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hello i'm jonathan o'brien and welcome to this insights video sales versus procurement who can add the most shareholder value well it's hard to work in a modern global business without being touched by some sort of corporate edit to add shareholder value and this modern obsession seems to have begun way back in 1981 when the former ceo of general electric jack welch made a speech in new york where he revealed that his aim was to be the biggest or second biggest market player and to return maximum value to stockholders so who can add the most shareholder value the traditional view might suggest that the onus for meeting this challenge lies with the sales team the more you sell the more money you make and the more value that can in theory be returned to those who own the business thus driving up the share price true in part but if margins are low or if the business is inefficient then great sales figures have little worth it takes effort to make a sale in the ever increasing global marketplace competition is high and hungry players are just a click away ready to provide exactly what is wanted okay we have a deal customers need to be found convinced of the benefit persuaded to part with their money and then maybe they will remain as retained clients it is clear that unless a unique differentiated offering that everybody knows about and must have is on the table it is essential to work hard to maintain a sale and maintain market position shareholder value is all the factors that create sustainable long-term success such as brand value available capital agility and preparedness for change or to withstand challenges enabled of course by an effective organization and a healthy profit however sales isn't the only game in town when it comes to shareholder value effective procurement within the organization can also make a dramatic and sustainable contribution although it does demand a new approach the traditional view of procurement as the function that buys things responding passively to demand created by sales perhaps securing good rates of prices wherever possible can be deemed to contribute little to shareholder value beyond the fulfillment of need however today world leading organizations have recognized that procurement can contribute much much more but only if the company can organize itself so procurement plays a more strategic role this operates at three levels first increasing sales margins effective procurement increases the organization's profit potential remember profit is sales minus cost these days most businesses are quite efficient in terms of people and overhead costs so that leaves the cost to spend with third parties so why isn't everybody slashing their third party spend maximizing their profit well the answer is simply because it's really difficult but not impossible it is the suppliers job to maximize their margins and maintain their position and they are on average better resourced better trained better incentivized and they do what they can to gain an advantage however modern strategic procurement approaches such as category management and supply relationship management can if well deployed turn the tables and shift corporate buying from a tactical subservient function to a strategic contributor challenging what has gone before and using the full extent of the organization's available leverage to secure dramatic price reductions number two building brand value and brand value creation is not confined to the marketing team in fact procurement has a role here too the supply base is often thought of as a detached entity but it is far from this the supply base is in fact an extension of the business with value from suppliers flowing through the business being transformed in some way to create new value that flows onto our customers so that means that the value the end customer gets is shaped by what the suppliers do obvious perhaps but the functional nature of organizations means that this perspective is frequently missed procurement has a role here to preserve this value by managing the supply chain and supply chain risk but it can also help build this value and indeed build the brand the future innovation that could create a winning differentiator or add value in some way might not reside in the organization but might come from the supply base unless businesses are organized to find and secure supply chain innovation it will be missed or worse it will end up with a competitor and here procurement can identify those suppliers who hold future potential and instigate the right relationship and contracting mechanism to unlock this value and third shaping strategy shareholder value demands a business strategy to realize it and one that looks beyond the short term if the strategy is merely top down then the organization can only respond so strategy ideally needs to be informed by all areas of the business we are familiar with marketing teams informing strategy as they are the ones connected to the needs and desires of what the end customer wants but what can procurement possibly do to shape this corporate strategy well an effective procurement function understands and is connected to the supply base and the same possibilities that can build brand value exist there if these possibilities are connected with end customers needs and aspirations and organizations can lead the field it is therefore clear that corporate strategy delivering shareholder value is incomplete without procurement's contribution