Procurement's impact on business performance according to Symington's
Jul 8, 2011 12:20:00 PM
Sarah Bradley [SB], Purchasing Director at Symington's, discusses the key challenges for the Manufacturing Industry and Procurement's impact on Business Performance.
CG: Today we’re talking to Sarah Bradley, Purchasing Director for Symington’s. Thanks for joining me today Sarah - can you tell me a bit more about your role at Symingtons?
SB: Hi Chris, pleasure to be here. I joined the business six months ago, from Cadbury, where I was Head of Ingredients Procurement. I joined the executive board here at Symingtons as the Purchasing Director last June to set the leadership agenda in respect of the procurement function.
CG: How did you find the transition, was it very similar to what you experienced over at Cadburys or have you walked into a whole new world?
SB: The 2 businesses are very different. Cadburys is a global corporate giant whereas Symingtons is a high growth entrepreneurial business. So very different, but I have to say the pace of the business and the dynamism behind the businesses is phenomenal, and it’s something that’s very exciting to be part of.
CG: Can you tell me a little bit more about Symingtons and what you guys actually do?
SB: Yeah, sure. So we are a convenience ambient food producer, predominantly dried soup, rice, pasta and snacks. So we have a number of brands that you would recognise and most likely have within your kitchen cupboard such as Ainsley Harriott, Aunt Bessies, Golden Wonder and more recently Campbells.
In terms of our structure, our business turnover is c£100 million, purchasing spend is roughly 50 percent of that, so I’ve got six heads in the team, four sourcing heads, one admin, and myself.
CG: I believe I had some Campbell’s soup today – so there you go.
Moving outwards to the industry, we are seeing some radical shifts in the commodity markets most pertinent rising food and oil prices. Can you give me an overview of how these price hikes have impacted the manufacturing industry, and what are some key trends looking towards 2011?
SB: The key challenge for any manufacturing businesses right now I guess is margin maintenance. Consumers have less money in their pocket due to a number of factors; VAT increase (which is now at 20 percent), fuel price increases and food inflation across the board.
So the real challenge for any manufacturing business as we move forward to 2011 is managing and mitigating the inflation that we see coming from packaging and raw materials, and actually maintaining margins or avoiding margin erosion.
CG: On top of margin maintenance, what are the three areas of focus and objectives for Symingtons as a business and more specifically your department over the next 12 months?
SB: I suppose from a procurement perspective within my team margin enhancement is the key objective.
Risk governance however is as important, and is something that’s close to my own heart. For me there are 2 elements to Risk.
Firstly the commodity perspective, i.e. managing the governance process around commodity exposures and secondly supplier risk governance i.e. effectively selecting managing and developing your supply base to ensure you mitigate supply base risk.
Financial risk governance is particularly important in the current economic climate where supplier failure is a heightened risk.
The third objective would be sustainability which is often the least tangible. One of my primary concerns is not only sustainability of supply, but also sustainability of our cost structure.
CG: Just to clarify, when you refer to margin maintenance, are you talking purely bottom line savings? What else makes up the margin maintenance for you?
SB: Well effectively it is the bottom line because procurement’s impact really does go straight to the bottom line. Certainly in the current climate, the focus is on margin maintenance, so mitigating the cost price inflation we see at the front end of the business.
However whilst my team are focused on cost, we do have objectives outside purchase price variance – one of the easiest ways to save money is to use less e.g. don’t buy it in the first place! Our role is to challenge the status quo and encourage our colleagues to consider do we really need this product or service?
CG: Okay, fine. So margin maintenance, risk and sustainability are your primary objectives - how do you communicate these to the rest of the organisation?
SB: I suppose the margin ones easier because it’s visible via financial reporting, so that’s typically monthly PPV reports.
Risk governance is covered in our Procurement scorecard – this shows our actual exposure in terms of commodity cover & price risk.
I suppose the least visible and most difficult one to communicate is sustainability. Sustainability measures also form part of our procurement scorecard, although inherently are more difficult to measure and tend to be discussed within the procurement function than the wider business.
CG: How sceptical are finance of the reports, numbers and generally figures you are bringing to them – of your PPV, governance reports etc?
SB: As a procurement function we work very closely with our colleagues within finance and obviously because key elements of our score card are finance related - performance to budget, PPV, working capital targets etc. – scepticism is limited as the numbers are generated via the finance team.
