This year’s CIPS Conference, “Building the Profession of the Future”, saw some of the industry’s most high profile leaders discuss how buyers can tackle the new challenges facing the sector. 4C Associates was a Gold Sponsor at the event and was invited to host a session on cost leadership.David Noble, CEO of CIPS, opened the conference with a speech underlining the increased visibility of the procurement function across the globe. This was illustrated through the growing media coverage of the profession which, although recently negative, is a testament to the growing profile of the sector. Noble also highlighted the importance of attracting youth to the profession, the need to raise procurement’s profile amongst the stakeholder community and the growing number of CIPS members, particularly in China.Opening Up Government ProcurementWith austerity measures currently at the centre of government policy, it is no surprise that procurement has a pivotal role to play in achieving set targets. Bill Crothers, UK Government CPO, who took on the role just four months ago, explained how he was looking to incorporate best practice from the private sector into government dealings.
By seeking inspiration from leading companies and implementing more effective methodologies, Crothers and his team have already been able to make huge savings. For example, two and a half years ago the government was spending £2.4bn on consultants and contractors. Today this figure is £700m. Crothers was quick to point out these cuts had been achieved without putting an end to related projects.Crothers provided examples of how he negotiated with many of the government’s key suppliers by comparing the profit margins they made in the private and public sectors. The team found that many suppliers made higher margins working with the government and set about redressing the situation. Carrying this process out with a single company yielded savings of £800m in just six months.“The minister invited the supplier in and asked for money back. He asked for it in ‘folding cash'”.Bill CrothersWith a savings target of £9bn for this year, Crothers stressed the need for the government to look outside its own walls for innovative ideas and practices. Although he recognised the value which individuals with extensive public sector procurement experience bring to table, he underlined the importance of bringing in talent from other sectors and countries. In this context, Crothers invited all buyers and businesses, with practical ideas the government could use, to get in touch.Hurdling Sports ProcurementThe London 2012 Olympic Games are generally regarded as one of the great success stories of 2012. Gerry Walsh, Procurement director at the London Organising Committee of the Olympic and Paralympic Games, believes this is in no small part down to the efforts of the suppliers, sponsors, and delivery partners who worked to bring everything together.Due to the scale of the Games one of his main concerns was effectively and proactively managing risk. Walsh stated that procurement had in the past been too reactive and that to avoid this, his team had made sure each department detailed their respective requirements. This meticulous preparation was the reason why, when G4S announced that they could not ensure security for the Games, a plan B was already in place.
“You cannot be successful in procurement without looking at risk management. You can’t avoid it but have to step up and deal with it.”Gerry WalshWalsh, who came out of retirement to take on the head of procurement position, explained how procurement plays just as important a role as any other department and as such should be granted respect. He viewed the occasion as a chance to put the spotlight on the function and, in his words; “In terms of procurement, when the Olympics came to London, we did it right.”David Brown, Head of procurement, Glasgow 2014 Commonwealth Games, discussed the importance of sales and procurement working together to deliver the best value. This is particularly relevant in terms of sponsorship deals, where often part of the value is provided in the form of products or services. In these instances it is important that the actual benefit being delivered is quantified.
“The Procurement function is uniquely placed at the centre of the events business. It is the only function which has a direct line of sight and can readily influence all of the key success drivers.”David BrownTo illustrate this point Brown took the example of an IT company providing computers as part of their sponsorship deal. If the organisers require a standard, £250 computer and are provided with a state of the art, £1.500 machine, the value-added remains £250. By working closely with sales, procurement can ensure all sponsorship deals focus on delivering real value.Cost Leadership StrategiesEd Ainsworth, Managing Director of 4C Associates, led a session entitled “How to Gain a Competitive Advantage through Cost Leadership”, which examined how some of today’s most successful businesses are managing to thrive despite the current economic climate.Cost leadership, one of three business strategies identified by Michael Porter, is based on being the lowest cost provider in an industry, for a certain quality of product. Companies which effectively employ this approach focus on maximising the value of their expenditure. This can be done by improving process efficiencies, gaining unique access to a low cost source of materials, outsourcing appropriate functions and avoiding certain costs altogether.Ainsworth pointed out that in the past six months, eight of the FTSE 100 Top 10 Risers employed a cost leadership strategy. Ryanair, Whitbread and CRH were all given as examples of cost leaders in their respective fields. Ryanair in particular was singled out as a “cost innovator”, a business that systematically reviewed its operating process and as a result was able to provide growth in a difficult commercial environment.
Some of these points were touched on by Michelle Mone, entrepreneur and founder of international lingerie brand, Ultimo, who recalled some of her initial forays into marketing. Her business started out on a tiny budget and forced the company to be innovative when launching new products. Mone recounted how she had hired actors dressed as plastic surgeons to simulate a protest at the launch of her underwear range. This £500 stunt created £43m worth of publicity.
When it comes to implementing a cost leadership strategy, Ainsworth identified three crucial elements. Firstly it is essential that you understand your company strategy, this will enable the shaping of processes to maximise value. Building on this, systematic reviews allow companies to keep developing and implementing new cost leadership strategies. Finally, a successful company must monitor what its rivals are doing if it is to stay ahead of the pack.The Profession of the FutureThe CIPS Conference highlighted procurement’s ever increasing profile across all nations and sectors. This recognition has translated into sustained media attention, ranging from the positive Olympic Games coverage to more negative press from the issues surrounding the West Coast rail franchise contract. The function is also gaining influence in the private sector, as businesses look towards procurement to stimulate growth in a trying financial climate. In the public sector, austerity measures have brought the function to the forefront as the government looks to reduce the deficit.Procurement as a profession remains relatively young, however, is playing an increasingly important role within both governments and leading private organisations. From traditional challenges such as effectively managing risk to the development of innovative cost transformation strategies, there has never been a more exciting time for procurement.