Busting Three of Procurement's Biggest Myths
There are some procurement 'facts' that we hear over and over again in our meetings with company executives. Do any of the following sound familiar?
- “We're a big company, that means we get the best prices.“
- “We did a sourcing study just last year and got 1% savings. There's nothing more there to be had.“
- “What we buy is very unique, there are no other credible suppliers.“
The very fact that everybody's saying the same thing means it must be true, right? Wrong. The truth is that none of these is accurate, not one. In our experience, there are almost always additional savings to be made; you just need to know how to look deep into your value chain to unlock them.
As a specialty implementation focused consulting firm with deep expertise in buying, Maine Pointe sees lots of different procurement departments. These can be segmented into a few 'types' you might just recognize:
The procurement department gets a specification from research or engineering and issues a PO. Often the vendor is specifically named, which eliminates any ability to negotiate pricing. The end result? You pay more, lots more.
At the other end of the spectrum, we see procurement departments that are overly process focused. They operate under the illusion that by following a 7-step procurement process they will get the best pricing. Of course, your suppliers will love you. That's why that Christmas card and fully-cooked ham show up on your desk around the holidays. But here's the thing, and senior executives please take note: The companies with top-notch professionals who know your markets will beat out the process guys every single time.
Another variation we see is companies that allow individual manufacturing sites to negotiate pricing for raw materials. These companies give up the power of leverage in favor of local autonomy and by doing so they leave lots of money on the table. That box of donuts that shows up every month when one of your vendors visits costs you more money than you will ever believe.
Let's try one more. A number of companies tell us they can't change vendors as it is simply too hard to qualify a new player or a material change. They tell us the work it takes “just isn't worth the effort“. Let me be crystal clear. If you feel this way, you are almost certainly squandering your shareholders' money on excessively priced raw materials. Sure, you might need another chemist or two, maybe you need another statistician on the payroll -- or a couple more sales types. But there ARE WAYS to accelerate material and supplier changes.
Maybe your procurement function is better than average. Perhaps you have experienced high-caliber talent in place that drive a high-quality process. Maybe they really know their markets and understand the key price drivers. But do they get you the best terms? They do a great job on the big buys, but do they manage the tail spend? Are they linking your material vendors with your logistics and production teams to have a fully-integrated planning process which optimizes customer delivery with minimal inventory?
Maine Pointe is a global implementation-focused consulting firm trusted by many chief executives and private equity firms to drive compelling economic returns for their companies. We achieve this by delivering accelerated, sustainable improvements in both EBITDA and cash across their supply chain and operations. Our hands-on implementation experts work with executives and their teams to rapidly break through functional silos and transform the buy-make-move-fulfill supply chain to deliver the greatest value to customers and investors at the lowest cost to business. We call this Total Value Optimization (TVO)™.
Maine Pointe's engagements are results-driven and deliver between 3.5:1-12:1 ROI. We are so confident in our work and our processes that we provide a unique 100% guarantee of engagement fees based on annualized savings. www.mainepointe.com