5 companies with strong procurement strategies
It’s common knowledge that the best procurement strategies tend to prioritise cost and risk reduction, strategic alignment and transformation. Among the priorities most often cited for procurement strategies include:
- sustaining cost reductions
- reducing price and availability risks in the supply chain
- improving alignment between the procurement and enterprise business strategy
- leveraging supplier relationship management (SRM) to reap value from the supply base
- better managing knowledge and information to support procurement transformation, and
- better understanding the organisational characteristics of top-performing procurement organisations.
The best organisations emplace procurement strategies that address immediate challenges during a recession and forward-looking initiatives that will enable the procurement function to deliver maximum value to the business as it returns to recovery and growth. Here, we take a look at the titans of industry that have employed a strong procurement strategy and achieved impressive business results.
1. Alcoa – reducing waste and increasing efficiency through digital procurement
In Q2 2015, Alcoa, the world’s third-largest producer of aluminium, realised $324 million in productivity gains across all segments year-on-year, largely due to their decision to organise procurement into a globally aligned, strategic and highly-efficient operation. Alcoa adopted a digital strategy and was rewarded with a change in their procurement approach from a plant-level to a centre-led model, allowing them to maximise buying leverage while realising process efficiencies, resulting in substantial returns.
2. Levi Strauss – mitigating risks and threats thanks to a centre-led approach to procurement
A centralised supply chain uses a principal authority to make purchasing and sourcing decisions, relying on information and input from the various departments and experts of the business. This procurement best practice can help mitigate risks and threats associated with unmanaged indirect spend, and prevent dissident buying behaviours and wasteful spending through unapproved suppliers. Levi Strauss, which takes this approach, is on track to realise net annualised benefits of $175–$200 million by improving the company’s productivity on a global scale. With a global spend of approximately $1.8 billion, the clothing brand knows that it’s the smaller changes in efficiency that bring in the most substantial returns.
3. PepsiCo – optimising global sourcing operations through systems thinking
Understanding how various systems interact can help identify opportunities to improve processes and deliver massive increases in productivity. Effective spend analytics, improved strategic sourcing and the elimination of wastage are smart starts to optimising current processes. By optimising their global sourcing operations, PepsiCo has cemented its ability to achieve their goal of $5 billion in productivity savings by 2019. Their five-year plan includes increased investment in manufacturing automation, re-engineering their distribution network and optimising back-office services to simplify enterprise-wide organisation.
4. France’s Renault and Japan’s Nissan – ensuring procurement best practices via a perceptive partnership
Building a strategic alliance with a smart partner is a good way to strengthen the business. The right partnership can create an effective ecosystem for both parties, thanks to improved efficiencies in all business areas. The relationship between Paris-based Renault and Japan’s Nissan is based on a cross-shareholding agreement established since 2009 and has resulted in them becoming the world’s leading plug-in electric vehicle manufacturer. In a cross-shareholding arrangement, each company is committed to acting in a financially responsible manner, and the sharing of resources decreases costs while improving overall time-to-market.
5. Amazon – creating win-win associations using SRM
Supplier Relationship Management (SRM) is a strategic approach to relationship-building with business partners. SRM can help build on existing, or repair previously fractious, relationships to create win-win associations, and often lead to improved value and communication, reduced wastage, increased productivity and improved innovation. A three-year weighted average revenue growth of over 20%, with an average return on assets of 0% for the same period speaks volumes about Amazon’s preference for the best SRM tactics. Ranked #1 on Gartner’s Top 25 Supply Chains list for exemplifying the ideal supply chain, this e-commerce leader is the undisputed king of effective SRM.