Long gone are the days where a procurement or sourcing function is built to simply cut costs. In today’s world and building for tomorrow, great leaders need all functions to be working and collaborating as strategic partners, which means decisions are not made in functional silos. Nowhere is this more important than in procurement.
I agree with the perspective from the Hackett Group, who, in their research, http://go.poweredbyhackett.com/20keypro1912sm, identified five key areas where procurement needs to evolve and improve in 2020. They are:
- Improving agility
- Becoming a trusted business advisor
- Aligning skills and talent to the business needs
- Modernizing application platforms
- Improving analytical and reporting capabilities
The coronavirus has demonstrated how vital an integrated, diversified and agile supply chain is, and even the best run companies (ie, Apple) still have work to do. Agility, done correctly, is proactive not reactive; it’s well-planned and begun years in advance under “what if” scenarios; it can also be the difference between penny-wise and pound foolish decisions.
As Vice President & General Manager of a large & successful Fast Moving Consumer Goods (FMCG) division, we continually evolved and developed our capabilities in these five areas. Several of our categories were highly seasonal, with 65% of sales occurring within a 6 month window. For those of you who don’t know, if you miss a seasonal sale, it’s gone, so having the right product, in the right quantity, at the right time, without stressing your working capital & logistics is an everyday challenge. In less than five years, we transformed our business as measured by net sales growth, net margin improvement, ROS% basis-point improvement (bps) and cost management, yet remained agile. As an example, we had a situation where a core supplier advised us they were ceasing the supply of a critical ingredient in a short period of time, a move we did not anticipate. However, because we had a strong supplier partnership, we were able to develop a creative and proactive plan to ensure ingredient supply, support innovation and minimize any customer disruption, all with minimal cost impact.
Three Critical Factors to Ensure Strategic Sourcing = Strategic Business Partner
- Matching Skills & Talent to the Business. Do you know what business you are in? Are you out-sourced? Do you offer highly specialized in-house manufacturing? It’s imperative you understand your core strengths today and where you are evolving the future business, so you develop & acquire the correct skills & talent to achieve those business goals. We had a few critical leaders in supply chain & procurement who came from other FMCG businesses, including highly seasonal categories, and were experts in an outsourced model…which fit perfectly with our business goals. They were not experts in the category, but didn’t need to be…they were experts in how to structure, align, deliver, negotiate, partner and contingency plan.
- Aligning All Functions with the Portfolio Strategy. How many times have you heard sales trying to generate growth by selling a segment or category in which the procurement team is trying to re-set or reduce? Portfolio segmentation is THE key – every business must have a clear definition of core segments vs. non-core (think about them as growth, maintenance and divest/de-emphasize), and the organization has to make decisions based on those shared segments and priorities.
- Communication & Collaboration, including Shared Goals & Metrics. At the start of the year, we outlined our goals and metrics, and every leadership team member had a material portion of his or her bonus tied to shared goals. We also discussed business strategy, reaffirmed direction and clarity, and vetted out new product opportunities at my monthly leadership team meetings where all were present to ensure alignment. Proactive communication and collaboration is a mindset and must be demonstrated by the leadership team. When functional leaders embrace a strategic direction, they help drive it all the way through the organization, and that creates a culture that is empowered, agile, cohesive and successful.