Materials

Role Of Procurement In Organizations

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<p style="text-align: justify;">High performing procurement teams contribute by providing competitive advantage to organizations rather than being cookie cutter negotiators!</p><p style="text-align: justify;">Procurement has a major role as innovation enabler. One of the key differentiators for successful companies going forward shall be their potential to innovate. Studies show that more than 60% of innovations globally, involving consumer offerings are achieved through external supply partners. These innovations create market advantage versus competition in terms of cost, performance and brand value. Progressive procurement teams collaborate with supply partners through various Supplier Relationship programs. Toyota is an organization which has historically been highly successful in driving innovation through supplier partnerships and stay ahead of the pack in technological and cost efficiency. Visionary leaders view procurement as a proactive innovation sourcing agent rather than a transactional arm wrestler for cost reduction.</p><p style="text-align: justify;">One of the key objectives of Supplier Relationship Management is to address supply continuity risk. Organizations address this challenge by diversifying supply sources. EU recently launched a supply chain strategy- &ldquo;raw materials alliance&rdquo; to ensure smooth supply of rare earth elements for future. As per FT, "Supply chains for rare earths are particularly hard to diversify. It&rsquo;s not like finding a new source of crude oil". In spite of all challenges and complexities, it is super important for an entity to ensure continuous flow of its strategic inputs. Pushing for the right legal terms to manage risk is equally important in any successful negotiation. Procurement's position as a corporate risk management resource while making the right trade-off will continue as resiliency most often has a cost attached to it.</p><p style="text-align: justify;">The ethical culture of an organization gets reflected in the way it treats its employees and by extension the way its procurement and other stakeholders deal with suppliers. Integrity needs to be at the core of procurement profession where moral compass must outweigh quick commercial gains. Socially and ethically responsible procurement can confer competitive advantage for the organization in terms of attracting talent, customers and investors.</p><p style="text-align: justify;">One size fits all strategy does not serve in this era of supply chain complexities when the market is shifting from a supply driven to a demand driven ecosystem. It is important for sourcing professionals to carve their identity and be part of the organization's strategic journey. The electrical car maker Tesla's foray into in-house battery manufacturing-vertical integration- is a step in this direction. A classic example to reference "porters five market forces" considering that battery constitutes 40% of an EV's cost. As more companies bolster their supply chains with resilient and resourceful leaders in the backdrop of lessons learnt from pandemic, it is important for procurement to rise up to the challenge!</p>
KR Expert - Joseph George