To meet market requirements, increase their competitiveness, build their corporate image or drive innovation, companies are constantly under various transformations. In every enterprise, there are areas which, if handled appropriately, could bring significant results in terms of efficiency. What are these areas?
In the Polish market, the last two years has been the time of dynamic takeovers, mergers, reorganisations and consolidations within existing or newly established groups of companies. Usually, such actions involve transformations affecting many areas of company’s business operations. More and more frequently, decisions about changes in the employed capital (in particular, a foreign one) or the model of company’s operations are made taking into consideration the value that would be built as a result of the transformations. The issue becomes particularly important in the case of, for example, the biggest companies owned by the State Treasury which are still functioning on a monopolised market of services and production. Is the process of consolidation in general accompanied by building any value?
Where to build a new value…?
It seems natural that when undertaking optimisation activities in such areas of corporate operations as HR, IT or FA, as confirmed by many surveys and conferences, a new value is what determines the activities, a basis for making decisions. At this point, we will not discuss or analyse a new value of these areas, its actual share in the increase of competitiveness, innovation or social responsibility of an enterprise and, as a result, improved profitability and financial indicators. Instead, we will ask if there is any other area of corporate operations that could significantly affect what we customary refer to as: increasing the potential, aggregating the demand, using economies of scale, and as a result building our new value. The answer to this question is simple: it is the purchasing.
Do we appreciate its role? Can we see its potential? Can the purchasing be a key element of increasing a company’s competitiveness? Does its importance for consolidation processes determine the activities of managers during takeovers, mergers or other transformations? Does purchasing increase the competitiveness of Polish enterprises? In the global market of diversified sources of supply, in the era of access to the Internet, technologies and advanced information systems, the answers to the above questions should be affirmative and obvious. However, the reality is different.
…And where do companies lose their potential benefits?
Among a number of elements in a GAP analysis and matrix of improvements, it is important to consider one error that is critical for a corporate strategy, i.e. the failure to actually assess and measure the opportunity cost of not taking decisions about the optimisation of the purchasing process.
What is meant here is not a theoretical/virtual cost model, but actual benefits lost as a consequence of:
- unreleased cash flow from long-term framework agreements that are not negotiated as economic situation changes,
- the lack of diversified sources of supply, which increases the risk of liquidity of supplies for the core business,
- information and communication chaos in the internal and external surrounding of an enterprise (including the area of adjusting the processes to the Public Procurement Law), which is caused by the lack of fundamental legal regulations and information technology tools that support such areas as sourcing or procurement,
- the failure to support primary areas of enterprise operations due to prolonged internal procedures and bureaucracy.
These are only a few examples of costs in this group. When we replace the questions with numbers and, for example, in the case of an annual budget of a large production company, only for low-cost orders worth hundreds or even PLN 2 billion, we will estimate the opportunity cost at the level of 1% of this value. The value of the loss is … PLN 20 million! The numbers are persuasive. Could HR, IT or FA generate faster or “better” ROI? No, they certainly could not. As the discussion about searching for new values in different ways of transformations of Polish enterprises continues, the value resulting from optimisation of the purchasing process is simple and easily reachable.