2. 46%OFBUSINESSES
DON’TDISCUSS
PROCUREMENT
INTHEBOARDROOM*
It’s a pity really, because experience tells us that effective
procurement and ongoing supplier management doesn’t
just save money, they provide a valuable and sustainable boost
to the bottom line.
Funnily enough, that’s just the type of insight the Board should be hearing
about, isn’t it? Effective procurement that can act as a core strategic function
throughout an organisation, across everything from insurance to logistics to
payment processes to everyday office costs.
Are you ready to tackle the elephant in the Boardroom
and put effective procurement on the agenda?
To find out how effective procurement can benefit
your organisation please contact us on:
02380 829 737
or email info@erauk.net
or visit www.expense-reduction.co.uk* Source: The Psychology of Procurement
4. 4
Procurement Leaders
TRANSFORMATION
INSIGHT
Commercial charity Crime
Reduction Initiatives, which
provides services for drug users
and the homeless, found itself in
this position before central
procurement manager Julian
Thompson joined in 2011.
“We have a small team,” he
says. “As I joined, procurement
was very transactional and
conducted by people called
regional procurement co-
ordinators, but basically they
were a facilities assistant who
placed the occasional order. If
you want to achieve what
procurement can achieve in
terms of financial savings,
process improvement, reduction
in total acquisition cost,
robustness of supply chains, and
so on, you need to invest in a
proper procurement function. If
they pick up a phone call from
somebody who is locked out, and
have to call a locksmith, they are
not going to be able to focus on
realising those achievements.”
Thompson quickly set out to
make the case to senior
management for transforming
procurement. Although the
£12m-turnover organisation has
CASE STUDY: CRIME REDUCTION INITIATIVES
Crime Reduction Initiatives is a
social care and health charity
working with individuals, families
and communities across England
and Wales affected by
drugs, alcohol, crime,
homelessness, domestic abuse
and antisocial behaviour.
With £12m in turnover and
locations all over the UK, the
organisation had struggled to
develop the procurement
function, says Julian Thompson,
central procurement manager.
“There was that perception
that it was a support service and
was a hindrance as opposed to
something which could add
value and support organisational
objectives,” he said.
When he joined the
organisation in 2011, Thompson
says he found it difficult to
change that mindset: “The first
step was to win hearts and
minds. We looked at the
organisation’s wider objectives,
the plan of where the business
wanted to be in five years and we
created a procurement strategy
to support that evolution.”
This involved talking with key
stakeholders and getting the
strategy signed off by the board.
The strategy was designed to
demonstrate how procurement
could add value and reduce
risk, as well as cut costs,
Thompson says.
Meanwhile, there was a
restructure of the procurement
function, taking it out of the
regional offices where it sat with
facilities management. Although
procurement was made up of only
three people, being centrally-led it
was able to make a difference. It
was tasked with creating a national
contract for needles and syringes,
5. 5
Procurement Leaders
a procurement team of just
three, it now contracts nationally
and has been able to achieve
significant savings on one Æ
contract worth close to £1m, as
well as being able to extract
greater value from the supplier
(see case study).
Thompson’s experience is
shared by many procurement
leaders, particularly in smaller
organisations. A survey of 100
finance directors in the UK and
Ireland, with revenues of between
£10m and £500m, found that
four out of five organisations do
not have a specialist procurement
team or individual, while more
than one in three leaves
responsibilities to individual
stakeholder departments. The
study, commissioned by
procurement consultancy firm
ERA, also shows that 52% of
finance directors feel employees
suffer from a lack of time,
experience and energy when
it comes to securing the
best deals. Other research also
shows that 50% of companies
who find better deals fail to
realise the savings due to a lack
of supplier management or
unhealthy buying habits by
operational staff.
Buyers who are aspiring to
achieve more face the challenge
of getting broader recognition
from senior management.
Small organisations
The first step, says Simon King,
director of procurement at food
manufacturer Dairy Crest, is to
recognise that small
organisations can achieve the
same sort of procurement
transformation global businesses
have undergone over the past ten
or 15 years.
“Dairy Crest is not a large
global organisation like HSBC or
Ford. We have a £1.4bn turnover,
but we are UK-focused and have
a relatively small procurement
team of less than 20 people,”
he says.
To evaluate their own
to support its drug users’ needle
exchange. Supply had been
fragmented, with little consistency
of product or price.
