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How an effective Procurement Strategy can deliver real business value - YouTube
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- Welcome, Craig.
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- Hi, Dan.
[12]
- I'd like to chat to you today
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about all things procurement.
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What are the main challenges you see
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happening in procurement today?
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- Well, Dan, I think there's
an unprecedented level
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of expectation on
procurement as a function
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in corporate and government today.
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There's always been the
traditional role for procurement,
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which is around trying to achieve savings
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on the addressable spend,
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but there's an emerging
role for procurement
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and an emerging expectation on procurement
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to deliver corporate, social,
and environmental outcomes.
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- So Craig, how does procurement
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go about delivering savings?
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- For a long time
procurement has focused on
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strategic sourcing and
contract negotiation
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as a way of delivering
savings to a business.
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But I'm pleased to say,
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more and more businesses are looking
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beyond that point of contract award
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to post contract to deliver
real value to the business.
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The real savings come post contract award
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through managing the
contract more effectively,
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making sure that suppliers
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are delivering to their obligations.
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Supplier performance management
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in a number of different dimensions.
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This is where we're seeing real value
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being extracted from the contracts
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that procurement has
typically put in place.
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Leading companies are going
a step further than that
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and looking to work more
closely and more collaboratively
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with their key suppliers,
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and they're un-tapping new
streams of value to the business
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through collaboration
and supplier innovation.
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- So how does procurement
go about delivering
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real value to the organisation?
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- For procurement to deliver
real value to the organisation,
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requires a very tight alignment
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of procurement objectives
to the business objectives.
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And more specifically,
procurement strategy
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to the business strategy,
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and specifically, the supply
chain strategy of the business.
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We see too often a misalignment
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of procurement strategy
and supply chain strategy.
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And when developed in isolation,
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the two can almost be opposing.
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Procurement strategies largely focus on
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delivering lowest cost goods
and services to the business.
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And measured in financial terms,
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you might think of that as a gross margin,
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you're trying to maximise a gross margin
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on those goods or services.
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Whereas supply chain
is taking into account
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all of the supply chain logistics,
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inventory, including
working capital costs,
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associated with the delivery
of goods or, indeed, services.
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So they're taking much more
of a net margin approach
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as a financial measurement.
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And so with procurement
focused on gross margin,
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supply chain focused on net margin,
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it can deliver suboptimal outcomes
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in terms of cost, quality, and service.
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Clearly, there's a need for
alignment across the business,
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and particularly between
procurement and supply chain
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to deliver real value to the business.
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Beyond the alignment of supply chain
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and procurement strategy,
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there's a need for supply
chain and procurement
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to work together at a
more operational level
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to extract the value of the
contractual arrangements
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that procurement have put in place.
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In effect, these contracts
are an asset to the business,
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and procurement and supply
chain need to work together
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to sweat that asset to deliver
real value to the business.
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So in practise, that is through
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managing the contract more effectively
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and managing supplier performance
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to ensure they're delivering
on their obligations.
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We see too often that
once the contract is done,
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it's put in the drawer
and not looked at again.
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And businesses don't
realise the value potential
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of the contracts that they have.
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- You mentioned before
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that procurement's getting more involved
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in more than just savings,
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it's about social and
environmental issues,
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how can procurement help the organisation
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deliver against those objectives?
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- To play its role,
procurement needs to ensure
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tight alignment with the enterprise's
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corporate and social responsibility goals.
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More and more we're seeing
enterprise procurement policies
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and strategies embodying key
elements of those objectives,
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and that's procurement's role,
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is to exercise that to
deliver those objectives.
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Recent legislation in Australia
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has increased the focus dramatically
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on some of the social outcomes,
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particularly the Modern Slavery Act 2018,
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has really elevated
the focus and attention
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enterprises need to give to ensuring
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that there is no evidence
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of slavery through the supply chain.
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From the end of the next financial year,
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any enterprise with revenue
over 100 million dollars
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will have to report on the
actions that they're taking
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to eradicate or avoid any evidence
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of slavery in their supply chain.
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Of course, this is not new.
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The UN sustainable development goals
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have been around since 2015,
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and many companies have
embodied elements of those goals
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into their corporate social
responsibility charter.
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Of course, this is not new.
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The UN sustainable development goals
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have been around since 2015,
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and many enterprises reflect
elements of those goals
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into their own corporate
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and social responsibility objectives.
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Procurement has a role to
reflect those objectives
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into their own procurement
policies and strategies,
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and through exercising that can address
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many aspects of poverty and
other social disadvantage
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through leveraging their
spend to better outcomes.
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- Craig, thank you very
much for your time.
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- Thank you, Dan.
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