How CPOs Can Build An Agile & Resilient Procurement Strategy

Exacerbated by the pandemic, the last few years have been extremely difficult for CPOs (Chief Procurement Officers) across sectors and geographies. A once-linear job has taken on new dimensions, and CPOs are now expected not only to brave financial and economic disruptions but also to steer their company safely through such turbulent times. 

At its core, a manufacturing company’s procurement function is evaluated based on annual cost savings, speed to market/supplier delivery, operational efficiency, internal stakeholder management, quality compliance, and risk mitigation. Driving these key success metrics has been central to how CPOs across global economies thrive and succeed to create value for their internal & external stakeholders.

Here are a few key tenets that can help CPOs achieve these goals while balancing resources and cost constraints in 2023.

Lean & Agile Procurement 

Collaboration between key stakeholders in the procurement process is critical for faster decision-making and shorter time to market. Keeping speed in mind, agile procurement aims to reduce the effort and time spent on each procurement step. Leaner teams that represent stakeholder groups such as IT, legal, and finance can accelerate the process flow, resulting in increased efficiency and a shorter time to market. Contract negotiations, for example, can be part of the sourcing process. 

Procurement Clustering Or Collaborative Procurement 

Collaborative or co-procurement is a procurement model that aims to reduce procurement costs by leveraging economies of scale through collaborative decision-making among multiple suppliers. 

One such model is procurement clustering, which involves grouping supplies based on identified similarities and potential volume across businesses in the same field, regions and/or functions thus taking a joint strategic approach to drive efficiency and cost. 

Aside from knowledge sharing, trust, and collaboration, it results in the development of a strong supply base, which brings stability to the procurement function. 

Internalise Digitisation & Automation

In emerging economies, procurement is largely based on the traditional method of procuring and managing MRO/direct inventory, which entails maintaining multiple touchpoints with suppliers, the commercial team, the warehouse team, the planning team, and the logistics team. 

Firms suffer because the massive troves of metadata generated by their operations are never tapped into and leveraged to boost company growth. Implementing tech-enabled procure-to-pay systems improves the efficiency of vendor evaluation, selection, and payment processes by eliminating manual tasks, streamlining departmental collaboration, and saving money through increased accuracy and reduced effort. 

There are also procurement-as-a-service solutions available, in which a service provider manages the interconnected elements – service, people, technology, and architecture — all unified as a service.

Spend & Predictive Analytics

A common and recurring failure for CPOs is the overestimation and procurement of excess inventory or the underestimation and under-procurement of inventory. Both scenarios spell trouble for the CPO and expose the company to cost volatility. 

Large companies with operations spread across multiple geographies frequently have a massive roster of suppliers, which is especially true for MRO procurement, which includes an extensive list of materials that are typically not integral to core manufacturing. 

Predictive analysis on category spend helps with certain efficiency drivers This includes 

• Suppliers’ consolidation resulting in discounts
• Optimal demand management/inventory planning resulting in better spending and increased savings 
• Prevention of maverick spends
• Tail-spend management
• Cost bundling of items purchased across different regions 

Nurture Supplier Relations

Acquiring professional, dependable, cost-effective, and consistent suppliers is difficult in emerging economies with limited infrastructure and technological adoption in the manufacturing sector. Prioritising outperforming vendors is the first step in cultivating and cementing fruitful relationships while shortening payment cycles. 

Far too often, these vendors’ working capital is trapped in a lengthy payment cycle. Large multinational corporations and blue-chip corporations can set a precedent by ensuring that payment cycles are completed within 30-45 days. They could also consider providing subsidised credit facilities to suppliers who perform well. 

Right Procurement Outsourcing Model

Procurement outsourcing has evolved from merely providing external sourcing assistance to becoming a strategic partner capable of providing complete supply chain visibility, category expertise, and on-demand resources scalable to project requirements while reducing internal resource allocation and investment in digital infrastructure. 

Choosing the right outsourcing model is dependent on striking a balance between cost and resources, as well as the depth of category expertise required, which applies to both direct and indirect procurement.  

Growing With The Times

In emerging markets, a range of external factors affects supply chain networks. This includes market volatility and skewed demand patterns, infrastructure and transportation bottlenecks, and poor structuring of supply chain networks to optimise sales and excise taxes. 

Manufacturers struggle to mitigate these external forces, which results in increased raw material and finished goods inventory across the value chain. Being resilient and agile is obviously an essential part of the job, but equally important is ensuring that the company becomes a growth partner for all of its stakeholders, which include vendors, distributors, and logistic partners.

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.