Most big firms use supply as a 'strategic weapon'

2 December 2004
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02 December 2004 | Geraint John

Most large companies now see purchasing and supply management as a "strategic weapon" whose value stretches beyond cost reduction, according to a soon-to-be-published benchmarking study.

Two-thirds of the firms surveyed by consultancy AT Kearney said their procurement function had a role to play in areas such as product innovation, speeding up time to market and gaining access to new sales opportunities. This compares to 28 per cent five years ago.

Early findings of its 2004 Assessment of Excellence in Procurement study of 238 companies also found that world-class functions are marked by high-quality personnel and processes, and a growing interest in outsourcing "non-core" buying activities.

Speaking at the ProcureCon event in Amsterdam last month, Niko Soellner, a vice-president in AT Kearney's operations practice, said procurement people "should be discovering innovation" that helped to differentiate their company from competitors.

He cited BMW's optical-fibre headlamps, developed exclusively by Hella in a 10-year deal, as one example of supply-market innovation. "You know it's a BMW behind you and to move to the right on the autobahn."

Strong collaboration with departments such as engineering, and early involvement in the product development cycle were among the critical success factors, Soellner said.

But only half of those companies that saw procurement as a "value creator", rather than simply a cost-cutter, were implementing programmes of this kind.

And just 6 per cent systematically addressed the range of supply-market practices that could produce strategic advantage - for example, buying capacity before markets tightened or substituting for oil-based products (see below).

Companies were slightly more advanced in "internal service excellence", he added. This included a highly automated requisition-to-pay process and the use of "advanced sourcing levers".

Those that focused on this dimension reaped average savings of between 1 per cent and 4 per cent higher than those that did not, across the range of direct, indirect, services and capital expenditure.

Procurement outsourcing was still relatively undeveloped, the research showed, but more companies said they expected to "test the waters" in the next two years.

Sources of strategic advantage Percentage of companies systematically scanning the supply market with the following practices:

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