By putting a single contract in
place the procurement team was
able to save £300,000 on an
£800,000 contract. Thompson
says: “By doing that we were
able to ensure consistency and
robustness of supply as well as
reduce risk by ensuring that only
accredited products were used
across the organisation.”
Because of the size of the
contract on offer, the tender
process also built in criteria
around adding value, which
would form 10% of the
evaluation. In this way, the
winning supplier supported
conferences and publicity
material for the charity. It
also helped boost procurement’s
profile. “There has been
recognition over the last 18
months that procurement can
deliver some of the more
strategic benefits to the
organisation,” Thompson says.
With this new status, the team
is working on a national contract
for agency workers, including
medical professionals, to
improve contract governance.
“As the organisation has grown,
compliance and risk
avoidance has become more
high profile. Now it is not just
about the bottom-line cost,”
Thompson says.
“To evaluate their own procurement
organisation, buyers need to make
sure they get out of the office.”
6. 6
Procurement Leaders
TRANSFORMATION
INSIGHT
procurement organisation,
buyers need to make sure they
get out of the office and network
with their peers to see how they
have tackled similar challenges,
King says. “Attend events to
understand the approach other
organisations take. Use one-to-
one benchmarking if you can and
seek out professional networks.
That can help you see where the
gaps might be in your working.
“No one organisation has
the perfect answer for you,
but pick the best bits from a
number of organisations that
might be relevant to your
business,” he adds.
There are also internal signals
that procurement needs to do
more. When the team is brought
in at the latter stages of a buying
decision, and is expected to get a
better price, that is a bad sign,
King says. “If the procurement
team is consistently being asked
to get involved only at the last
minute – so is not involved in
specifying the design or market
analysis and just asked to
negotiate a better deal with the
supplier – that would suggest
they are not unlocking value in
the wider sense as you expect
from a modern, fully-effective
procurement function,” he says.
Paramount in gaining the ear
of senior management is
analysing the business strategy
and translating it into objectives
“You have to understand the
business priorities and regularly talk
to show you are supporting them.”
7. 7
Procurement Leaders
Get help where
you need it. It may
be easier to network
around a smaller
company and
understand the internal
drivers, but supply
markets for categories
such as IT are huge.
A little expert advice
can go a long way.
5
Become
experts in
business
strategy. Study
annual reports,
interview the CEO
and develop your
knowledge of
business
values. Get to grips
with what is
driving teams of
stakeholders.
What are they
being measured
on, and what are
the challenges?
3
4
procurement can achieve. “You
have to understand the business
priorities and regularly talk to
show you are supporting them,”
says King.
Procurement professionals
hoping to lead the organisation’s
transformation also need to
consider how it is structured.
King says: “In organisational
design you should align your
structure to stakeholders. You
have to have people responsible
for particular areas so they can
work with those stakeholders and
build a good relationship.”
Once you have that alignment
you can begin to look at what
stakeholders actually need, not
just what they think procurement
can do.
“That means talking about
more than just the price of a
product or service. It could be
that the challenges they currently
have are on service performance
of the supplier, for example,”
King says.
Buying decisions
If strong relations with
stakeholders are in place,
procurement professionals
should be able to challenge them
on buying decisions.
Stakeholders will say what they
think they need, but procurement
needs to work with stakeholders
to facilitate an analysis of what
the business actually requires.
King says: “When it is the
company’s money at stake there
is a role to play in offering a
constructive challenge, which we
should not shy away from.
“This is to ask: Is that product
or service going to deliver in
terms of genuine value?
“We are only able to do
that if we understand what
people’s needs and Æ
FIVE POINTS FOR PROCUREMENT TRANSFORMATION
Get a comparison
with other
procurement
functions through
formal benchmarking
or informal networking.
Get ideas form those
who have tackled the
same challenges.
Align to the
organisational
structure. It is no
good if the way the
team is built bears
no resemblance to
the outside
business.
Get a comparison
with other
procurement
functions through
formal benchmarking
or informal networking.
Get ideas from those
who have tackled the
same challenges.
1
Align to the
organisational
structure. It is no
good if the way the
team is built bears
no resemblance to
the outside
business.
2
8. 8
Procurement Leaders
TRANSFORMATION
INSIGHT
requirements are, which involves
strong relationships, and
good questioning.”
