Decisions Special Feature – Track the cash: Corporate spend analysis crucial to e-sourcing

Procurement matters

It’s a procurement industry adage: for every pound brought in by sales, between 10 and 40 pence goes straight to the bottom line; for every pound saved, the entire pound goes to the bottom line.

This is the much-used argument of the long-suffering procurement director ­ – an executive who often struggles to gain a strategic voice within their organisation. But that’s certainly changing ­ – supplier relations are now seen as core to many corporate strategies and never is this more evident than during times of economic hardship, such as those we are going through now.

But it must be a two-pronged attack. It is no good squeezing suppliers until they go out of business, because doing so will almost certainly be detrimental to your own business. But at the same time, good supplier visibility and spend analysis allows your organisation to get the best deals while keeping track of where the cash is going.

For an example of how seriously some corporates are taking the contribution of procurement and supply chain executives and systems, look no further than Vodafone. Its global supply chain management director, Detlef Schultz, presented at an investor day hosted by (then) chief executive Arun Sarin earlier this year and was quick to extol the benefits of systems to understand this very issue.

“We implemented spend analysis to get transparency of our spend by supplier, category and geography,” Schultz explains. “We developed supplier performance management to have best-in-class systems to evaluate our suppliers.”

Buying power
Vodafone has gone one step further than most organisations. Following in the footsteps of IBM, Schultz has been busily establishing the rather grand-sounding Vodafone Procurement Company, a profit-focused group with headquarters in Luxembourg which is responsible for (euro) 5bn worth of procurement activity, buying items that range from its physical mobile phone networks and in-house technology, to corporate services. Just over two years ago, IBM opened a similar operation in Shenzhen, China, where John Paterson, its global head of procurement, is permanently based. Both Vodafone and IBM see the benefits that can be had from focusing on procurement and supply chain initiatives.

Rob Hemsley, director of European procurement at Heinz, has long been a fan of technology and has won awards for the implementation of sourcing and procurement systems, ­ especially around the discipline of e-optimisation, a technology that allows corporates to engage with suppliers on a huge scale without losing the advantages of working closely with a single supplier.

“The job of the procurement team is to meet the needs of the business while at the same time leveraging the suppliers and their strengths to best fit that in a competitive environment,” he says. “What e-optimisation does is it allows the suppliers to bid, or put their offerings into a system that meets the current perceived needs of a business, and then put other offerings in to almost challenge those needs to give the business itself the opportunity to change its specification.”