5 Procurement Consultancy Services That Can Transform the Profitability of Your Organisation

Investing in procurement consultancy services is often seen as an umbrella approach to improving an organisation’s procurement processes. However, each service carries individual components with significant merit in a variety of areas relating to procurement and the wider operations of the business. Each service can differ greatly in what it sets out to achieve and how it functions to add value to a business. As a result, taking a holistic approach in employing procurement consultancy services to improve the overall practices of a business is going to generate the best results.

Despite the benefits, many overlook procurement as a means of improving their business and fail to lend it the in-depth consideration it deserves. The various procurement consultancy services are therefore something that too many businesses are unaware of, or if they are aware, they may not think it’s worth the investment.

But the truth is that choosing the right procurement consultancy services that are relevant to you can transform the overall profitability of your business. This article identifies nine of those services and details what they do and how they work. It also considers the pros and cons of each so you can make an informed decision on which may be relevant to your business.

 

1. Supplier relationship management (SRM)

What is it

Your suppliers are an essential aspect to your procurement- without them, there would be no means of sourcing the products and services that keep your business valid and useful to your customers or clients.

Supplier relationship management (SRM) is exactly what it sounds like. It consists of you putting resources towards maintaining and improving your relationships with your suppliers, which improves communication, allowing any problems to get sorted speedily and any potential opportunities to get passed on from the suppliers to yourself quickly.

Problems

In theory, SRM is something that every business should prioritise. Once effective SRM has been established, it’s straightforward to maintain. However, if you’ve neglected to acknowledge the importance of SRM up until now, it can be a challenge to establish, particularly if you have very little communication with your suppliers.

Additionally, there are still far too many companies that fail to take SRM seriously. A survey conducted to find out about businesses’ approach to SRM found that only 16% of the respondents had a corporate strategy and process in place to manage supplier relationships. If the stats of the survey are reflective of businesses on a larger scale, it means that most organisations are missing out on the significant benefits effective SRM can bring.

Even if you have an SRM strategy, it may not be as effective as you think, and if implemented incorrectly, it can be counterproductive. If you want to read more about how poor SRM is detrimental to businesses, click here.

What solution is there?

If you choose to invest in SRM, procurement consultancy services can help. You can pay an expert to help categorise your suppliers as strategic, business essential, leveraged and routine and create an easy-to-manage SRM process which focuses on promoting highly beneficial relationships. SRM is something that won’t be beneficial today, but you will be taking it in the future.

 

2. Supplier innovation

What is it?

Every business should aim to be innovative; it keeps you ahead of the curve and proactive in your approach. 84 per cent of executives believe that future success is very dependent on innovation, so if you want to remain competitive, it’s something that you should be prioritising.

As part of your innovation, you need to consider what tools you can implement to make your business and its practises as cost-effective as possible. A good example of this is the Blue Ocean Business Model, which encourages fundamental differentiation as a means of creating entirely new industries.

There are four actions to the framework including:

  • Which of the factors that the industry takes for granted should be eliminated?
  • Which factors should be reduced well below the industry standard?
  • Which factors should be raised well above the industry standard?
  • Which factors should be created that the industry has never offered?

Supplier innovation is something that is only realistically achievable if you have already tackled your SRM. It’s the process of utilising the individual expertise of your suppliers to develop new products and services or refine existing ones.

Problems

If you are keen to innovate, you may want to jump straight in, but unfortunately, it’s not always as straightforward as simply picking up the phone to the supplier to see if they’ve spotted any gaps in the market or opportunities for innovation.

The issue is that there’s always going to be a level of risk attached. One of the most significant risks at the time of writing is the risk that comes with Brexit uncertainties and how various industries may be impacted. Other more general risks include price rises, suppliers going bust or even failing to understand the competitiveness of your business environment.

What solutions are there?

Organic communications are a good place to start if you don’t already have a forthcoming relationship with your suppliers. By building rapport and talking with your suppliers regularly, you can establish a more collaborative relationship where over time, they will begin to come to you to let you know about the latest opportunities, rather than you having to reach out each time. By getting to know your suppliers better, you will also be in a much better position to foresee risks that could be detrimental to your business.

If you want to better understand the threats from the competition and identify the profitability of your strategies, you can use Porter’s Five Forces. It’s five properties are as follows:

  • Competitive Rivalry – How many competitors do you have and how strong are they?
  • Supplier Power – Can suppliers raise prices if they want to? By how much? Are you stuck with a single supplier or are there a variety to choose from? How much would it cost to change your suppliers? Are your supplier’s products or services unique?
  • Buyer Power – How many buyers are there and how much do they order in each transaction? Do they have the power to drive your prices down? Can your buyers dictate terms? How much would it cost them to switch to one of your competitors?
  • Threat of Substitution – Are there alternative products or services your buyers could substitute in your place that fulfil the same need? How easy is it for them to find a cheaper substitution product or service?
  • Threat of Entry – The previous aspects require a proactive approach, whereas threat of entry can be difficult to predict. It’s where new competitors enter your market. How easy is it and how much does it cost for a new business to establish them in your market or sector? Is your industry tightly regulated?

Procurement consultancy services provide the most robust solutions and remove some of the pressure from you to generate lots of organic communication with every supplier and maintaining a competitive edge within your industry. Remember, supplier innovation goes hand-in-hand with an effective SRM strategy. You can read more on supplier innovation here.

 

3. Supply chain risk reduction

What is it?

