by Bertrand de Comminges, Head of Structured Trade Advisory, J.P. Morgan Treasury Services, EMEA
While the concept of ‘strategic sourcing’ has been in vogue for the past ten years or so, in reality the notion has existed since time immemorial. Obtaining goods of the right quality, delivered in the right place, at the right time and at the right price is sound business practice and while the means of achieving this has become more sophisticated, complex, and geographically diverse, this remains the basis of every procurement strategy. This article looks at some of the ways in which the procurement function has evolved, and the strategic role that it now plays. Furthermore, with an efficient physical and financial supply chain now critical to the business success of every organisation, what are the immediate opportunities and benefits of treasury and procurement working more closely together?
The growth of a profession
Procurement officers may be variously known as buyers, purchasers or strategic sourcers, but however these professionals are named, the traditional emphasis has been on negotiating with suppliers in order to reduce or avoid costs. With complex products and services, involving components and raw materials around the globe, one product often combines inputs from hundreds of suppliers. Buying from any one of these at the wrong price can mean that the cost of the final product is undercut by a competitor, which could be a disaster for a major product launch. Order the wrong quantity or at the wrong time, and a company could end up with cash locked in a stockpile or unable to meet consumer demand. Net profit is therefore a key metric in procurement.
Order the wrong quantity or at the wrong time, and a company could end up with cash locked in a stockpile or unable to meet consumer demand.
Since the early 1980s, four different conditions have come into place that have allowed an increase in scope for treasury and procurement professionals. Firstly, the implementation of enterprise resource planning solutions (ERP), secondly an overall increase of political freedom, thirdly the liberation of the capital markets and, last but not least, the access to low cost sourcing countries. These four variables have been the basis for the increase in the complexity and strategic importance of the buying process.