Today, nearly every company has a chief procurement officer (CPO) leading a sourcing team in search of annual cost reductions. Over time, however, this laser focus on prices and costs has driven a commoditization of offerings that has limited competition among suppliers merely to the best price for a given specification. Worse yet, to allow for comparability, the differences among suppliers are often systematically suppressed, making cost the dominant consideration. Even for progressive companies that apply more comprehensive approaches, such as analysis of total cost of ownership, collaborative optimization modeling, or other systems to compensate for supplier differences, there remains a strong bias for negotiating the best price for a given requirement. We have found that not all companies behave this way. In particular, select companies in certain industries have shifted their procurement focus away from cost and toward innovation because competitive forces require them to. The food & beverage industry is one example of this. The immense competition to find the next big idea that resonates with consumers, such as unique tastes or flavor profiles, has prompted some leading procurement groups to change their “asks” of suppliers. Instead of cost reductions, they are asking for access to and support for innovation to gain an advantage over the competition. Another example is the energy industry, where leaders have to justify enormous capex investment costs. This long-run investment horizon requires a long-term focus with supply partners that offer structural cost advantage or the tools and technology needed to make these investment choices successful. The procurement and supply chain respondents to A.T. Kearney’s Assessment of Excellence in Procurement (AEP) survey want more than lower costs. They want to maximize the value they get from their suppliers by expecting more and being willing to invest and collaborate. The several hundred large corporations […]
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