To gain influence in
the business procurement
professionals need to guide the
conversation away from cost and
price towards an understanding
of all the business priorities
affecting stakeholders, which
will vary between business
functions, says John Walker,
global CPO at Bühler, a specialist
manufacturer of equipment for
food processing.
“Cutting cost happens to be
the easiest thing to measure but
for colleagues who have to deal
with suppliers, seldom is cost the
number-one priority. The trick for
procurement is to figure out what
those priorities are and work with
them,” Walker says.
Internal stakeholders are not
always aware of what
procurement can offer in
influencing performance outside
of cost and price, he says.
“You have to align the
objectives. If procurement says: I
Swiss firm Bühler makes
equipment and provides
services to support food
manufacturers around the
world. With orders of
approximately $2.6bn, it
produces machines to help
make pasta, cereals and baking
products, to name but a few.
But the breadth of its offering
creates a challenge for the
business. How does it cut the
time it takes to get products to
customers with such a complex
supply chain?
Lead times
Procurement could see these
lead times were a top priority for
the business, rather than costs
per se. A barrier to reducing
lead time was complexity in the
range of components ordered,
says John Walker, global CPO.
“We have components that
we procure and we have
hundreds of variances of them
– it makes it difficult for the
supplier and makes it difficult
for us,” he says.
“Everything we build has an
electric motor in it, sometimes
two, sometimes four, sometimes
many more. We had 4,000
different types of motor we were
CASE STUDY: BÜHLER
buying. By having hundreds of
varieties, we had to have a large
inventory and the lead times were
long. They were custom designed
and ordered.”
Procurement made its impact
not so much on price but by
reducing complexity from 4,000
to about 400 types of motor to
reduce the lead time and improve
quality, says Walker. Procurement
professionals who want to
replicate this sort of success need
to be careful how they open the
conversation with stakeholders
and must avoid saying which
suppliers or components they can
and cannot use.
It helps to be able to speak
from ‘high altitude’ to senior
“Everything we build has an electric
motor in it, sometimes two, sometimes
four, sometimes many more.”
9. 9
Procurement Leaders
want to save 10%, and the
development engineer says: I
want to launch my product at
twice the speed and with less
complexity, those two goals are
only ever going to intersect by
chance,” Walker adds.
Procurement needs to
understand what those other
priorities are for the business Æ
and show it can play a role in
influencing performances
towards them. Walker says:
“That could be a reduction of
lead time. There are industries
like ours where the difference
between delivering the machine
in ten days and delivering it in 60
days is very large in terms of
business value, and more
important than saving even 10%.
If you can cut that resupply time
by a factor of five or ten that can
be more interesting than anything
else and that can be dealt with
by supply management.
“Procurement is responsible
for finding out where those pain
points are and benefiting the
business on the broader scale.”
Walker and his team have
achieved better lead times by
reducing the complexity and
variety of components bought for
systems the company produces.
By slashing the number of
different electric motors bought
the business has been able to
achieve a significant reduction
in lead times, he says (see
case study).
Despite the benefits
procurement can offer wider
business objectives, the function
is still underrepresented in
smaller businesses.
Dairy Crest’s King says that in
smaller businesses the job of
understanding business priorities
and aligning to them can be
easier than in large companies,
because there is not the huge
geography or large number
of stakeholders.
“Lots of those complexities
don’t exist in smaller businesses.
If you can get really good
alignment with your stakeholders
and demonstrate that you can
add value across all areas that
are important, whether that is
quality, sustainability or cost,
then you can really get engaged
early on.
“If you understand what
business priorities are and
regularly talk to those you are
supporting then you can do
[transformation of procurement]
in any business.”
But procurement in smaller
businesses needs to develop the
mindset of the function in large
organisations to take on this
broader role, he says. This
requires leadership from the top
of the procurement team to help
its members see their jobs in a
new light.
“You need a leader to be very
clear about the vision and
mission of procurement. To say:
This is what procurement in my
organisation should look like. It
needs to be made very clear to
the whole team what behaviour is
expected and why,” he adds.
Support and training
It might need regular team
sessions to see if procurement
staff understand how they are
progressing, what gaps they need
to fill, and where support and
“Procurement is responsible for
finding out where those pain points
are and benefiting the business.”
managers, and offer a simple
message about how, by lowering
complexity and reducing lead
times, the business can improve
customer service.
