Buyers must measure contribution to business, say CPOs

23 June 2010

23 June 2010 | Rebecca Ellinor

Buyers who want to progress from saving money to adding value must discover what customers consider important and – provided it’s in line with company strategy – help them achieve it.

Buyers must also find a way to measure this value so finance bosses recognise their contribution.

This was the conclusion of a discussion among a group of senior buyers at a Procurecon CPO Roundtables event in London yesterday exploring the topic “From cost to value: can procurement become a key contributor to company strategy?”

Peter Etty, senior manager, strategic sourcing and procurement, UK and Iberia, at the Walt Disney Company, said: “Recently our CFO was trying to translate what a procurement function can bring to an organisation and converted it into two different metrics.

“One was if we were an entity within our organisation how profitable could we be? If we translate our savings – or other quantifiable value generation – how good are we? Where are we on the chart? And we found we were reasonably significant and important.

“The other was, by us being able to deliver on savings commitments, what does that mean in terms of avoidance of making people redundant? When you start talking in that language other people sit up and take note.”

The group also concluded value means different things to different companies. It depends on the maturity of the business. Furthermore, internally the definition of “value” depends on the individual department or grade of the person talking about it.

Toby Munyard, vice-president at Efficio, said the value debate depends on who the audience is. Thomas Argyrou, head of non-IT sourcing for Morgan Stanley in EMEA and Asia, said the key thing is to understand where priorities lay and focus on those, “and for us all it’s all about risk”. Andrew Hazlehurst, head of procurement for the Kier Group construction division, said: “The most important thing to a construction company in the next five years is corporate social responsibility.”

A further challenge to overcome is when departments at one organisation have been set competing targets. If strategies aren’t aligned there will be a clash, said Mark Aplin, group procurement manager at Home Retail Group.

Meanwhile, at a second debate on outsourcing v insourcing procurement, buyers agreed both had a place, but outsourced deals must be properly managed to ensure continued return on investment following the first two years.

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