In today's global marketplace, constant product price reduction, reduced life-cycle and innovation make time-to-market and first-to-market significant competitive advantage. To respond to the demands of this new environment, companies are looking for new development processes to reduce time-to-market and development costs, and new purchasing organisations to co-ordinate and consolidate needs to obtain volume effects in order to reduce the acquisition price.
Bernard Garcia
To progress and optimise the role of procurement within the value chain, it is necessary to accept that the function is only one of many involved in the total acquisition process. Often too narrow a definition of procurement activity is accepted.
Value chains, and the processes by which they are driven, will require a mix of cross-functional skills covering purchasing, operations, logistics, engineering and finance. Unless these skills are fully integrated and aligned to create a true value acquisition process, overall business performance will be undermined. In many organisations, the primary driver to obtain competitive advantage will be the value chain. The most successful businesses will have the most efficient, lowest cost and responsive supply model for their markets, attracting innovation and preferential treatment from key suppliers.
Global competition is driving down prices. Product life cycle and time to achieve development payback are shortening. Innovation will make time-to-market and being first-to-market significant competitive advantages. Suppliers who generate optimum speed and penetration to market, and those that innovate will continue to command a premium for their products. This may make price reduction less important to buyers in optimising lifetime cost. Delivering supply developments on time will become crucial, as it will extend the customer's window of opportunity to sell at high margins.
Responding to the demands of this new environment, companies must acquire new development processes to reduce time-to-market and development costs. They must also develop new procurement organisations, co-ordinating and consolidating requirements to obtain volume effects and optimising acquisition costs and value. Purchasing can represent from 20 per cent to 80 per cent of company turnover, so these are significant challenges.
In this environment procurement as a stand-alone function will become a luxury, eventually to be dispensed with, unless the focus has been switched to value added demand management and the effective manipulation of the total value chain, both internal and external.
Development is expensive so decisions will be made as to whether it should be undertaken in-house or achieved through outsourcing and partnership, or even shared with competitors. Whatever strategies are followed, the presence of sound and integrated procurement acquisition structures will be crucial to success.
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