Steering procurement’s efficiency drive

With procurement departments under pressure to do more to manage suppliers and reduce risk, many are looking to rationalise their supply base, build stronger relationships and develop more effective outsourcing. 

The procurement landscape is constantly evolving, with those in the function now expected to go well beyond the remit of buying, or mitigating price increases. Today’s procurement function will be involved in wider supplier relationship management, risk reduction initiatives and helping to shape broader corporate objectives around issues such as ethical and sustainable sourcing.  

Faced with such pressures, which are often compounded by a shortage of talent, procurement professionals responsible for supplies supporting maintenance, repair & operations (MRO) are developing a mix of strategies to help them do their jobs more effectively. The 2024 Indirect Procurement Report, produced by RS in conjunction with the Chartered Institute of Procurement & Supply (CIPS), finds many are turning to internal measures, such as automating transactional tasks through eProcurement, which is used by more than a quarter (27%), or making use of online marketplaces for tenders and ordering (20%).  

 

Others, though, are more external and supplier-focused. A quarter (24%) are putting more responsibilities on to suppliers, such as asking them to take care of stock management, predictive maintenance or to expand their product range, and 23% are looking to rationalise their supplier base. 

In the MRO space, companies source from an average of 75 suppliers, the research found, with some using more than 100. It’s possible some of these may be smaller, more niche or local companies, says Helen Alder, Head of Knowledge & Learning Development at CIPS, but there’s also potential here for spend consolidation. “If your focus is just on the price you pay, then that will probably result in a bigger proliferation of suppliers,” she says.  

“But you need to be aware that it’s not just the price paid for the goods but also the cost of procuring the goods. This can include carriage or transport costs, or the costs of raising an order or invoice.  

“You have to consider the total costs, which is hard to do unless you’ve got quite sophisticated systems internally. There’s an education piece for procurement there but it all depends on if they themselves are aware of it.” Having this kind of information can help businesses make more data-driven decisions, and benefit from economies of scale, she adds.   

Working with fewer suppliers can bring other benefits, including process optimisation, says Kate Davies, Global Head of Commercial Services at RS Group. “It can also be easier to establish a very clear framework for due diligence around counterfeit products,” she says. 

It’s good to talk 

Building stronger relationships with key suppliers also makes sense, says Davies, but this requires regular communication. “Bringing your suppliers and customers together and having a forum to discuss what innovation is happening in the marketplace is a good idea,” she says.  

"There are lots of things going on behind the scenes that suppliers would love to talk to you about, and it can also help to build a good pipeline of savings opportunities and continuous improvement. But it’s got to be meaningful. It can’t just be a topic easily overshadowed by operational delivery and tactical actions. This is where strategic relationship management comes in.” 

This could also extend to helping suppliers use particular systems, says Michael Lewis, Professor of Operations and Supply at the University of Bath School of Management, giving the apparent mundane example of supplier onboarding. “Supplier onboarding streamlines interactions and improves quality control, leading to increased operational efficiency and cost savings,” he says.  

“A company that effectively integrates new suppliers into its procurement system can reduce delays and secure better pricing, while increasing flexibility and resilience and ensuring compliance with quality and regulatory standards.” 

In some cases, organisations are turning to outsourcing as a means of securing the services and expertise they require. More than 80% of businesses outsource elements of their business processes, with the most common instances being transaction processing (23%), digital solutions (19%) and data management, reporting and information (17%).  

This can also extend to the procurement or supply chain function itself; 14% outsource supply chain consolidation and 12% do the same with procurement and sourcing. In the MRO space, 16% outsource procurement of such items to third parties. 

There can be some reluctance on the part of procurement professionals to go down this route, says Davies, but there are some clear benefits. “It can be a good way to get to a first-generation solution in categories where you have poor line of sight around business needs, and the frequency at which purchasing is made,” she says.  

“A first-generation solution, which just gives you the data clarity, gives you a bit of breathing space and the knowledge to make data-driven decisions. There should be much less fear attached to it where you are confident in your analysis of buying behaviour and requirements.” 

Risk reduction

Any supplier strategy will need to encompass risk, and ensure relationships are as resilient as possible for the challenges that lie ahead. “We cannot ignore the slow rolling nightmare that is environmental change and the consequential geopolitical instability that will create,” says Lewis.  

“The built-in impact of the current level of heating in the planet means our supply chains, which are global, are going to be disrupted again and again. So how do you build resilience into systems? That’s the big conversation that we need to have. You need to be open to communicating and recognise that collaboration doesn’t just happen. You have to invest in it.”  

As some of the pressures related to global economics, politics and the Covid pandemic begin to ease – just 2% expect the latter to be a challenge in the next 12 months – it’s a good time for companies to review their approach, believes Lewis. “You can tolerate certain kinds of risks,” he says. “But now is the time to get your head up and have a look around again. There’s always a temptation to get your head back down and get back to business as usual but it’s important to really learn those lessons.” 

Davies agrees now is a good time to reflect on supplier strategies, including the use of systems and processes that underpin such interactions. “Stakeholder business needs have changed,” she says. “Don’t stay fixated on a plan or a category strategy. Keep communication lines open because that’s the best way that you can demonstrate value, whether that’s through ESG, cost reduction, improving service performance or building a stronger relationship with the supply chain.” 

For more insight on how procurement professionals are developing supply chain strategies, download the 2024 RS & CIPS Indirect Procurement Report here.