Cost savings go straight to a company´s bottom line profits.
The CEO wants changes in the procurement function because purchasing currently functions as a lower-level assistant role. The most significant part of the company’s expenditures (52 percent of NSR) is purchasing goods, raw materials, and packaging. At the same time, three times less amount is related to the company’s salary costs. The CEO finds the purchasing function is operated for formal reasons – and, therefore, not strategically considered a vital part of building business strengths.
Analyzing procurement operations
Focusing on procurement is generally considered the most significant opportunity for a company to build competitive advantages and strengths.
It is time to realize the enormous opportunities that lie in exploring the procurement function. Focusing on procurement excellence is highly important because cost savings or productivity improvements go straight to a company’s bottom-line profits. In other words, if you save one dollar on procurement, it will be passed straight to the company’s bottom line profit. Or it could drive sales in another case by negotiating lower purchasing prices and donating the whole savings directly to the consumer’s pocket at the point of purchase.
Better purchasing prices drive competitive advantages in the short- and long-term. Focusing on procurement excellence is the fastest way to improve a company’s profits, revenues, and cash flow. Moreover, the procurement function operates without exposing brands or businesses to media risks. For instance, a price increase or employee layoffs are among the alternatives to drive bottom-line profits – but they could trigger bad publicity in the media. Procurement management occurs inside the company’s surroundings.
A master plan guided the process
TPC Consulting’s primary goal is to change the procurement role from being solely a cost-center role into being the company’s most significant profit center. We aim to help the company create competitive advantages by establishing best-in-class procurement practices.
Core modules and content
Building procurement strengths is about uncovering new business opportunities and accepting challenges that create continuous value for the current business. The whole organization must acknowledge and emphasize the value of executing a professional procurement department as one of the core factors in building competitive business strengths.
- Create competitive advantages
- Outlining the procurement profile
- Disciplined focus and work processes
- Develop procurement business plan
- Key performance metric system
The results – Huge cost savings
The company has visualized considerable cost savings by focusing on procurement. Thus, the procurement position has strategically changed in line with the revised company vision, mission, and values statements.
In the past, purchasing prices and transport costs were considered as fixed. However, after working through rationalized thinking and identifying that procurement costs account for the most significant part of the company’s expenditures, opportunities are waiting to be explored. As one of the core foundations of the company’s competitive advantage, procurement will be leveraged to the fullest extent possible.
A customized “Procurement Management” training program was also presented, which employees viewed as an excellent value.