This article originally appeared in CEO Forum.
More than half of Asia-Pacific CEOs feel their supply base is underdeveloped, and only 40% are satisfied with their procurement talent. It’s time to learn from companies that achieved 2% margin gains by improving procurement.
Scratch an industry leader, and you’ll find an ironclad procurement operation. What companies like Apple and Walmart have learned on the way to the top of their industries is that procurement leaders are cost leaders with a clear edge over rivals. Cost leaders can out-invest in innovation, capture share through price flexibility and quickly capitalise on new opportunities—all while retaining margins. In a recent Bain & Company study of procurement in the Asia-Pacific region, we found no company executives who would describe their capabilities as world class. Compare that with an earlier survey of North American executives: The 15% of respondents who felt their companies had world-class procurement also were those with the industry-leading costs.
Procurement represents the lion’s share—as much as 80%—of overall costs in some industries like automobiles, textiles and electronics. Yet the vast majority of executives readily admit that their companies rely on procurement capabilities that are no better than those of their competitors.
Nowhere is the pressure to improve procurement as intense as in Asia-Pacific, both for domestic companies and multinationals that rely on the region as an important source of goods and services. The pursuit of world-class procurement is as critical in developing countries as it is in the region’s developed countries.
Companies operating in China, India and other emerging economies face the pressing need to impose efficiency on their fast-growing operations. Undeniably, swift growth, combined with shorter product cycles, has left companies with the challenge of dealing with massive operating complexity. The effect of each new product is felt throughout the supply chain: everywhere from sourcing to logistics to warehouse management. Planning gets more complex each time a new product or SKU is introduced.