{"id":311,"date":"2011-05-03T06:03:35","date_gmt":"2011-05-03T13:03:35","guid":{"rendered":"http:\/\/wp.orangefroglogistics.com\/?p=311"},"modified":"2014-01-27T22:32:28","modified_gmt":"2014-01-28T06:32:28","slug":"13-trading-the-cost-for-the-value","status":"publish","type":"post","link":"https:\/\/orangefroglogistics.com\/blog\/item\/13-trading-the-cost-for-the-value","title":{"rendered":"Trading the cost for the value?"},"content":{"rendered":"

This topic seems to be a recurrent one in the world of procurement (sourcing or purchasing too). When I first started testing the procurement waters, it was straight forward: \u201cjust get the products\/services we need\u201d. That was easy, most of the time: negotiations were happening around a long lunch in a nice restaurant, a handshake was concluding the discussion, relying on past experience or a long relationship. The official contract was eventually delivered the week after, signed and stamped. Stereotypical of an era when some big almost-monopolistic companies were taking their fat margins for granted: I witnessed and was part of it. Unworried, I was \u201cprocuring\u201d away!<\/p>\n

\"B10_-_Cost_vs_value_-_OBP\"Then the idea of reducing costs became much stronger than in the past, universities and other\u00a0educational institutions\u00a0started developing programs specifically responding to this new trend of measuring everything in the supply chain business, and the purchasing teams moved offices to get closer to the procurement ones, when they were not merged. The main objective was to either save money, reduce or plainly avoid any cost. Not quite the same scenario in each case, and clearly a shift in managing the fund reservoir and the relationship with suppliers, existing or potential.<\/p>\n

The idea of value, and value-add, raced to the CFO\u2019s ears shortly after, splashing the rest of the financial teams. The procurement function slowly emerged, and became another visible and hot topic: should it be its own entity, or just another arm of Finance?<\/p>\n

It appears that reducing cost has turned to be the norm: it is all fine as long as it is piece of the whole puzzle, also known as total cost. There is a difference (although, not always perceived that way) between reducing cost and adding value to a transaction. Going cheap rarely gives adequate quality results (I get for what I pay). However, when the combination of both (cost reduction and value added) happens, it is important to communicate it properly to both Finance and Operations: if not already combined, they remain interdependent. That sometimes requires clearly re-defining and agreeing with the internal client on what a good \u201csupplier\u201d is. A more expensive supplier may, in the long run, help lead to exponential savings: a procurement manager is expected to see (envision?) way beyond the product\/service and the supplier\u2019s years of experience. Assessing a supplier\u2019s capability through a multi-criteria process is more than helpful, and can include impacts on cash flow, business continuity, tax and liability. These are examples only. Credibility is like respect: it is to be earned.<\/p>\n

Procurement is not just about cost reduction, by far. Like marketing, sales or design, it too can create and add value to the business. Now it sure helps to get the support and recognition from the senior management to also be considered as a value-creating functionality. It comes down to the ability of Procurement to sell itself to, sometimes, skeptical executive management, and to offer both the best product and the strongest (procurement) brand. Does anyone think it looks like a tough sell?<\/p>\n

Image courtesy of\u00a0Olivier Borgognon Photography<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

This topic seems to be a recurrent one in the world of procurement (sourcing or purchasing too). When I first started testing the procurement waters, it was straight forward: \u201cjust get the products\/services we need\u201d. That was easy, most of the time: negotiations were happening…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[18],"tags":[59,60,29,43,4,61],"_links":{"self":[{"href":"https:\/\/orangefroglogistics.com\/wp-json\/wp\/v2\/posts\/311"}],"collection":[{"href":"https:\/\/orangefroglogistics.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/orangefroglogistics.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/orangefroglogistics.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/orangefroglogistics.com\/wp-json\/wp\/v2\/comments?post=311"}],"version-history":[{"count":0,"href":"https:\/\/orangefroglogistics.com\/wp-json\/wp\/v2\/posts\/311\/revisions"}],"wp:attachment":[{"href":"https:\/\/orangefroglogistics.com\/wp-json\/wp\/v2\/media?parent=311"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/orangefroglogistics.com\/wp-json\/wp\/v2\/categories?post=311"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/orangefroglogistics.com\/wp-json\/wp\/v2\/tags?post=311"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}