Businesses that are too focused on consolidating their supply base risk missing opportunities and innovation, Burberry’s top buyer has said.
Paul Bestford, CPO at Burberry, said smaller suppliers often held more potential for innovation than larger companies.
Speaking at the CIPS UK Conference, Bestford said innovation was a response to a competitive threat or a way to enter a new market. “If you have a business idea and you want to enter a market, then you’ve either got to be able to do it better, cheaper or do something new, something no one else can do,” he said.
“If you wanted to enter a market dominated by Amazon [for example], you better have something which is different, which is innovative. Fundamentally most innovation does come from new entries or businesses that are trying to grow into new markets, because it’s really hard to compete with an existing titan on cost.”
Bestford cautioned against using consolidation as a way of managing risk, and said businesses should accept a certain level risk and embrace the benefits of a more diverse supplier portfolio.
Procurement tended to take an approach of putting all its eggs into one basket and then trying to ensure its chosen supplier was risk-free, Bestford said. “The scary bit is, when you have put all those eggs in that one big basket, if it does fail, it fails pretty catastrophically, to the point where your entire business can be at risk.
“[And] it will fail eventually, somewhere one of those big baskets will fail and it doesn’t matter how much due diligence we do, it doesn’t matter how good the accounting is, we won’t know until it happens.”
Bestford said it was better to spread the risk by using many companies, including SMEs, and accepting that some of those may fail.
“A lot of startups fail – the majority fail in fact. As buyers we have to somehow get out of that mindset that says, ‘I need to eliminate risk in my supply chain,’ and say, ‘Actually I need to understand that there is risk in my supply chain and this is how I’ll deal with that risk’,” he said.
Procurement has also historically been too focused on rationalising and stabilising its supply base, said Bestford, to try and reduce the administrative and processing costs of onboarding a new supplier.
“I think that’s the wrong way to tackle that problem. I would like us to spend more time and effort focusing on how we make the cost of adding suppliers cheaper,” he said.
Bestford said procurement needed to learn to create a healthy level of supplier turnover, pointing to the human resources function where extremely low employee turnover is seen as an indicator of low levels of innovation and fluidity in an organisation.
“So few procurement organisations measure the turnover in their supply base. We measure the growth, we don’t measure the fluidity and I think we need to start thinking like that about our suppliers,” said Bestford.
☛ Want to stay up to date with the news? Sign up to our daily bulletin.