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Procurement: new model promises step change in productivity improvement
Giles Breault has had an interesting career. To date, he has spent more than three decades escalating the impact of procurement on business operations. What he proposes today is nothing short of revolutionary.
Only a few years back, little was expected from procurement, in terms of value, beyond cost cutting. Today procurement is being recognized for the strategic value it promises: in his most recent role, Giles was responsible delivering 8% year-on-year savings (see below).
The new horizon Giles envisages is where procurement no longer operates as a semi-independent "outlier" of the business, but rather, is integrated into broader productivity effort; more specifically: integrated with other departments that drive productivity improvements. What this means is that your Six Sigma team, your offshoring experts, your outsourcing consultants, your procurement executives, your cost analysts … should all collaborate to focus their activities on an overall cost management strategy. That approach is the differentiator that can lead to a significant step change in productivity improvement.
"We need to develop working relationships that attack costs from all ends – not just the external piece, but also, and perhaps more significantly, the inherent waste embedded in the system," Giles says.
In this interview, Giles proposes a three-step strategy to get you there. First, develop a clear strategy on cost management: what are you going after and which resources can you apply? This is too often missing. Second, build a supportive organizational structure. That means moving away from the typical functional alignment, and creating collaborative teams focused on the big areas of cost. And third, you need to plan for integrating these organizations and capabilities.
Giles also highlights common hurdles – mainly, insufficient in-house capabilities due to limited skill-sets and silo-mentalities; and focused on discreet costs as opposed to comprehensively managing business needs.
Given the corporate data that organizations have access to today, bringing the right resources together can lead to a significant step change improvement in productivity. What is particularly important, Giles emphasizes, is that the third party spend managed by procurement can represent only half of the total cost. It’s the inherent waste in the processes – the systemic waste – that can successfully be tackled by a more collaborative approach. "It’ll drive double the savings you can achieve," Giles promises.
If you listen to only one podcast on procurement this year – make this it!