Accenture’s chief urges procurement to prepare for downturn

Procurement Leaders spoke to Kris Timmermans, managing partner of sourcing and procurement at Accenture, about the role procurement has to play in a recession. This is what he had to say.

"I see a couple of companies preparing very well for the upcoming recession, and there are others falling back to pretty traditional, ineffective practices.

"If I see how some of the leaders are really differentiating themselves, I would highlight four elements. First, they are looking at cutting non-working money in a strategic way, refer to it as strategic cost management. I also see that they are preparing for winning the war on talent, so that you can prepare for recession by getting very good talent instead of focusing on cutting procurement headcount like some others would be doing.

"Third, I see a lot of investments in analytics; so a lot of business insights. A struggling economy also means uncertainty, so you wonder 'how can I get the best insights for my category managers'. Last, and not least, it's a real opportunity to tighten the relationship with suppliers for innovation, because we see leaders accelerating their innovation agenda and breaking away from the pack during the recession by tapping into innovations through their suppliers."

How can procurement heads be smarter with their money?

"During a recession, the leaders are showing much higher return on invested capital numbers than others, and I see a lot of that also being taken back towards how they cut costs. Let me give you an example: the traditional approaches that I see more and more are things like a travel-freeze, or all of a sudden taking out a number of coffee machines to reduce costs. It's fixed cost reduction, but by doing very traditional, very simple measures.

"For me, doing it in a smarter way is for procurement to start playing a very interesting role with the finance organisation. By appointing in the organisation cost-package owners, so that people take the responsibility for understanding, for example, travel and the real cost implications for the company and how to smartly reduce costs.

"Procurement plays a crucial role in that by then adjusting some of the policies towards travel, by asking people to book and plan their travel way ahead of time; or a policy where people who want to organise a meeting pay for the participants. That immediately greatly slashes the number of people you would have participating in some of the meetings.

"These are all examples of taking non-working money out of your organisation as part of your fixed costs. Tighter integration between procurement and finance and a whole new way for procurement to start working with finance and consumption policies.

"What you see after a travel freeze, is that people will start travelling like crazy." 

What can procurement departments expect in terms of headcount reduction?

"Across the board, across departments, operational headcount is already being put under pressure. What makes procurement different is that there's an extreme war for talent going on for the strategic profiles, the category managers. I see the recession, personally, as the right opportunity to refresh the organisation and especially attract new strategic talent. So instead of looking at culling head count, look at it as an opportunity to refresh the organisation; potentially even increasing headcount and being able to find the slots that people were never able to actually fulfil.

"At Accenture we have a large growth in sourcing procurement as well, we'll do the same. We'll use the recession to attract new talent."

Much is said about business risk, how does this relate to procurement?

"Risk has been under-evaluated from a procurement angle, I think it's really important to have good category managers who can take a step back, look at their spend area, look a long way ahead at what are the major risk areas that as a company they should plan for and have mitigation actions ready for. That requires an upfront investment, especially taking a step back to see what are the major risks company-wide. I work with quite a number of companies that are also struggling from a capacity point of view, supplier capacity in some of the markets. Tremendously high-rising costs. Those are all risks that should have a mitigation action for your company."

The rising price of oil has put low-cost country sourcing under pressure. What are your views of that?

"It puts the overall strategy of low-cost country sourcing under pressure, that's for sure. It also puts the logistics strategy, and the DC consolidation under pressure. So many of the supply chain strategies that companies have adopted are being put under pressure because of this situation. Although, intelligence is crucial. For some categories the transport costs are a minor component. For others, the strategy has to be reviewed and so there is flexibility required moving forward."

Can you expand on how the leading procurement departments differentiate themselves when it comes to smarter use of money?

"We've analysed what leaders are doing to break away from the competition. And if you look at their return on invested capital you would see that the leaders are the ones that have a return on invested capital which in the years before a recession is a little bit lower but during the recession breaks away from the competition with 10%, 20% higher return on invested capital.

"What we've also seen is that what the leaders do is enhance their innovation agenda so that they would increase their R&D budget where others would decrease because of the economy. And they would actually start tapping into extra innovation from the supply base. That gives, during the recession, a lot more innovation that you absolutely need to give you more choices into that market and to continue to grow.

"There's still an opportunity to really target the largest and most important suppliers in the supply base. And also formal processes of having ideas from your supply base mapped into your R&D organisation, again procurement can play an interesting interface role there. It's never too late, but the time is ticking when it comes to SRM frankly."