Inspiring Procurement Success Stories
Mention that you work in procurement at a dinner party, and you’ll likely be asked to further explain your role. As you try to summarize, you may be tempted to simplify the scope, leaving the other party to believe you merely help your company source supplies and place orders. Procurement and purchasing may not be the flashiest department, but ProcurementIQ believes it is an integral part of almost any business.
While procurement is often an understated function, that story is quickly changing. Procurement is no longer a simple backroom support system responsible for transactional processing. While it has always been the backbone of many manufacturing, retail, military and other industrial organizations, it is also becoming an important tool for business strategy—a tool that has helped some businesses grow immensely.
Those who work in procurement know there are many complexities that make this job easier said than done. That’s why it can be helpful to study the success stories of other businesses and their procurement departments. While the needs of every business are often different, sometimes all it takes is a fresh perspective or an encouraging story to show just how much is possible.
Success Story #1: Nestlé
Many businesses are embracing efficiency tactics, such as automation, in order to increase productivity and save on costs. Nestlé is a prime example of how far such tactics can take you. By streamlining procurement and operations, the company’s US CEO, Steven Presley, claims Nestlé has been able to expand profit margins and propel overall growth.
For Nestlé, streamlining procurement meant changing strategy and cutting suppliers. In fact, according to supplychaindive.com, the company's overall supplier count decreased by 10% from 150,000 suppliers to roughly 132,000 since 2016. And CFO François-Xavier Roger says the cuts aren’t over. “We will reduce even further so we have less people and we buy more from them with better terms for us,” Roger said, according to the Wall Street Journal.
This has been just one course of action taken in the name of the company’s savings initiative. Procurement consolidation, overall, has been responsible for 65% of the savings thus far. By 2020, Nestlé plans to generate savings of $1.99 to $2.49 billion, with half of this goal already achieved.
Success Story #2: McCormick & Company
In 2012, McCormick & Company put a long-term plan into action that would support the company’s big-picture vision of global growth. Unfortunately, too often, procurement’s potential to help achieve these bigger goals can get overlooked. However, McCormick acknowledged this potential right away and gave the procurement team a seat at the table. The procurement team then got to work by reshaping their priorities and organizational structure.
In an article written for Supply Chain Quarterly, VP of Global Strategic Procurement Brant Matthews said the procurement team focused on two big questions: “How do we get more scale and leverage [across McCormick’s product categories]?” and “How do we elevate procurement’s impact and provide a greater value proposition for the business?”
Today, after finding the answers to these questions, McCormick’s procurement department is a vital component to the company’s global business strategy. With a global department head that regional procurement teams report to, things are now much more centralized and aligned with the company’s value and mission. By centralizing its procurement division from top to bottom, McCormick was able to reduce costs, improve productivity and support an all-inclusive approach to company growth. In turn, by getting top-level support and generating more positions, the procurement department’s most prominent achievement is in cost improvement, which has increased by 250% over previous years’ average. In fact, the new approach has freed up over $100 million in cash, primarily through extended payment terms with vendors and suppliers.
Success Story #3: Mercy Health
According to Rob Austin, director and healthcare expert at Navigant, healthcare supply chains are 15 to 20 years behind when compared to other industries. While labor is the largest portion of health system costs, supply chains are the second at 30-35%.
Faced with the need to cut costs due to lower reimbursements and inpatient volumes, healthcare companies are in desperate need of supply chain and procurement reorganization. Cue Mercy Health’s integrated delivery network, which is on the cutting edge of this growing trend.
Thanks to the April 2017 partnership between Mercy Health and Medline, a medical supply manufacturer and distributer, the organization was able to increase inventory standardization from 2% to more than 50%. According to data published by a Medline case study and posted on supplychaindive.com, the standardization could result in a 10% reduction in acquisition costs for commodity supplies.
As Mercy Health’s inventories have become more standardized, their supply chain has consolidated, to their benefit. As a result, Mercy Health has been able to focus more on caregiving, rather than worrying about routine supply.
There’s a lot to take away from these stories, especially if you dig in even deeper. Admittedly, each success story is much more complex than ProcurementIQ can give credit for in a single article. However, one thing is for certain: when given the right resources, strategy and tools, procurement departments can help businesses accomplish much more beyond savings if given the chance.
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By: Mara Michael
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