Our overall targets agreed jointly between finance and procurement, but the reporting of those numbers comes through the finance team so in terms of the results we’re generating or we’re showing, these are signed off for want of a better word by finance.
Obviously with direct materials it’s much easier to measure because they flow through the bill of materials.
It’s more challenging to report the financial metrics in indirects as effectively it’s linked to internal stakeholder budget management - often what happens with indirect spend is the budget stakeholder ‘spends’ the saving so it is often not realised.
CG: How much remit do you have over the indirect spend within Symingtons?
SB: In fairness, I think my challenge is actually quite a unique one. Procurement is frequently invited to support our indirect efforts however, my challenge at the moment is that I haven’t got the resource to deliver that support in all the of the areas that I’d like.
CG: So, if you for could fill that capability gap tomorrow, would you then just centralise these spend categories or would you still let them be managed at the individual functional level?
SB: Well I think there’s a strong argument for centralisation, but I guess from my own perspective it’s about stakeholder engagement and consultation.
The key is to deliver value to your stakeholders. Ultimately the way I see it, procurement is a business service and actually we’re here to ‘serve’ our customers. Whether that be the operations community, the marketing community, or the sales community.
Taking on spend management without a clear understanding of what’s important to your stakeholders and what their key objectives/deliverables is dangerous. Effective stakeholder engagement, outlining why it’s worthwhile having procurement input into some of the key spends areas and what the benefit can be is important. Thereafter delivering on promise is a must.
CG: You said that you see procurement as a business service – is this how you define procurement?
SB: Obviously the stock answer is that procurement is about sourcing the right product at the right time at the lowest economic cost to meet stakeholder’s requirements! But from my perspective I would define procurement as a commercial function with responsibility for margin enhancement and risk governance, but at its core I do see procurement as a business service.
CG: Do you think the finance team would define it in the same way?
SB: Within this business yes, I’m not sure within other organisations. The goals within procurement and finance here at Symingtons are closely aligned, I’m not sure that’s always the case in other organisations.
Because we are an entrepreneurial, high growth organisation, procurement has developed alongside finance and not as a separate silo within the business.
CG: What else do you think procurement is doing to drive business performance, other than just financial?
SB: I suppose it’s the sustainability aspect of it from my perspective and innovation.
In a high growth business like ours, bringing innovation into the business is really important. Tapping into supplier innovation to fuel our innovation agenda is a key objective for my team.
Alongside that the real value add stuff is ensuring you’ve got a sustainable supply chain alongside a pipeline of cost saving initiatives. Ensuring the team is configured in the right way with the right skill set to support our high growth agenda is important.
I’ve only been with the organisation for six months, so I’m driving a move from a transactional procurement function to more of a strategic function focused on the longer term.
CG: If we turn now to visibility of spend - do you feel you completely understand, what makes up your cost base?
SB: Yes with absolutely certainty in terms of a direct spend. Where I find it’s more challenging is indirect spend.
CG: What sort of things would you like to see and where would the data come from?
SB: Well I suppose the data would arguably have to come from finance and the budget holders - the stakeholders who control the purchasing spend that sits inside the various departments.
For example we don’t currently have visibility into marketing services, as it is an area of spend that procurement doesn’t currently influence due to resource challenges. Clearly a lot of money is being spent on media and marketing support and this is an area I would like us to get more involved in when the time is right.
CG: As a high growth, entrepreneurial business do you often look outside the business to find expertise or capabilities that you might not have inside your own organisation – so trending towards outsourcing rather than building internally?
SB: It depends. If there are certain areas that are not core competencies whether that’s a particular offering, skill sets or resources, then absolutely. However in respect of people and specifically procurement, I would prefer to build internally.
CG: What are the main drivers for outsourcing any back office function?
SB: What I mentioned above, primarily resource and capability and often, credibility.
By credibility I mean having that independent validation. So it comes back to our conversation regarding the finance and procurement goals being aligned, I think in this particular instance that I’m thinking of, the valuable bit is bringing in external opinions which add a layer of credibility by looking inwards from a different perspective.
CG: I have one more question, what is one thing that procurement teams in the UK, Europe and around the world should being doing to be seen as a strategic, indispensible part of any organisation?
SB: Demonstrating leadership in terms of the procurement agenda, strategy and vision to ensure that we’ve got a sustainable sourcing model that supports the business objectives.