Why are businesses failing to get the most out of their non-core costs? (pt 1)
Nov 13, 2013 8:39:00 AM
Businesses are failing to get the most out of the non-core costs. Why? Well, simply put, because procurement is failing. But the issue here is far deeper than simply pointing your finger at the team of people in procurement - in fact, we would argue, the problem lies in five very different areas, which we’ll explore below.
Equally, the responsibility of solving the situation doesn’t sit with the procurement team. Instead, it’s the responsibility of the C-level business leaders. The trouble is - it’s often not obvious exactly which C-level role that is. It varies from company to company. Often it’s the CFO. But it could equally be the CEO; the COO; the CIO even. And a more complex answer would be that it’s spread out amongst the top line budget holders.
With suppliers performing an ever increasing proportion of the average company’s activities (according to new research), solving it will have a material impact on your business’ overall performance.
So here they are - the five reasons why non-core procurement is failing:
- It’s more complex, wider reaching and changes faster than most people imagine
- The range of skillsets and specialisms needed are wider and deeper than in-house functions possess
- The up-to-date insights and knowledge it demands, about what’s going on in each and every one of hundreds of areas, do not exist today
- The answer most people give to the question “what is the purpose of procurement?” is wrong
- Effective procurement is completely different to the typical view of it being a series of sourcing exercises, which get repeated every year or so
1. It’s more complex, wider reaching and changes faster than most people imagine
Every business uses thousands of suppliers - all of which are experts in their areas. But these are just the ones you use - there’s hundreds of thousands others in the market that you could potentially use.
The number of areas that make up non-core costs runs into the hundreds - a very broad spectrum of areas, each of which is not only technically complex, but is also in a constant state of flux, due to commodity prices, exchange rates, innovations, and so on.
Large businesses operate in multiple regions and possibly multiple languages.
The number of stakeholders that have an influence on on-core costs is high. And they are right across the business from the CEO to the shop floor. They are often technical experts in their own areas, but not procurement experts. Many are the actual budget holders and therefore decision makers. All of them need to be listened to, communicated with, understood, influenced and coerced.
Dealing with this complex situation is a big ask - if not an overwhelming one for in-house procurement practitioners who are resource and mandate light.
We welcome your thoughts and comments on this topic - please add them below.
* Click here to access part two and part three in the series