In many respects, the global recession has helped raise the profile of Procurement. Corporate bodies have spent the last twelve months focused on cost reduction and, over that period, have paid particular attention to the way a more structured and strategic approach to procurement practice can bring rewards to the organisation. And there is evidence to suggest this approach is paying off.
An interesting finding from a recent Ernst & Young study, ‘Opportunities in Adversity’, indicates that for a significant minority 2009 was a year when earnings improved. More than one third of companies surveyed reported that earnings before interest, depreciation and amortization (EBITDA) had grown by over five per cent in the last 12 months. Remarkably in the context of a global recession, seven per cent of all businesses had seen a more than twenty per cent increase in earnings.
As a general rule of thumb, a five per cent EBITDA business making a £1 million saving on costs – that drops through to the bottom line – is the equivalent of the business putting £20 million on the top line. When the opportunities to grow the business are less apparent, then company directors come under pressure to maintain shareholder value by making savings that deliver equivalent value. This places Procurement in a strong position to reach heightened levels of engagement within the organisation and pushes the possibilities for collaboration. Certainly, many more companies are demonstrating a desire to attain better control across their supply base, to gain greater depth of visibility within countries and markets, and to achieve a complete view of the supply base across the globe.
Whereas previously, in some of those businesses procurement would have been considered a tactical activity, many are now looking at procurement from a strategic perspective. This drive to taking a more sophisticated approach can be clearly seen in the utilities and construction sectors in particular, where better control, reputation management, reduced costs, and improved quality within the supply chain are evident in a number of leading organisations.
However, there is a very real and grave danger that once corporate attention returns to growth with an improving economy, the ground gained by Procurement in raising its game within the company will slip away. This simply must not happen. Why allow maverick tendencies, a lack of control and intransigence to return?
There is a challenge facing those that have worked hard to establish procurement as a strategic and central activity in their organisations. There is a tremendous opportunity to build on that base and to take further steps towards complete supplier management, consolidating supplier information and using that data intelligently to make sound decisions that reduce exposure to risk in the supply chain.
The recession has presented Procurement with an opportunity, one that should not be allowed to slip away. Those companies that have taken the opportunity to restructure their procurement processes during the recession should be well placed to profit from the future.
