Reducing costs in favour of managing risk puts supply chain in jeopardy and procurement should be a boardroom topic, according to supply chain expert, Crimson & Co.
A recent report from Source for consulting on professional procurement in mid-sized companies revealed why organisations should be further focusing on procurement, with risk demanding more attention in the boardroom said Tom Woodham, director at Crimson & Co.
The report, which looked at the personal experiences of respondents from finance and procurement professionals, asked about the buying of goods and services and the status of procurement in their organisations.
It was found ‘negotiating with current suppliers to reduce costs’ was the top priority within procurement. Whereas, ‘putting in place processes to minimise the risk of fraud’ and ‘ensuring security of supply’ were barely recognised as concerns.
“Supply chain risk needs to be a top priority for procurement professionals today,” said Woodham, who was one of the experts consulting Source on the analysis of the results.
“The recent horse meat debacle has helped to further highlight the importance of contingency planning and in terms of the supply chain, the scandal can actually be seen very positively, in that it will result in procurement getting the boardroom attention it needs and deserves.”
The report suggests only 53% of mid-sized companies employ a procurement manager.
Woodham said: “This figure suggests nearly half of all mid-sized companies are ignoring the necessity to acknowledge the importance of procurement. Not only should all of these companies employ a procurement manger, but they should view the area as a boardroom topic, not an unimportant add-on in which the costs involved need to be reduced.”
The study also found the benefits of focusing on procurement are clear – companies can typically find anywhere between 2% and 7% of additional profit margin through managing supplier costs more intelligently.
Woodham said: “Even with a procurement manager in place, there ought to be someone on the management team who owns procurement, who understands it and thinks that it’s important.
“Organisations should not be looking at procurement and thinking of how to reduce costs in this area – they should be looking at how to improve processes and efficiencies in this area and mitigate against risk. However, until these points are recognised at board level, procurement professionals will be unable to action these due to price pressures from the top,” said Woodham.