One of my closely held beliefs is that anything an organisation does should power its goals. This is key to making building strategic procurement.
This is the first in my new “Procurement in Action” series. I’ll look at what’s going on in the world of procurement and see how we can put that into action in our own organisations – big or small.
LVMH (think anything luxury, from Moet & Chandon and Dom Perignon to Louis Vuitton and Dior) looked at their Procurement function and realised that they weren’t doing everything they can to reach the group’s goals.
What LVMH’s procurement team realised was that with the growth in technology:
organisations can now connect and engage both up and downstream meaning that the traditional lines of engagement between businesses and suppliers are blurring. Where once there were clear lines of engagements, there are now entire ecosystems of organisations engaging with one another and connecting entire markets together.Procurement Leaders, “LVMH Wines and Spirits’ approach to reshaping the supplier ecosystem to drive out new revenue streams”
This story was originally report in this Procurement Leaders article, and I’ll see what they did and how we can mimic that success.
Making Procurement Strategic: Defining Goals
But they weren’t using this engagement to boost their goals. And what does a luxury brand want? More sales!
The first step in applying the greater engagement within an ecosystem is to identify how your organisation’s goals match those of the other organisations around you.
LVMH recognised that these linked companies threw events, held launch parties and gave their employees benefits.
This was their opportunity.
What do parties and employees want? Cheap champagne!
LVMH’s goal (sell alcohol) matched with other companies’ (provide alcohol and employee perks).
What are your organisation’s goals? How do these match those in your supply chain?
We don’t need to limit ourselves to sales. Perhaps you have a sustainability goal that ties in with the rest of the ecosystem. If you want to install a network on electric car charging ports, it would be hard to imagine that the rest of the supply chain wouldn’t want to be part of that.
The next step in most procurement projects is to evaluate and prioritise the suppliers in some way. LVMH classified their suppliers in a pyramid diagram, from unutilised ones at the bottom to “Club” suppliers at the top. These suppliers are keen to engage technologically and culturally and are key to the success of LVMH.
The Club suppliers were targeted to pilot their new ideas.
You don’t need a brand new classification system. A simple Kraljic matrix will do. It seems a sensible approach to start with the ‘strategic’ suppliers to prove the idea.
LVMH brought these suppliers together to present their idea to them and get feedback.
They started wine tasting events for suppliers in Argentina. In Europe they opened up their e-commerce platform to suppliers so they could buy directly and in the US they launched a discount for key suppliers and their employees.
Benefits of Strategic Procurement
LVMH haven’t been able to measure the revenue generated from this project yet, but what they have noticed is how other departments now view Procurement.
The function has been recognised as a strategic partner by the likes of sales. Outside of the business itself, it has improved the function’s reputation among the supply base and is also acting as a pull for talent into procurement. People want to be part of a function that is working on exciting new ideas.Procurement Leaders, “LVMH Wines and Spirits’ approach to reshaping the supplier ecosystem to drive out new revenue streams”
To me, strategic procurement means keeping the organisation’s goals in focus and making sure that the Procurement function actively contributes to achieving them. What do you think? Let me know in the comments.