And while there are many approaches you can use to improve productivity in your enterprise, these organisations have achieved impressive results with these five procurement best practices.
Merely creating an online shopping cart or optimising your website doesn’t make a digital procurement strategy. An effective Digital Procurement strategy incorporates data from a variety of sources (including sensors in your warehouses or on your transportation vehicles) as well as cloud & mobile technology, and social media.
Digital Procurement uses all of this technology and data to create a predictive approach to enable your enterprise to have the products and services available as your audience needs it, without tying up capital in unneeded inventory. The use of technology in procurement also helps to reduce waste and increase efficiency.
Who is doing it right?
In Q2 2015, Alcoa, the world’s third largest producer of aluminium, realised $324 million in productivity gains across all segments year-on-year, largely due to their decision to organise procurement into a globally aligned, strategic, and highly-efficient operation.
Choosing a digital strategy enabled Alcoa to change their procurement approach from a plant-level to a centre-led model which, in turn, allowed them to maximise buying leverage while realising process efficiencies, resulting in substantial returns.
A centralised Supply Chain uses a principal authority to make purchasing and sourcing decisions, relying on information and input from the various departments and experts throughout an enterprise.
This procurement best practice can help to mitigate the risks and threats associated with unmanaged indirect spend, as well as to prevent maverick buying behaviors and wasteful spending with unapproved suppliers.
Levi Strauss is on track to realise net annualised benefits of $175 – $200 million by improving the company’s productivity on a global scale. With a global spend of approximately $1.8 billion, the clothing brand understands that small changes in efficiency can result in substantial returns.
“Success for me looks like a centre-led, a global approach to managing indirect – not necessarily with global suppliers, but that we have a very consistent and disciplined approach to procurement globally.” – Celeste Smith, director of global indirect procurement at Levi Strauss
Systems thinking is an essential part of an effective procurement strategy to optimise your processes. Understanding how your various systems interact can help you to identify opportunities to improve processes and deliver massive productivity gains.
Effective spend analytics, improved strategic sourcing, and the elimination of waste are smart starts to optimising your current processes.
By optimising their global sourcing operations, PepsiCo was on track to deliver approximately $1 billion in productivity savings, cementing their ability to achieve their goal of $5 billion in productivity savings by 2019.
Their five-year plan includes increased investment in manufacturing automation, reengineering their distribution network, optimising back-office services, and other steps to simplify enterprise-wide organisation.
“The steps we are taking to manage our businesses responsibly – such as taking pricing actions and optimising our global sourcing – are clearly contributing to high-quality top and bottom-line year-to-date results.” – PepsiCo Chairman and CEO Indra Nooyi
Understanding your strengths and recognising your internal opportunities is vital to creating a long-term strategy to improve your organisation and ensure procurement best practices.
One effective way to build on your strengths while mitigating your weaknesses is to build a strategic alliance with a smart partner. The right partnership can help you create an effective ecosystem and benefit from improved efficiencies in manufacturing, sourcing, delivery, marketing, and many other categories.
The relationship between Paris-based Renault and Japan’s Nissan is based on a cross-shareholding agreement, established in 2009, and has resulted in them becoming the world’s leading plug-in electric vehicle manufacturer, as of October 2015.
Due to the cross-shareholding arrangement, each company is committed to acting in a financially responsible manner, and the sharing of resources decreases costs while improving overall time-to-market.
“We have an interest in working together with the depth and transparency that would allow both organisations to take advantage of our respective strengths in order to increase mutual competitiveness. And we were clear that both the Alliance and Daimler do not have interest in a merger.” – Carlos Ghosn, Chairman and CEO of the Renault-Nissan Alliance
Supplier Relationship Management (SRM) is the strategic approach to basic relationship building with the companies and individuals that provide your enterprise with the base materials and services you need to deliver your product or service to your customers.
SRM can help you build on existing – or repair previous – relationships to create win-win associations, and will often lead to improved value and communication, reduced waste, and improved innovation.
Likely the best known example of effective Supplier Relationship Management is the mega-corporation Amazon. Ranked #1 on Gartner’s Top 25 Supply Chains list for exemplifying the ideal supply chain, this e-commerce leader is the epitome of effective Supplier Relationship Management.
And the results speak for themselves: posting a three-year weighted average revenue growth of over 20%, with an average return on assets of 0% for the same period.
By working smarter and focusing on procurement best practice, all of the above enterprises are achieving significant productivity gains and savings on cost. So, too, can your organisation.
Applying best practice to procurement isn’t a pipedream. It is achievable, and enterprises listed above are proof that procurement best practice can lead to sustainability and profitability.
Contact us today to find out how Maistro can help you to digitise your procurement, centralise your supplier management, create smart alliances with Service Providers and optimise your procurement processes to reduce waste – all while realising profitable productivity gains like the enterprise examples above.
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