And he had a very strong point regarding Supplier Relationship Management. He said to me few times during our talk:
“Don’t manage costs – manage suppliers!”
I have decided to write a short post around his way of thinking behind that sentense.
Why Cost Savings Don’t Work?
There are lots of surveys and studies connected to cost savings in procurement. And apparently there are many problems connected to implementation of cost saving activities.
For example, it was a survey which shows the following. 68% of the CFO’s claim that more than half of cost saving activities and initiatives are never realized! So they never influenced the bottom lines of the companies.
And this just shows that there is a problem with cost savings measurement.
This also shows that there is so much more of the potential for procurement than only cost savings. One of these areas where procurement can deliver great Value to the entire company is Supplier Management.
Move Suppliers to Your Direction!
Try to have a different look at Procurement. If you look at Procurement not as a cost-saving function, but as Supplier Management function – it brings completely different perspective and mindset! Then Procurement role becomes to basically lead and manage their suppliers. To make your suppliers move into your company’s direction!
Imagine if you have managed to move your suppliers at least 5% in your direction. With all the people that are on supplier site. With all the knowledge, technologies, experience and resources that suppliers have.
For instance if you will work together with suppliers’ logistics departments and R&D departments on how to optimize Supply Chain together – you would find a huge potential! And most likely you will never come to such conclusions by only your own efforts!
Of course you will not manage to make such developments with each and every of your supplier. Such cooperation requires a certain level of supplier’s maturity. And moreover such cooperation requires the full transparency and trust between the partners.
So most likely you will build the pool of such suppliers with whom you have the better relations. Think about suppliers that can bring extra value to your company by cooperation with you. These would be truly what we call Strategic Suppliers.
And we should truly dedicate our efforts and resources to lead and manage the common development with such suppliers. Because these suppliers bring such a big opportunity! Not only concentrating on the cost savings. But really looking into creating the extra value for entire supply chain.
Of course we should remember that Procurement is responsible for a large part of every business. For example Procurement organization of a manufacturing company can manag more than 50% of all the company’s cost. And that is why Procurement should have the central role in every company.
But to be honest, Procurement doesn’t have this role in most of the companies today.
And partly this is because we were concentrating too much on the cost reduction, forgetting the other kind of values that we can deliver to our companies.
Let me finish this article with this quote from Lars Kuch Pedersen: “Don’t manage cost – manage suppliers!”
I am sure that there is so much potential hidden in such approach!
P.S. And don’t forget to listen to the full interview with Lars Kuch Pedersen!
Procurement expert and coach at Future Procurement
You can learn more about Procurement and Supply Chain Management at our web-site www.futureprocurement.net