Procurement: Back to Basics – A conversation with M&S CPO Andrew Newnham

Andrew Newnham: I agree. When I think of “back to basics”, it's not trendy. People discuss ESG or diversity, and these topics are indeed important. However, you need to get the foundations right. You've got to think about the purpose of your procurement team. You build credibility with senior members of the C-suite, especially the CFO, by demonstrating that you're adding value through savings and understanding the business and tying all this together as part of a cohesive story.

When we emerged from Covid, we got a new CFO. I remember my first catch-up. We were talking about savings, and how he sees a direct line from our savings to his P&L. He also discussed working capital, as cash was even more crucial at the time. We implemented a programme, changed payment terms, and revised our processes, resulting in a significant increase in cash. Just like that, it gives you credibility.

That may not be cash in the organisation you work in; it's what matters to your team. You earn credibility with stakeholders by understanding markets, their problems, and their objectives, and aligning procurement objectives with those. 

When I joined M&S, one of the first things we did was rewrite the definition of savings. There's always a conversation about P&L versus cost avoidance. Cost avoidance is a good proxy for the value that Procurement adds. What the business cares about is that direct line of sight between what you're doing and your impact on their budgets. At M&S, we began by saying this is how we define savings, this is how we measure savings, and this is how we work with Finance to agree on the impact on the P&L.

Newnham: That's spot on. When Finance or the business is reviewing their P&L, it's unlikely to be a line-by-line supplier entry. When discussing contracts and suppliers, you need to be able to communicate to the business how that impacts their P&L. 

There is a bit of work upfront to understand how their P&L works. You start there, and once you've established that understanding and credibility, you can move on to influencing the budget. 

Newnham: I'd start with what the purpose of procurement is in your organisation. That might be savings, it might be control; it will be different for each organisation. You start there, with a high-level strategy about what you're trying to deliver. That leads to what you need as a policy. Then you start with a clear definition of what savings are, a straightforward measurement process, and a clear sign-off process. 

Newnham: With digitalisation, people often talk about how a new system will make things easier for them. It needs to be linked to real output. And nearly always, the output is some kind of cost lever. That can be lost sight of. 

On things like ESG, there might not be a saving from doing some of these sorts of things. But my view is that you have to be able to bring it back to cost, a business case – if not a direct saving, the outputs the business is achieving through your initiatives. ESG is the right thing to do, and we have to do something. But if you define things in terms of cost and business benefit, you're more likely to be successful. It's better to know what resources you need on ESG and what benefits they’re delivering rather than just doing ESG because we should. So, sometimes it's not just about cost; we should do the right thing, and sometimes that will cost more money. But you're still making a considered decision because you understand the extra costs.

Newnham: I just think it's not interesting. If you attend a conference, you naturally want to talk about something different you're doing. At a conference last year, I discussed alternative thinking, as I was trying to demonstrate how my team was pushing the boundaries. Those forums are about generating ideas, thinking creatively, and challenging the status quo. But within an organisation and procurement circles, we should not be embarrassed. Fundamentally, procurement is about saving.

Newnham: Focus on keeping your house in order. Then you don't let the other things balloon and get over-resourced. It's keeping a conscious effort to know what you're about, and the foundations are right. 

Newnham: I'll always start with the budget. Then we get to cost avoidance. And you should measure cost avoidance. You must be very clear about how you measure it, and get buy-in from some stakeholders on how that serves as a proxy for the value you add. A good example is inflation mitigation. If your contract increases by RPI, and RPI is 12%, and you reduce it to 4%, that's real value to the business. It won't hit the P&L – but that's not to say that it isn't good value.

In the same way, you go through a competitive process with a new supplier. You negotiate a lower price, better terms on payment, and reduce the risk in the contract. I would measure all those things and call them a success. I would be very clear on a case-by-case basis what you've done, rather than just sharing a big number. I would share the stories of what you've gone through to achieve these benefits. They allow people to see the value that you've brought.

This comes back to the point I was trying to make earlier: Procurement needs to evaluate total value, not just cost. It needs to support the business in understanding the value case of, say, introducing a new product to the market. What impact is that going to have on their ability to get into new markets, to expand the customer base, to be more efficient? Sometimes ownership of this type of value case is unclear, but it presents an excellent opportunity for Procurement, which is ultimately a commercial function, to take the lead.

Newnham: I agree, it's about being good commercial advisers. You're part of the business case; you're part of thinking about the solution. It moves away from procurement being about just "I got 10% off".