Every supply chain has risk, and it’s in every business’ interest to reduce it. Most executives are conscious of the need to be aware of the risks, with 92 per cent claiming it’s crucial to their business’ future success. Despite this, less than a quarter have a robust knowledge of all of the risks to their organisation. In many cases, this lack of knowledge will extend to a lack of visibility over the supply chain.

Problems

The level of risk to a supply chain depends on a variety of factors, including how many suppliers you have, as well as how extensive the web of second-tier and third-tier suppliers is. Second-tier suppliers are your immediate supplier’s suppliers, and the third-tier is your supplier’s supplier’s suppliers, and so on.

Sound confusing? It might do if you haven’t already mapped your supply chain end-to-end, and unsurprisingly, the less you can see of your supply chain, the higher the risk. If an issue arises with one supplier, the whole supply chain could potentially be in jeopardy.

What solutions are there?

To effectively reduce risk, you need to invest in procurement consultancy services to map your supply chain, create a risk register and to carry out risk response planning. This includes identifying and ranking the risks from the highest priority to lowest. You can also establish whether there are ways of diversifying your suppliers, so if one supplier fails to deliver, you have others who can pick up the slack. As well as mitigating these risks, you then need to monitor the risks continually, as a one-off solution to managing risk within the supply chain simply doesn’t exist. Find out how you can effectively minimise risk to your supply chain here.

 

4. Improving CSR

What is it?

Corporate Social Responsibility (CSR) is something that is increasingly coming to the forefront of the minds of consumers. It is the self-regulation within private businesses; CSR strategies aim to ‘give back’ through socially conscious methods that are charitable or philanthropic in nature, or by ensuring that the companies activities meet specific sustainable and ethical standards. Recently, more and more businesses are leveraging the benefits that come from being able to showcase their CSR efforts to customers and clients.

Problems

Private businesses are very much focused on their own profitability, and as a result, many overlook the relevance of CSR. However, doing so can be detrimental. Think of all the scandals we’ve seen over recent years, from contaminated meat, poor factory conditions leading to tragedy, to an array of poor environmental practises. Whenever a CSR scandal is reported, consumer trust is damaged, and it costs the business responsible significantly.

In 2015, the Volkswagen emissions scandal came to light, when the U.S. Environmental Protection Agency issued a notice of violation of the Clean Air Act. The cars that the German car manufacturer was selling in the U.S. had a device in the diesel engines that altered the results of emissions tests to make it look like emissions from the cars were much lower than they were. In May 2019, VW claimed that the cost of the scandal had hit €30 billion.

While smaller businesses’ CSR failings are less likely to hit the headlines, mud does stick, and SMEs don’t have the same budget to recover and improve public opinion.

What’s the solution?

To avoid the pitfalls of bad CSR, you need to come up with a strategy that showcases what good your business is doing, building credibility and trust. Brand trust is essential to maintaining the integrity of your business, and CSR is at the heart of building that trust; Globally, 69 per cent of consumers listed societal-focused concerns as a primary factor that builds their trust of a brand.

Additionally, by using procurement consultancy services to improve your CSR, you should see improvements in innovation, cost savings, brand differentiation and long-term thinking, according to Forbes. Find out more about how you can use CSR to grow your business here.

 

5. Procurement training

What is it?

Procurement training focuses on improving skills that will benefit your overall procurement processes. You may already have employees who are responsible for your businesses procurement, but the rest of your staff can benefit from having a better understanding of how procurement impacts your business- how much training are they getting? Ongoing training and development within any role is an integral component of most business’ success.

Problems

The biggest issue relating to procurement training is simply the fact that it’s often overlooked. Yes, it’s an additional cost, but the return on investment (ROI) outways the initial cost of the training.

A lack of investment in the training and development of your staff can increase retention. In LinkedIn’s 2019 Workforce Learning Report, findings showed that 94% of employees would stick with a business for more time if the organisation committed to investing in their ongoing learning. Procurement training is an excellent opportunity to just this.

However, make sure you use the right company to deliver the training as well as selecting the right course, as ineffective training costs $13.5 million a year in the U.S.

What’s the solution?

Using procurement consultancy services to train your staff in procurement will provide them with a more in-depth understanding of how procurement impacts the whole business, improve your procurement strategies, reduce costs, promote procurement as a team effort, and improve your supplier relationships. The training will cover strategic thinking, embracing technology, operational excellence, top talent, and focusing on results, which will contribute to improving the overall processes of your business.

If you want to find out if procurement training is the right choice for your business, click here to read more.

 

Conclusion

The list of procurement consultancy services is long, and including all of them would result in a much longer article, but hopefully, the five we have included provides you with a good overview of how your business could benefit from investing in services that provide a significant ROI that offsets the initial cost. From making your staff feel valued and giving them the knowledge to perform better, to spending the necessary time communicating with your suppliers, the methods you could implement into your overall procurement strategy can make you a more cost-effective organisation with a higher profit margin.

While it’s not impossible to implement all of the various improvements by yourself, it takes a lot of time and resources to do so effectively. By choosing to outsource the tasks to companies with the knowledge and expertise to deliver high-quality procurement consultancy services, you can rest assured that your business is heading in the right direction.

Finally, remember that process improvement isn’t about making one small change, but rather looking at the different areas where your procurement strategy could be improved. Don’t be the business that neglects their procurement practises until it’s too late, take action today and watch your business grow profitably and sustainably.

Richard Beaumont

At Bromley Wood we have considerable experience in helping businesses with their procurement, improving ROI, staff retention and the day-to-day running of your business.
If you would like to learn more and arrange a discussion, get in touch today.

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