Creating Advantage from Adversity

Present economic conditions are extraordinary. In a recent Accenture survey of more than 300 of the world’s chief procurement officers, over three-quarters reported that the current downturn was ''significantly affecting'' their procurement functions.

By putting in place rigorous approaches to manage both the supply of goods and services as well as the demand for them, procurement departments can significantly enhance their business’s ability to deal with the downturn. Furthermore, by proactively moving to capture the impetus of the current market, companies have an opportunity to gain competitive advantage in the race to high performance.

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A recent Accenture survey of more than 300 of the world’s chief procurement officers noted that in industry after industry, businesses are bleeding red ink, laying off employees, being nationalized or simply going under.

The resulting pressures on the procurement function are immense. Many of those surveyed reported that their procurement budgets had been cut while savings targets had been increased.

The scale of this downturn is staggering. In a period stretching back to the 1970s, the steepness of the decline of prices in recent months is simply unprecedented.

While long-term procurement strategies remain relatively unaffected, there has been a radical shift in the pattern of short-term activities. Cash conservation, keeping a watchful eye on supplier viability and strategies for leveraging working capital and cutting costs are more important than ever.

Accenture is currently working with clients to help establish and operate a concept called the “Control Tower.” The Control Tower is dedicated to the examination and control of the supply and demand factors that drive total business expenditure. Its mission is to focus on activities that will make a difference over a period of less than six months.

A focused, dedicated team in tune with the business environment and supplier marketplace conditions, the Control Tower captures savings and directs them smoothly to a safe arrival on the bottom line.

Time is of the essence when managing supply, and good data is vital. Accenture has the tools and resources to help make this a reality. With access to this information, the Control Tower can establish which suppliers to focus on for maximum cost reduction opportunities.

Based on customized templates and market data, the Control Tower can prepare supplier negotiation strategies, assess associated benefits from price and contract structure initiatives. Proposed strategies are easily exchanged and validated to optimize cost reduction without harming valuable supplier relationships. Typical outcomes of such activities include price reductions ranging from 5 percent to 30 percent.

The Control Tower also helps protect and insulate businesses from supplier risks by analyzing suppliers’ financial situations and establishing minimum acceptable levels. A thorough review of contracts can help to align prices across the board, reducing efforts to monitor and maintain contracts.

Another focus of the Control Tower is cost avoidance. This is achieved by tactically managing organizations’ consumption. The Control Tower helps formulate and enforce “smart policies” that target consumption reduction by identifying short-term measures that can make a significant impact quickly. The Procurement Committee helps to reach critical decisions and communicate them to the wider organization.

To fully realize the benefits of the Control Tower, it is important to put in place the correct framework. This includes activities such as establishing a clear normalized baseline and a consistent way of dealing with supplier-initiated price and contract changes.

An organizational framework is just as important. Within the Control Tower is a Negotiation Management Board to control day-to-day activities and a team to execute its instructions. This team can include both Accenture and client resources, as well as leveraging the expertise of category experts, senior procurement leadership and business unit representatives.

By applying insights learned from actual situations and experiences, Accenture has developed reusable assets and methodologies to maximize both supply and demand results in the short term. To ensure sustainable results, however, businesses must ensure that throughout the process, measures taken in the short term are aligned with the longer-term strategic objectives of the organization as a whole.

By using a holistic approach and leveraging existing initiatives and assets, Accenture helps clients achieve sustained value, ultimately enabling them to become high-performance businesses.