The Necessity to reshape Procurement

Elvire Regnier-Lussier is an Expert in Procurement, promoting a very specific vision built from her experience in different sectors and with several companies such as Unilever as Global Vice-President. She is today providing us with her insights on how the Coronavirus crisis has revealed the criticality of partnering with suppliers.

We will need “a drastic change in the way in which we source our suppliers”

Decades of buying strategies driven by the only objective of reducing costs have rendered companies vulnerable to all kinds of pandemics such as the one of Covid-19.

For decades, companies’ procurement departments have been instructed to reduce the negotiated costs when signing contracts with their suppliers. This was the result expected from lead buyers, who were then evaluated and proportionally rewarded along the amount of savings which had been made. To achieve this, the method used was the systematic and head-to-head forced competition between suppliers.

Today, the world economy finds itself in front of the unthinkable, the unimaginable and the unquantifiable. A report from the study office Dun & Bradstreet indicates that amongst the Top 1 000 world companies, 938 have a 1st or 2nd rank supplier which is impacted by the Covid-19! Decades of buying strategies oriented towards the reduction of costs and of relentless competition have contributed to the destruction of the western industrial system benefiting countries with low production costs. Today, these decisions have led to disastrous consequences which have arisen without notice.

Yet a different approach does exist. It consists of considering the “Total Cost of Ownership” before deciding to grant a contract to a supplier. Beyond only taking into consideration prices, it consists of considering the costs in their entirety, meaning internal costs linked to usage of the good which will be bought, as well as the costs shared between the client and the supplier, the cost of some unpredictable risks, the value of innovation, etc.

A time of reconstruction is awaiting us

Nowadays, in the mist of the Covid-19 crisis, the companies which have taken into consideration the costs and not only the prices, as well as having built their buying strategies in collaboration with their suppliers, while acting respectfully towards them, benefit from supply chains being considerably more resilient. These companies will have the capacity to bounce back, while the ones centered on prices will have added difficulties.

For a creative cooperation

Sometimes companies fuel a chronic defiance towards their suppliers, partners and subcontractors. History in its entirety, and not only the recent events, proves us that innovation arises in most cases when a harmonious collaboration exists between partners, resulting in an efficient distribution of value. This win-win contract will only be possible through dialogue, transparence and mutual confidence. The idea that 70% of innovation should come from suppliers is not new, time has come to make it happen.

Building the most transparent ecosystem possible

However, we need to keep our mind open enough to have the humbleness to accept, the desire to take advantage of and the willingness to build with our innovative partners a truly transparent ecosystem, where each and every individual’s role is well defined, as well as the allocation of profits.

In this field, unlike in others, the statesman is powerless. Cooperative spirit cannot be decreed or impose itself. It is something practical. We can only urge our top executives- strategy, development, finance and procurement departments- to change their point of views and mindsets, to have them shift towards this modern inclusive and collaborative spirit. If this change is not operated, we will continue on carrying this burden for the years to come, inevitably forcing us to gradually but surly lose strength and resilience in the global economic race.