A recent article in CPO Agenda on how supply chains hold the key to cost cutting covers a recent Opportunities in Adversity survey by Ernst & Young across 337 senior supply chain executives. According to the survey, the majority of supply chain executives (83%) reported that their supply chains provided opportunities to lower costs, with a whopping 57% indicating that major cost savings opportunities rest in the supply chain.
This should not be a surprise considering recent findings by Aberdeen, Accenture, Hackett, and many others. The only surprise is that companies still see the need to do these studies. How many studies should it take to convince you that untold savings opportunities lie in your supply chain? That every procurement event is a savings opportunity? That every dollar saved by procurement matches five, ten, and sometimes twenty dollars of revenue brought in by sales? That best-in-class operations see a 6:1 ROI for every dollar spent on their procurement operations? I’d think three would be enough (and by now there are well over thirty). So, what are you waiting for? Hire a consultant (they’re cheap!) and get cracking!
Last fall, Strategy + Business published an article on The Unique Advantage that pointed out the trick to succeeding in consumer products industries isn’t necessarily being first to market, but being hard to copy. When you consider that eighty percent of new product introductions in a typical mature industry yield less than $7.5 Million in sales in their first year, it can take a while to recoup that R&D investment, and being hard to copy becomes critical to long term financial success.
So how do you gain that advantage? One way would be to start with the seven suggestions offered by Strategy + Business in the article, which I find to be particularly relevant as, with a few simple tweaks, you can also use the suggestions to transform your procurement organization into a procurement leader as these “best practices” are “hard” to copy without a significant amount of effort and forward thinking by your peers.
Technology innovations can yield significant returns in revenue, brand growth, and margins. For example, in health care, new products that match a new technology with a new market need deliver a median brand growth of 11%, double the median growth of 5% for products that address only an existing need. And in procurement, advanced sourcing technologies typically yield 12% savings, while traditional technologies do good to yield half that. Furthermore, technology innovations take time to copy.
Claims can add substantial value when they are tied exclusively to a product and can be held for a significant period of time. For example, in 2006, Mars developed a new line of chocolate bars, CocoaVia, which it labeled “heart-healthy” because of the demonstrated cardiovascular benefits of flavanols, a natural antioxidant in cocoa beans. The claim provides a sustainable point of differentiation because Mars owns patents related to processing technologies that are designed to retain higher concentrations of flavanols than regular chocolate manufacturing processes. Similarly, if you adopt a sourcing or procurement technology which an analyst firm hs found to regularly save similar organizations 10% or more, you are much more likely to get quick buy-in across the board, which is necessary for the promised returns.
- Ingredient Synonymy
You can carve out an enviable market position by becoming virtual synonyms for your category — like Kleenex and Planters. Similarly, you can carve out an enviable organizational position of organizational innovator by getting involved in NPD early and helping the development team identify alternative low-cost sources of high-quality materials that can be used in product development.
- Unique Brand Characteristics
Strong brands can build an identity in consumers’ minds that transcends products. This type of positioning can act as a springboard for new opportunities, as it did for Coca-Cola with Zero, Singapore Airlines with “Asian values”, and ESPN in themed-dining. Similarly, if your procurement department is viewed as a leader with unique cost saving capabilities, you’ll become more involved in every aspect of the organization as you’re asked to lead cross-functional teams that will help the organization identify new operational paths that will cut costs and raise revenues.
- Product Experience
Successful products have an emotional component that builds a bridge to consumers, becoming part of their lives. Consumers want the product, and not a cheap imitation. Similarly, successful procurement methodologies and technologies make a user’s job so easy that they want to use the product.
Packaging innovation can leverage technology, emphasize unique brand characteristics, enhance the product experience, and prove very difficult to duplicate. Similarly, a good procurement initiative is packaged in a very effective B2B 3.0 wrapping that promises to make a user’s life easier while improving their value to the business.
- Vertical Integration
If you can keep a tight rein on your unique methods and processes, you can maintain a significant advantage in the consumer goods marketplace. Similarly, if a procurement department can insure that its best practice methodologies are applied consistently and not corrupted, it can ensure that expected savings are realized, making it a corporate hero.
And if you apply leading technology that supports claims of success, become synonymous with innovation, demonstrate a unique aptitude to cutting cost, make your users’ lives easy, package the experience, and keep the chaos under control, since you will, by the very application of these methodologies, also be:
- Addressing TCO
- Increasing Spend Under Management
- Getting a Handle on Procurement Operations Costs
- Increasing the number of NPDs/NPIS where you have a material role early in the development cycle
- Managing your Customers and Suppliers
You will be increasing your mastery of procurement, and on your road to becoming the leader that Accenture and Hackett regularly praise in their surveys and book of numbers.