Procurement’s place in the supply chain: a new business model

“21st-century corporations need a new business model for their enterprise supply chains. The old conventions no longer work in this new world of volatile and increasingly unpredictable demand and supply.” This is the opinion of Dr John Gattorna, a highly regarded international supply chain expert. In his recent book, Dynamic Supply Chains - how to design, build and manage people-centric value networks, he states his belief that the enterprise needs to become more 'connected' to its own parts, as well as its partners up and down the chains it participates in.

Gattorna urges that we need to embrace new ways of looking at customers to gain a deeper, more insightful understanding of the way they want to buy our products and services. “We must throw off old ways and embrace the new,” he says.

Where does procurement fit in?

The procurement function, particularly sourcing, has a vital role to play within the supply chain, but its effectiveness is significantly reduced if it is not directly connected to customer demand. Very few organisations – even those regarded as applying best practice in global procurement – measure the performance of their procurement teams on this basis. Traditional key performance indicators (KPIs) for procurement do not often include customer satisfaction measures.

Studies conducted into companies that exhibit leadership in supply chain efficiencies such as retail fashion chain Zara and retail giant WalMart, show that one of the secrets of their success lies in the fact that they own their relationships with their suppliers. Gattorna notes that they manage these relationships diligently, just as they do their relationships with their customers. “They know their suppliers and customers intimately, far better than most companies could ever boast,” writes Gattorna.


The supply chain

Contraflow required! Traditionally, we know the information and activity flows mainly in one direction, but in this new model, there needs to be more feedback up the supply chain, especially from the customer, via the supplier, back to sourcing.

What can procurement do to become a supply chain partner?

KPMG regularly reports on the state of procurement in the supply chain and makes these three observations on how procurement can be a better contributor to organisational success:

· Partnering with the organisation

For procurement to achieve a place at the table, more work should be done to align with key stakeholders and understand the business operations to become a true strategic partner. This means moving up the value chain to ensure that the function is involved much earlier in the decision-making processes, and clearly demonstrating how active involvement adds tangible value to both the bottom and the top lines.

· Moving beyond cost savings

Driving costs from supply contracts will always be a central tenet of procurement, but many organisations seem to be struggling to extend their activities proactively into core capabilities such as category management, and beyond into demand management, supplier relationship management (SRM) and risk management. With

relatively low levels of spend under contract and under management in many sectors, there remains a significant opportunity for procurement to stretch beyond cost savings and deliver more strategic value to the organisation.

· Achieving the optimal operating model

Although the majority of procurement organisations have already adopted a more centralised operating model, many still face challenges in translating this into strategic value for their businesses. CPOs and supply chain directors will increasingly find themselves reassessing their operating models to squeeze greater value from their activities, while providing a robust, centralised framework that delivers efficiencies at a reduced operating cost.


Contributed by: Elaine Porteous, a regular contributor to Bespoke Procuremment Bulletin, and a freelance business writer and commentator on supply chain and talent management.


Article first appeared in Bespoke Procurement Bulletin: