Good procurement practices can increase a company\u2019s profits by as much as 50%. And this profit growth comes without the added expense that expanding the firm\u2019s market share would require. <\/p>\n\n\n\n
\u201cThat\u2019s one of the best illustrative examples I\u2019ve ever seen to be able to talk to stakeholders about why it\u2019s important to pay close attention to your procurement function,\u201d said Denis Wolowiecki, managing director of CAPS Research, in a Dec. 8 lecture. Wolowiecki presented a talk on \u201cThinking Beyond Procurement\u201d as part of CARISCA\u2019s Distinguished Lecture Series.<\/p>\n\n\n\n
The key to implementing good procurement practices and increasing profits is in understanding your spend, Wolowiecki said. <\/p>\n\n\n\n
A company has many types of spend, or expenditures. Where the procurement team can have the most impact is in the \u201caddressed spend\u201d category. This category represents spending that is controlled by the supply management team and is actively sourced, re-bid or negotiated periodically.<\/p>\n\n\n\n
\u201cIn almost every case that I have gone into a company where there\u2019s a transformational opportunity and they\u2019re struggling to make improvements around how they control their suppliers in their procurement program,\u201d said Wolowiecki, \u201cone of the things I typically find is there is not a good understanding of the spend. And that\u2019s really where it starts.\u201d<\/p>\n\n\n\n
Wolowiecki advised supply chain managers to gather a list of all suppliers and rank order them according to how much is spent with each. Then plot out cumulative annual spending and number of suppliers in a curve graph. <\/p>\n\n\n\n
\u201cThis is going to be a key to your visual understanding and the ability to communicate with your team and communicate with your stakeholders around what you\u2019re trying to do,\u201d said Wolowiecki.<\/p>\n\n\n\n
The ideal curve graph will follow the 80\/20 rule, where 80% of your spending is with only 20% of your suppliers. If your spending is spread out more evenly across many suppliers, Wolowiecki recommends consolidating suppliers to reduce administrative overhead and focus attention on the \u201cstrategic few.\u201d<\/p>\n\n\n\n
Properly managing your suppliers requires people, processes and technology, with an emphasis on people, said Wolowiecki. <\/p>\n\n\n\n
CAPS Research benchmarks<\/strong><\/p>\n\n\n\n CAPS Research has set benchmarks for how to size the supply chain staff. Companies with $100 million in addressable spend have an average of 3.2 FTEs dedicated to procurement. Among all the firms surveyed, the highest FTE count was 4.2 and the lowest was 0.5.<\/p>\n\n\n\n Wolowiecki also presented metrics on the amount of addressed spend per FTE, which indicates the workload for each employee. The average is $15.9 million per FTE, with a high of $20.7 million and a low of $11.9 million.<\/p>\n\n\n\n \u201cWhy are these important?\u201d asked Wolowiecki. \u201cWell, are you too low? Do you not have enough resources to do the job effectively? <\/p>\n\n\n\n \u201cAnd not only that, if you\u2019re too low, and the people you have are carrying more spend responsibility, they\u2019ve got more workload. If they feel overworked and they can\u2019t keep up with the pace, they\u2019re going to go look for other things; you\u2019re going to abuse your people.<\/p>\n\n\n\n \u201cOr if you have too many people, then you\u2019re not effectively managing it,\u201d he added.<\/p>\n\n\n\n Another key is evaluating the skill mix of your procurement team, said Wolowiecki. According to CAPS Research data, over a third of staff at most companies are in transactional rather than strategic roles.<\/p>\n\n\n\n \u201cThere\u2019s a large amount of FTEs devoted to the transactional act of just pushing the order through, making the phone call, completing the purchase order and submitting it,\u201d said Wolowiecki. \u201cThat is not necessarily value-add. The work has to be done, but it\u2019s interesting how much resources are devoted to it.<\/p>\n\n\n\n \u201cThe challenge for any team and any transformational opportunity is as much as possible to shift that focus from transactional to strategic to gain value,\u201d he advised.<\/p>\n\n\n\n Risk management a high priority<\/strong><\/p>\n\n\n\n Wolowiecki said CAPS Research did a recent study comparing procurement leaders\u2019 priorities over the next 12 months and three years. Among the top three priorities in both periods is advancing supplier risk management. That\u2019s an example of how the role of procurement is expanding to encompass a broader set of responsibilities, he said.<\/p>\n\n\n\n He defined risk as \u201cexposure to danger, harm, disruption or loss. It\u2019s a threat to the company in some way.\u201d<\/p>\n\n\n\n \u201cSupply leaders should be focusing more on avoidance and mitigation, so they don\u2019t get into the problem, than focusing on resilience and recovery, or how to get out of the problem,\u201d Wolowiecki said.<\/p>\n\n\n\n He gave an example of a business that relied on two suppliers for its top supply item. Both suppliers were in Puerto Rico and were wiped out when Hurricane Maria hit in 2017.<\/p>\n\n\n\n \u201cSomebody a little bit more far-sighted, thinking through the risk of storm disruption and hurricane paths, might have said, \u2018My alternate supply source needs to be on the mainland or Europe or something, but not both suppliers on the island of Puerto Rico,\u2019\u201d Wolowiecki noted.<\/p>\n\n\n\n He said risks can come in many forms. They can include fires, floods, bad weather, financial fraud, cyber attacks, business closures and material shortages.<\/p>\n\n\n\n According to a Risk Management Index survey that Wolowiecki shared, the top five increasing risks are economic, transportation disruption, supplier, cybersecurity and data, and government intervention.<\/p>\n\n\n\n \u201cThe message here is, you\u2019re much better served to spend some time thinking it through and assessing the situation and trying to avoid the risk, than to deal with the problem when it happens,\u201d Wolowiecki said.<\/p>\n\n\n\n How close are you to the C-suite?<\/strong><\/p>\n\n\n\n He finds it troubling that risk may not be getting the attention from the C-suite that it warrants. According to CAPS Research surveys, only a small share (12%) of chief procurement officers report directly to the CEO. And that figure has barely changed over five years. <\/p>\n\n\n\n Two-thirds of CPOs are a level removed from the C-suite, and nearly a quarter of CPOs sit two or more levels below the CEO.<\/p>\n\n\n\n \u201cSo the question is,\u201d asked Wolowiecki, \u201cdoes the C-suite and does the top executive really have a clear view of the risks in the business? Is there a real empowerment around dealing with those risks?\u201d<\/p>\n\n\n\n Another recent CAPS Research survey adds further to this question. The nonprofit research center asked supply management leaders how much time their CEOs spend with suppliers. The answer, on average, was 6%.<\/p>\n\n\n\n \u201cA company can easily spend 40% of its revenue with suppliers,\u201d Wolowiecki pointed out. \u201cAnd we\u2019re in a world of high risk and disruption, inflation, natural disasters, supply discontinuity, material shortages. You\u2019re disrupting businesses, you\u2019re shutting down automotive production lines, you\u2019re shutting down semiconductor production.\u00a0<\/p>\n\n\n\n \u201cAnd your CEO is only spending 6% of his time with suppliers? How much attention are you paying to the risk?\u201d<\/p>\n\n\n\n Plan, do, check, act<\/strong><\/p>\n\n\n\n For companies that do want to reduce and manage their supply chain risks, Wolowiecki offered a model. Consistent with other types of improvement programs, you should follow a \u201cplan-do-check-act\u201d framework, he said.<\/p>\n\n\n\n In other words, you first identify the risk. Then you assess and monitor the risk. Third, you respond to and mitigate the risk. Finally, you communicate about and learn from the risk. Also important is to continually measure your progress.<\/p>\n\n\n\n \u201cHow do you know you\u2019re getting better?\u201d asked Wolowiecki. \u201cUnless you have a measurement, you can\u2019t really understand whether it\u2019s improving or diminishing.\u201d<\/p>\n\n\n\n According to another CAPS Research study, nearly three-quarters of companies are carrying excess stock to help mitigate risk.<\/p>\n\n\n\n \u201cThere\u2019s no more just-in-time inventory,\u201d Wolowiecki said. \u201cNow there\u2019s the expression \u201cjust-in-case\u201d inventory. Buffer it up, you know, lay in some extra, fill up that second warehouse with some stock just in case. It\u2019s the easy, fast response.