models and new supplier relationships which take cost and waste out of the buyer’s chain faster than they add cost and waste in the supplier’s chain, and the consequence of that would be the supplier makesmoney and the buyer actually operates on a lower total cost,” he says. Braithwaite sees the role for procurement going


September 2012 Supply Chain Standard


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