Some people believe that a procurement strategy is simply a cost-saving gimmick: it analyses your business and sees where you can trim the fat to make a leaner and meaner organisation.
But a good procurement strategy does a lot more than that. It isn’t always about cutting costs. There are many other ways Business Focused Procurement can add value to your business. Here are some of the benefits of not just looking at savings when developing a procurement strategy.
Buying for the future
For any project it is crucial to analyse what materials you need and the best way to procure them before starting out. Sometimes, if a company has the resources, it is wiser to make the materials. Sometimes it can be cheaper to buy. But it is not always about what is the most cost-effective option today: there are times when you need to make decisions with the future in mind.
Ikea did just that when it started buying forests. The furniture giant is well on its way to implementing its large plans for the future: it had 318 stores in 2014 (not counting its franchise stores), which it hopes to increase to 500 by 2020. It is also looking to increase its sales to €50 billion by 2020, up from the €28.7 billion it made in 2014. In order to meet that demand, Ikea had to control access to its key raw material – wood. Owning forests provide the answer: Ikea now controls raw material access, as well as how its forests are managed, allowing them to be more environmentally friendly. The Swedish company made a decision that was not necessarily less costly in the short term, but that will pay off far into the future.
Adding value in a changing world
One of the most important roles of a procurement strategy is to help your company create value. Often, that means over the long term. What looks like a cost saving today may cost the company its future. In many industries it is important – no, vital – to invest in research and development, to try to identify trends and develop products and services to maximise on them. That way you ensure you are ahead of the curve. It represents a significant time and money investment, but it is time and money well spent.
Businesses of all sizes need to focus their energies on staying relevant. Leading organisations of today know what is at stake if they do not keep up with an evolving market. Take Apple. It revolutionised the music scene with the iPod, and changed our relationship to our phones with the iPhone. Many offices and homes today will have a Mac on their desks, whether a laptop or a desktop. Apple has made itself the defining company of our times.
Some may think that Apple has made it. Yet the company continues to invest large amounts of money into research and development. In fact, it has increased the amount it invests. During the second quarter of fiscal 2018, Apple invested $3.378 billion in research and development, which represents a 21.7% year-on-year increase. That’s a large amount of money. From 2010 onwards, Apple’s investment in research has been a steady and steep upward curve, now touching a peak of $12.72 billion. It is an investment that they know will pay off in the future.
Investing in your employees
Several companies seek to cut costs by managing how much they spend on their workforce. This is not unusual, as the workforce often represents some of the biggest expenses. It may be tempting for a company to try to reduce that expenditure. However, more often than not, that approach is counterproductive.
A Business Focused Procurement approach will help you invest in your employees for the long term, so they can take your company to new heights. Specifically, Procurement can help you intelligently access supply markets to deliver the most appropriate mix of HR services, such as recruitment services, training, and employee benefits packages. There are several benefits to this:
- It will help you attract the best talent in an increasingly competitive market.
- Employees that have been properly trained are more efficient at their jobs and are less stressed.
- Investing in your employees’ skills development, even when those skills may not directly relate to their jobs, will help build loyalty to the organisation and increase overall happiness.
Moreover, the cost of not investing in your employees can be much higher. According to research, the cost of losing an employee can be upwards of 6 months of the post’s salary.
Which is why organisations like Google spend time, money and energy on investing in their workforce – above and beyond what is normally considered within a company’s scope. They provide perks, opportunities, play, and avenues for growth. And it works. Thanks to their investments, employee satisfaction in Google has risen by 37% and it directly impacts their profits.
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Would you like to harness some of these benefits for your business? Get in touch with our Managing Director, Armand Brevig, using the form below to see how implementing the right procurement strategy today can help secure your business’ future.
