GRA Director Craig Millis talks with GRA Director Dan Knox about Procurement Strategy.
In the interview Craig answers the following questions:
- What are the main challenges in Procurement today?
- How does Procurement deliver real value to an organisation?
- How can Procurement help organisations address social and environmental issues?
Procurement Strategy explains how an organisation seeks to optimise external spend, procurement costs and other value contributions in a way that is aligned with corporate objectives.
Find out more about GRA's Procurement Strategy offering.
Dan Knox: Welcome, Craig.
Craig Millis: Hi, Dan.
Dan Knox: I'd like to chat to you today about all things procurement. What are the main challenges you see happening in procurement today?
Craig Millis: Well, Dan, I think there's an unprecedented level of expectation on procurement as a function in corporate and government today. There's always been the traditional role for procurement, which is around trying to achieve savings on the addressable spend, but there's an emerging role for procurement and an emerging expectation on procurement to deliver corporate, social, and environmental outcomes.
Dan Knox: So Craig, how does procurement go about delivering savings?
Craig Millis: For a long time procurement has focused on strategic sourcing and contract negotiation as a way of delivering savings to a business. But I'm pleased to say, more and more businesses are looking beyond that point of contract award to post contract to deliver real value to the business.
The real savings come post contract award through managing the contract more effectively, making sure that suppliers are delivering to their obligations.
Supplier performance management in a number of different dimensions. This is where we're seeing real value being extracted from the contracts that procurement has typically put in place.
Leading companies are going a step further than that and looking to work more closely and more collaboratively with their key suppliers, and they're un-tapping new streams of value to the business through collaboration and supplier innovation.
Dan Knox: So how does procurement go about delivering real value to the organisation?
Craig Millis: For procurement to deliver real value to the organisation, requires a very tight alignment of procurement objectives to the business objectives. And more specifically, procurement strategy to the business strategy, and specifically, the supply chain strategy of the business.
We see too often a misalignment of procurement strategy and supply chain strategy. And when developed in isolation, the two can almost be opposing. Procurement strategies largely focus on delivering lowest cost goods and services to the business. And measured in financial terms, you might think of that as a gross margin, you're trying to maximise a gross margin on those goods or services.
Whereas supply chain is taking into account all of the supply chain logistics, inventory, including working capital costs, associated with the delivery of goods or, indeed, services. So they're taking much more of a net margin approach as a financial measurement.
And so with procurement focused on gross margin, supply chain focused on net margin, it can deliver suboptimal outcomes in terms of cost, quality, and service.
Clearly, there's a need for alignment across the business, and particularly between procurement and supply chain to deliver real value to the business.
Beyond the alignment of supply chain and procurement strategy, there's a need for supply chain and procurement to work together at a more operational level to extract the value of the contractual arrangements that procurement have put in place.
In effect, these contracts are an asset to the business, and procurement and supply chain need to work together to sweat that asset to deliver real value to the business.
So in practise, that is through managing the contract more effectively and managing supplier performance to ensure they're delivering on their obligations.
We see too often that once the contract is done, it's put in the drawer and not looked at again. And businesses don't realise the value potential of the contracts that they have.
Dan Knox: You mentioned before that procurement's getting more involved in more than just savings, it's about social and environmental issues, how can procurement help the organisation deliver against those objectives?
Craig Millis: To play its role, procurement needs to ensure tight alignment with the enterprise's corporate and social responsibility goals.
More and more we're seeing enterprise procurement policies and strategies embodying key elements of those objectives, and that's procurement's role, is to exercise that to deliver those objectives.
Recent legislation in Australia has increased the focus dramatically on some of the social outcomes, particularly the Modern Slavery Act 2018, has really elevated the focus and attention enterprises need to give to ensuring that there is no evidence of slavery through the supply chain. From the end of the next financial year, any enterprise with revenue over 100 million dollars will have to report on the actions that they're taking to eradicate or avoid any evidence of slavery in their supply chain.
Of course, this is not new. The UN sustainable development goals have been around since 2015, and many companies have embodied elements of those goals into their corporate social responsibility charter.
Procurement has a role to reflect those objectives into their own procurement policies and strategies, and through exercising that can address many aspects of poverty and other social disadvantage through leveraging their spend to better outcomes.
Dan Knox: Craig, thank you very much for your time.
Craig Millis: Thank you, Dan.
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