By Gordon Shishodia
Can you think of any organization with a truly global presence that is unaware of the value an effective procurement organization can add to its business model? Many organizations have a long way to go in building a value-adding procurement function and, while procurement consultants continue to innovate and implement best-in-class solutions for their clients, only the most backwards of business leaders have their heads in the sand when it comes to procurement. One notable exception to this is…Santa Claus.
We all know his business model: engaging teams of elves for the construction of toys and the distribution of these toys around the world to all the children who have been good throughout the year. Of course, Santa Claus receives no revenue from the children. However, on the supply side, his business model is like any other global organization. So of course, he stands to add considerable value to his business by investing in an efficient procurement function.
A company is only as strong as its employees, so recruitment is a crucial initial category to consider. His procurement team would most likely begin with internal and external analyses: How were the elves recruited? By Santa Claus’s Talent Acquisition team directly or by an external agency? If by an external agency, what was their cost structure? How did this compare to other cost structures in the market? How satisfied with the recruitment process was the human resources organization? How satisfied were the recruited elves?
The answers to these questions would undoubtedly influence the recruitment strategy. But Santa’s procurement team would probably begin by assessing the benefits of several of the models below.
Given the seasonal nature of the business, and the added flexibility that temporary employment contracts offer, it may prove beneficial to engage a roster of temporary labor agencies, either by a managed service provider or preferred supplier list. From a demand management perspective, this would ensure that the organization remain as lean as possible, which could be crucial to cost management during those quieter summer months.
Should business requirements point toward a purely permanent work force, Recruitment Process Outsourcing (RPO) might be an option. RPO would mean that the responsibility for talent acquisition is contracted to a third-party agency. While this would alleviate the pressure on the HR team, allowing them to focus on their core function of ensuring employees are well looked after, it would also bring the added benefit of increased flexibility in the event of hiring freezes. Dismissing an entire department is a lot more damaging to a business than simple contract management.
One final option to consider would be off-shoring. It’s well known that North Pole elves receive some of the highest wages in the world. By off-shoring, the savings generated by reduced wages could be re-allocated into toys, delighting even more children around the world—a clear example of how procurement can directly add value to the core business. This strategy would, however, have a knock-on effect to other categories, notably logistics and distribution. Sleigh routes and fuel costs would need to be readjusted to ensure the right toys were collected and delivered at the right locations. This is a reminder for any procurement team that category management must be considered holistically to see optimum returns.
Whatever strategy Santa Claus might implement, it’s important to bear in mind recruitment. How often do we read the tagline, “Our greatest asset is our people”? It’s a cliché because it’s true. As we look toward increasing technological capabilities and demand for more flexible working models, it’s crucial that procurement professionals maintain a clear and agile category strategy aligned with the organization’s people strategy. If not, organizations with less favorable strategies stand to lose out to rival companies.
For the sake of children throughout the world, Santa Claus must act and respond accordingly.
Gordon Shishodia is an Associate Consultant with GEP. He is responsible for driving consulting engagements in the areas of strategic sourcing, market analysis, category strategy, supplier relationship management, and cost management for Fortune 500 clients across Europe. He holds a BA from the University of Oxford.
George E. Krauter
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