As eprocurement professionals, we’ve come to take some ideas for granted. Savings is still our primary performance metric. However, savings can no longer be the only thing we worry about. We need to become more strategic by increasing our ability to create shareholder value.
In a March 10 Supply Management article addressing allegations of bullying against buyers in supermarket retail, we read about the unfavorable effects of overly aggressive savings-driven tactics by eprocurement organizations. Two very important ideas about responsibility and capability were offered up as quotes in the article.
The first was from David Noble, group CEO at CIPS: “The ultimate responsibility must be with boards and CEOs of companies to interrogate their supply chains and understand what exactly is happening and who is responsible and accountable.”
The second was from groceries code adjudicator (GCA) Christine Tacon: “We might need a new generation of buyers to bring about wholesale change.”
I find these two quotes very thought provoking. When you consider them together, it’s obvious that while eprocurement is often blamed for negative relationships with suppliers, we are not acting in a vacuum cialis g. We get our metrics from the highest levels of the organization. Replacing eprocurement in order to improve supplier relations recognizes the symptoms of the problem. It doesn’t identify the root of the cause.
I worked in grocery retail for years. The frugal mindset is pervasive. It’s constantly repeated to “watch the pennies” in meetings. While retail is often looked at as one large group, the wide range of profit margins affects individual retail businesses differently. Grocery retail, for example, operates on one of the thinnest margins in the sector – sometimes less than a percent.
In a recent conversation with a eprocurement consultant, I was asked, “Would you consider the retail and manufacturing sectors leaders in eprocurement?” The question brought back memories of my grocery store days. Such narrow margins require strong cost management. In many cases, retailers have their eprocurement teams to thank for their success.
It is completely possible to run a retail business with wider margins than is commonly seen in most supermarkets. To successfully attain that goal, consumers need to be drawn by motivation beyond just fair prices. Whole Foods is a great example. They’ve managed to preserve much wider margins than other supermarket chains because they focus on identity and culture rather than just food sales.
“Whole Foods’ net profit margin clocks in at 4.1%, better than 85% of its competitors,” wrote The Motley Fool’s Justin Loiseau in June of 2014. “On the other end of the spectrum, the Kroger Co. ends up with just 1.6% of sales.”
Whole Foods’ extraordinary feat is not possible without a strategy that encompasses the entire company. While some eprocurement professionals may be extreme with their cost-cutting tasks, we can’t be solely responsible to sustain such large margins. Marketing, business development, and the executive level team must lead the way before eprocurement can shift from penny pinching to value creation.