Purchasing & supplier management

External spend on products and services is a large and increasing proportion of a company’s cost; the range is from 30% to 80% and generally rising as a result of core competence strategies.

The business value in getting purchasing and supplier management right is obvious - the reality is that the diverse range of products, the increasing international nature of sourcing, and the mix of internal and external relationships involved make this a complex business issue.

LCP’s experience is that procurement and supplier management and development initiatives can yield significant short-term cost saving and deliver major longer-term efficiency gains - often releasing funds to support other major operational investments.

We also observe that many procurement initiatives have disappointed against their targeted benefits due to their inability to convert the strategy to reality. This is often a function of deploying insufficient resources with the right skills to execute, co-ordinating poorly across all the internal and external groups involved, and not gaining adherence to the supplier processes/performance levels demanded.

Yet purchasing and supplier management must be one of the key supply chain levers for any successful business.

The key to success is to clearly identify, quantify and prioritise benefits at the outset, and to tailor a realisation programme that harnesses the right skills and methods. We have captured these in a Supplier Analysis and Management (SAM) toolkit.

We have:

• supported a major retailer in changing the mix and process of working with its suppliers so that it could deliver a more volatile, faster moving product line, reducing supplier lead times from weeks to a few days, and avoiding a major capital investment in a new DC
• provided an experienced team to identify and then get major cost savings through the supply and purchase of transport related products and services for a manufacturing group
• developed a new way of approaching procurement and sourcing of major suppliers using supply chain thinking for the central procurement group of a major chemicals company; the initial initiatives yielded savings of $millions.

LCP conducted a research project with the UK Chartered Institute of Purchasing and Supply. In this work, leading Procurement Directors confirmed that many of their initiatives failed to deliver the expected benefits - with 60% of organisations not carrying out detailed analysis of the opportunities and over a third restricting their focus to those that procurement could tackle in isolation.