“A custom motor has an
eight-week lead time. If you use
one off the shelf, that goes away,
you can have it in five days. You
can deliver products more
quickly and win more business.
We have to send a simple
message. If procurement goes
into a meeting with 70 slides, no
one wants that,” Walker says.
Data analysis
Then it helps to show
stakeholders the data about the
number of components they are
buying. “You go through the
data analysis and they are
shocked. We show masses of
inventory and say: Are you
aware of the impact of this?”
he adds.
Finally, it is not about telling
designers what to buy, but
ensuring they specify the
performance parameters of
components they seek. This
way, procurement can work with
suppliers to offer a number of
options, while at the same time
keeping complexity down.
10. Procurement Leaders
10
TRANSFORMATION
INSIGHT
training might be needed. King
says: “In most cases the desire is
there. Some don’t want to change
or do not have the capability, but
the vast majority, given clarity,
come on that journey over time.”
But smaller teams do face one
problem compared with their
larger counterparts. Getting in-
depth knowledge of categories of
spend may be more difficult as a
smaller team can be asked to buy
across a range of categories.
Large companies have the
resources to develop in-depth
knowledge of a particular
category because of their
sheer scale.
When the procurement
department is smaller, each
buyer may be in charge of the
same level of spend, but they
naturally have to reach across a
broader range of categories.
King says: “You don’t have
someone who is an out-and-out
warehousing specialist who can
have a robust and detailed
conversation with the
warehousing manager about
exactly how you are going to
structure your procurement, but
you can still have the challenging
discussion on what you’re looking
for, what the alternatives are and
what the suppliers can do.”
Neil Copland, ERA director of
operations in Ireland, sees this
with many of the clients he works
with. “Category expertise is more
than just knowing who the
players are in the market. It is
understanding how that supply
market works. What is its
operating model? What is its
profitability model? How does it
source? How is technology
impacting that market?” he says.
In some cases, if an individual
is managing a number of
categories, which reach across
office supplies and includes IT, it
can lead to real disadvantages
for the buyers. He says: “People
think all you need to do is phone
up a few people and get them to
come in. If you do that, the sales
people from the suppliers will
slaughter you. That’s what they’re
good at doing.”
Although small procurement
teams align themselves with the
organisational structure and
business strategy, they may need
external help with deep category
knowledge, he adds.
Back office
While procurement teams in
smaller organisations might find
themselves in the back office,
there is no reason for them to
stay there. They can influence
buying right through the cycle if
they get wise to business
priorities and show how they can
help the business reach its goals
in areas beyond price reduction.
With the right help, they can
transform this back-office
function into one which leads
from the front. n
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(ERA) is a global network of
specialist procurement advisers.
The company helps organisations
save money and boost business
performance through effective
procurement, improved supplier
management and smarter
spending habits.
Its sector specialists build
long-term relationships with
medium to large enterprises,
going beyond short-term gains
to deliver objective analysis,
informed market expertise and
continued financial benefits. As
independent advisers, ERA offers
objective procurement advice
and work to enable you to make
the right business decisions – not
just to help you get the best deal
now, but to improve your supplier
relations in the long term.
With more than 20 years of
experience in providing ethical
and sustainable savings to
thousands of businesses spanning
many sectors, its independent
and impartial approach delivers
tailor-made procurement and
supplier management solutions
that its team of specialists manage
for you today, tomorrow and into
the future.
n To find out how effective
procurement can benefit your
organisation please contact us on:
02380 829 737, email
info@erauk.net, or visit
www.expense-reduction.co.uk
Procurement Leaders in no way endorses
the products or services provided by our
partners
“Category expertise is more than
just knowing who the players are.”
11. HAYSTACK,
NEEDLE?
MEETMETAL
DETECTOR
It’s a familiar sensation for anyone involved in purchasing: you know the savings
are there to be made, but you don’t have the time or the expertise to do it yourself.
That particular needle is buried beneath an impenetrable haystack of deadlines and
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In that situation, the solution is clear: you need to find the right tool for the job. A tool that works
efficiently, homing in on the savings you need to make. A precision tool, assembled from a team of
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Find out how we could be the perfect tool for your business
– you won’t even need a metal detector.
To find out how effective procurement can benefit
your organisation please contact us on:
02380 829 737
or email info@erauk.net
or visit www.expense-reduction.co.uk
