Control maverick spend, expert tells industry

Supply chain industry veteran Roger Reading says procurement executives should always be trying to increase the spend they control

Control maverick spend, expert tells industry
Control maverick spend, expert tells industry

By Anna Game-Lopata | November 13, 2012

Supply chain industry veteran Roger Reading says procurement executives should always be trying to increase the spend they control.

Formerly GHD Manager Contracts and Procurement Reading is a keynote speaker at
Australia's Chartered Institute of Purchasing and Supply (CIPSA) strategic procurment Forum in Brisbane.

Reading, who has many years’ experience in the sector, including
introducing strategic procurement to Rio Tinto in the 1980s, says the principle of
leveraging buying in the market can be undermined by maverick spend and the wrong kind of relationships with suppliers.

"A lot of companies don't give procurement more than about 50 percent of the spend," Reading says.

"They don't mind procurement buying pumps or stationery or whatever it is, but when it comes to more important things they won't let them touch it."

points to
Qantas is one good example.

"It doesn't matter how good the Qantas procurement team is, it’s never going to buy aircraft," Reading says.

"Buying aircraft at Qantas is something so precious, the company uses
a separate team to do it which is completely independent of any procurement team.

"Now, will the special team use strategic sourcing? They might, might not, but no one really knows because they lock it up so tight."

Reading also says suppliers who build relationships "like bridges" into businesses can prevent the best decisions being made.

"[Some supplier relationships] are an enemy of procurement," Reading says. "They make it harder to wrestle power back and say, look, it doesn’t matter how many freebies you hand out, this is a hard-nosed commercial decision we have to make for the benefit business."

tells SupplyChain Review
procurement people are bringing the best value to businesses when they do their homework and can negotiate on an equal basis with suppliers.

He gives an example of a deal his team did
with the Japanese suppliers of tyres for earth moving vehicles when he was working with Rio Tinto.

"The Japanese suppliers wanted to increase the price of the tyres because the price of rubber in the market had increased," Reading says.

"But we discovered natural rubber was a very small component of the tyre, and other materials such as synthetic rubber and steel were a much greater proportion of the finished product. The prices of these commodities had fallen."

"As a result of raising these issues, Reading’s team managed to exact significant price reductions for the tyres.

Reading says procurement is becoming recognised in Australia particularly as a force to be reckoned with in this way.

But he concedes with power comes responsibility.

"The current procurement imperative is to deliver the outcomes it promised; you say you can bring more value to the table, now do it," he says.

At the CIPSA forum, Reading will tackle the topic of risk.

"The key is understanding what you're really doing and being able to manage the risks associated with that,"
Reading says.

"My approach to this conference is saying, well, what are the things that you should be really thinking about in risk management?
What are the key aspects that you should consider?

"We're not just talking about what might
go wrong but looking at the higher level and
questioning the commercial drivers in the supply chain.

"What's interesting is that no one else is doing this in this space.
Procurement has been left or encouraged, to actually do the work in this risk space and it's a golden opportunity for today.

"So my message to
procurement guys is, get up and see what it is that you've got as an opportunity and make the best of it."

The CIPSA Strategic Procurement Forum will be held November 30th November at he Royal on the Park, Brisbane.

For the full interview wqith Roger Reading, see the December issue of SupplyChain Review.

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