Sam Achampong: Effective supply chains keep a company’s wheels turning

With no single authority having oversight of global supply chains, it is up to individual companies here to ensure that they focus on the implementation of effective procurement and supply standards, writes Sam Achampong.

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When thinking of business success, often the focus is on a product or service and whether it can attract enough sales to generate a profit. But what about the factors behind the scenes that drive the business and ultimately boost profitability? From sourcing raw materials to manufacture, packaging and then distribution into the marketplace, effective procurement and supply chain management can make or break a business, influencing not just the bottom line but also the image of a company and its brand.

Supply chains are growing in complexity and scale, and many operations are stretching from one side of the globe to another, spanning from the supplier’s supplier to the customer’s customer. With growing complexity comes growing risk.

The CIPS Risk Index, compiled by Dun & Bradstreet, showed supply chain risk in the Middle East rose marginally in the third quarter, remaining close to the all-time record for the region. The spread of ISIS and associated terrorist groups has made the safe passage of goods across land borders increasingly difficult. Tunisia, Bahrain and Kuwait all had their risk ratings elevated in the quarter. Supply chain managers in countries like Turkey are increasingly resorting to slower and more expensive sea freight services, a short-term solution which threatens to have an impact on costs further up the chain or the quality of goods being produced at the bottom of it.

As the size of an operation expands, it becomes increasingly important for an organisation to ensure their procurement and supply chain management team uses best practice, which reflects an understanding that investing in the operation limits costs, improves efficiency and builds towards a positive reputation.

There are many ways in which effective procurement and supply can be executed in an organisation, but fundamental to everything should be the education and training of procurement and supply professionals. With the world changing at such a dramatic speed, the Chartered Institute of Procurement & Supply strongly believes the time is now right to call for the procurement and supply profession to self-regulate itself by licensing its professionals. It is essential to have not only the correct knowledge, but also the capability to apply that specialist information to the benefit of the company.

By focusing on several key steps when procuring goods or services, a procurement and supply professional can understand the business need, identify a solution and source suppliers that meet the requirements of sustainability, ethics, cost, efficiency, quality and value. An organisation can spend more than two-thirds of its revenue on buying goods and services, so even a modest reduction in purchasing costs can have a significant effect on profit.

Creating a conversation between procurement professionals and the highest level of management is rare in many businesses, but can be incredibly beneficial.  Procurement and supply infiltrates many departments within a company, including sales to help win more profitable bids; marketing, to understand the demand to match supply; and finance teams, helping with forecasting or mergers and acquisitions.

Establishing effective procurement and supply processes has the potential to change the structure of a business, creating major efficiency gains and a drive towards innovation, which in turn will be reflected in the financial benefits to a company. For example, the 2015 Return on Supply Management Assets Performance Check Study revealed that the top procurement organisations generate about $1.25 million in financial benefits per procurement employee per year.

With fantastic global transport links, the Mena region is a business hub, which means trade is constantly passing through, and most businesses based in the region have the potential to operate on a global scale. This presents excellent opportunities and potential challenges in equal measures. With no single authority having oversight of global supply chains, it is up to individual companies here to ensure that they focus on the implementation of effective procurement and supply standards, thereby boosting their business performance.

Sam Achampong is general manager of the Chartered Institute of Procurement & Supply Mena