QUESTION $1(20$ Marks$)$

WINNING WITH PROCUREMENT IN ASIA Scratch an industry leader, and you$$ll find an ironclad procurement operation. What companies like Apple and Walmart have learned on the way to the top of their industries is that procurement leaders are cost leaders with a clear edge over rivals. Cost leaders can out$-$invest in innovation, capture share through price flexibility and quickly capitalize on new opportunities $$all while retaining margins. In a recent Bain & Company study of procurement in the Asia$-$Pacific region, we found no company executives who would describe their capabilities as world class. Compare that with an earlier survey of North American executives: The $15\%$ of respondents who felt their companies had world$-$class procurement also were those with the industry$-$leading costs. Procurement represents the lion$$s share$$as much as $80\%$of overall costs in some industries like automobiles, textiles and electronics. Yet the vast majority of executives readily admit that their companies rely on procurement capabilities that are no better than those of their competitors. Nowhere is the pressure to improve procurement as intense as in Asia$-$Pacific, both for domestic companies and multinationals that rely on the region as an important source of goods and services. The pursuit of world$-$class procurement is as critical in developing countries as it is in the region$$s developed countries. Companies operating in China, India and other emerging economies face the pressing need to impose efficiency on their fast$-$growing operations. Undeniably, swift growth, combined with shorter product cycles, has left companies with the challenge of dealing with massive operating complexity. The effect of each new product is felt throughout the supply chain: everywhere from sourcing to logistics to warehouse management. Planning gets more complex each time a new product or SKU is introduced. In addition to complexity, there is the matter of cost inflation. In these countries, revenues are growing rapidly, but input costs are growing even faster$$and eating into margins. And there$$s also an issue that our study found is even more vexing for some Asia$-$Pacific executives than rising input prices: volatility. For their part, companies in developed markets, like Australia and Japan, must accommodate rising and volatile input costs as they deal with slow$-$growing economies. As top$-$line growth falls off, they need to find ways to shore up profits. To address all of these ills, companies throughout the region have dutifully set aggressive targets for reducing input costs$$but always in a short period of time. Trouble is$,$ despite their best intentions, too many executives tell us they are simply ill$-$prepared to meet their goals. We conducted $60$ interviews with business heads and chief procurement officers $($CPOs$)$ throughout Asia$-$Pacific and heard the same repeated theme: While many report their capabilities are fair or even good, none feel they are great. They are saddled with procurement operations that lag global best practices. Our study found that procurement teams in Asia$-$Pacific often lack organizational support and prominence, tend to focus on short$-$term activities, rely on inadequate demand management processes, and struggle with underdeveloped supply bases and insufficient core procurement processes such as category management. They lack systematic supplier management processes, reliable data systems and strong procurement talent. For example, while some companies make a serious point of investing in procurement talent, they fail to take the critical move of defining a clear career path for procurement professionals. Fortunately, they can learn from the best. Even companies that are woefully behind can quickly build capabilities to manage procurement, with processes and systems that match the maturity of global leaders. There$$s a clear view of what great looks like. Instead of simply being content to eliminate any waste, tighten any processes and provide any improvement in spending control and visibility, companies can go much further. They can adopt the practices of what we refer to as $4$th generation$$ procurement$$using the procurement function as a way to add value to the business year after year, shoring up the bottom line by keeping costs from mounting.

As highlighted in the case study, $15\%$ of respondents who felt their companies had world$-$class procurement also were

those with the industry$-$leading costs. Considering this statement, demonstrate the characteristics of world class

procurement. Make use of relevant examples.