\u201d<\/p>\n\n\n\n Wolowiecki said he is concerned about how much inventory companies are building up. He believes that with good inventory management strategy, it is possible to decrease inventory and reduce risk at the same time.<\/p>\n\n\n\n \u201cI leave it as a challenge,\u201d Wolowiecki concluded. \u201cGood supply professionals and intelligent procurement people that put the diligence to the problem and think it through and work with their top suppliers, I\u2019ve got to believe there are opportunities to mitigate some of this risk without incurring a bigger financial impact.\u00a0<\/p>\n\n\n\n \u201cYou know, you can at least hold the ship steady at a minimum, if not find some greater opportunity to perhaps save. That\u2019s a glimmer of hope for mitigating some of these risks.\u201d<\/p>\n\n\n\n Denis M. Wolowiecki is executive managing director of CAPS Research, a nonprofit research center for supply management leaders. He has more than 25 years of cross-industry supply management experience as an executive, as well as the savvy of consultancies and a deep understanding of driving transformational improvements.<\/p>\n\n\n\n Prior to joining CAPS, Wolowiecki held executive supply chain and sourcing positions with Vitalant, Husqvarna Group, Aleris International, Inc., and Goodyear Tire & Rubber Co. He also offers more than a decade of supply chain consulting knowledge, having worked with Accenture and KPMG following initial career experiences as an aerospace systems engineer.<\/p>\n\n\n\n Wolowiecki holds an MBA focused in operations and international business from Kent State University and a B.S. in mechanical engineering from Ohio Northern University.<\/p>\n","protected":false},"excerpt":{"rendered":" Good procurement practices can increase a company\u2019s profits by as much as 50%. And this profit growth comes without the added expense that expanding the firm\u2019s market share would require. \u201cThat\u2019s one of the best illustrative examples I\u2019ve ever seen to be able to talk to stakeholders about why it\u2019s important to pay close attention … <\/a><\/p>\n","protected":false},"author":11,"featured_media":3353,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"spay_email":""},"categories":[216],"tags":[],"featured_image_src":"https:\/\/research.wpcarey.asu.edu\/carisca\/wp-content\/uploads\/2022\/12\/12-8-22-Distinguished-Lecture-Series-750-\u00d7-400-px-1-600x400.png","featured_image_src_square":"https:\/\/research.wpcarey.asu.edu\/carisca\/wp-content\/uploads\/2022\/12\/12-8-22-Distinguished-Lecture-Series-750-\u00d7-400-px-1-600x400.png","author_info":{"display_name":"Barby Grant","author_link":"https:\/\/research.wpcarey.asu.edu\/carisca\/author\/idbag\/"},"jetpack_featured_media_url":"https:\/\/research.wpcarey.asu.edu\/carisca\/wp-content\/uploads\/2022\/12\/12-8-22-Distinguished-Lecture-Series-750-\u00d7-400-px-1.png","_links":{"self":[{"href":"https:\/\/research.wpcarey.asu.edu\/carisca\/wp-json\/wp\/v2\/posts\/3044"}],"collection":[{"href":"https:\/\/research.wpcarey.asu.edu\/carisca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/research.wpcarey.asu.edu\/carisca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/research.wpcarey.asu.edu\/carisca\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/research.wpcarey.asu.edu\/carisca\/wp-json\/wp\/v2\/comments?post=3044"}],"version-history":[{"count":9,"href":"https:\/\/research.wpcarey.asu.edu\/carisca\/wp-json\/wp\/v2\/posts\/3044\/revisions"}],"predecessor-version":[{"id":3472,"href":"https:\/\/research.wpcarey.asu.edu\/carisca\/wp-json\/wp\/v2\/posts\/3044\/revisions\/3472"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/research.wpcarey.asu.edu\/carisca\/wp-json\/wp\/v2\/media\/3353"}],"wp:attachment":[{"href":"https:\/\/research.wpcarey.asu.edu\/carisca\/wp-json\/wp\/v2\/media?parent=3044"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/research.wpcarey.asu.edu\/carisca\/wp-json\/wp\/v2\/categories?post=3044"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/research.wpcarey.asu.edu\/carisca\/wp-json\/wp\/v2\/tags?post=3044"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Speaker Biography:<\/h3>\n\n\n\n