8 Lessons in Procurement Excellence From CRH, the World Leader in Building Materials
Procurement is no longer simply about negotiating for the lowest cost. The rules of the game have changed. Since the pandemic and the war in Ukraine, businesses have new priorities such as securing supplies in challenging markets, diversifying supply chains, or gaining long-term commitments from suppliers.
In the webinar Improving business continuity with agile procurement, hosted by procurement leaders, we heard some encouraging examples of how to achieve these goals. CRH, the world leader in building materials and headquartered in Dublin, shared insight into building an agile procurement function to support wider business priorities. Keep reading for eight lessons we can learn from CRH.
CRH manufactures and supplies building materials. As employees will tell you, they’re probably the largest company you’ve never heard of. With a revenue of over $30 billion, and 77,400 employees at 3,000 sites in 28 countries, there’s huge potential for gain when processes align and organizations are working together.
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Lesson 1: Tackle inflation
Rising costs are one of the biggest challenges facing procurement today. It’s difficult to negotiate new terms. Many suppliers won’t commit to longer than three months. If that’s the case for your organization, CRH recommends getting a cost breakdown and splitting up the contract. Perhaps you could do a quarterly negotiation for the particular elements that are causing problems and get the supplier to commit to longer terms for the other elements.
Lesson 2: Build a strong foundation
Recent global events have made many organizations less proactive, more reactive. But CRH believes that a proper foundation allows their business to act quickly to seize opportunities. The company has built a center of excellence for procurement to make sure they have the right people and systems in place. The team runs tenders and negotiates with suppliers for complicated sourcing events.
E-sourcing helps CRH speed up efforts without compromising on the number of suppliers they want to reach out to. And e-auctions are a fantastic way to negotiate even quicker with as many participants as they like.
CRH is also proactive when it comes to mitigating risk and being compliant. With new regulations coming out, many organizations will need a more integrated approach to risk vetting across sourcing, contracting, and procurement. More redundancy with suppliers and supply chain design lets you respond quickly to unforeseen events. And an end-to-end approach lets you manage risk and compliance proactively.
Lesson 3: See disruption as an opportunity
Ongoing supply issues often mean you need to reshuffle or renegotiate. Rather than a burden, this could be an opportunity to combine your goals with wider business priorities like sustainability.
The right tools, like Coupa’s Sourcing Optimization, can help you analyze different scenarios to give you an overview of the impact of any sourcing decisions. After gathering the information during negotiations, you can develop different solutions that balance cost and other factors like CO2 emissions.
As a function, procurement has a vital role in identifying and presenting these opportunities to the business. You can steer the business in the right direction, perhaps stretching the budget a bit more to be more sustainable and therefore combining multiple agendas in one sourcing opportunity.
Lesson 4: Become a sustainability champion
This is your moment to deliver on that increasingly important goal: sustainability. CFOs might not want to make big capital investments in sustainability, but ESG is still important. We can make a big impact in sourcing and procurement, even when other projects like fleet electrification might be paused.
Focus on the quick wins first to achieve immediate impact. CRH replaced old lighting in production plants with LEDs, and started buying power from power purchasing agreements with renewable sources. Then with success under your belt, you can move on to bigger targets, like more efficient production machinery, or moving from road to rail or water transport.
As well as showing the environmental and cost impact of these initiatives, procurement can help the business balance the advantages and disadvantages of various solutions. For example, water transport might be cheaper or greener, but can be affected by drought drying up rivers. Weighing up these various elements is a key way procurement can help the business make the right decision.
Lesson 5: Commit to the journey
Many organizations implementing a tool like Coupa’s Sourcing Optimization will see benefits within weeks. Some areas, like transport, offer clear targets for making savings and choosing the right solution for the business. But, for CRH, the sourcing journey has become more mature over the years. (Learn more about procurement maturity in our updated guide.)
The reason? The company applies Sourcing Optimization in nearly every spend category. The tool is used with any opportunity complicated enough to justify the effort that goes in.
For CRH that means:
- Any sourcing event with lots of variables (beyond the usual price x quantity)
- Where projects span multiple countries
- Where projects span multiple CRH entities
- Where the team needs to manage more than 10 suppliers
Whereas simple RFIs and RFPs can be handled with simple sourcing tools (often backed by AI for common categories), the more challenging events get support from the Procurement Excellence function. There are local teams speaking multiple languages to support colleagues and suppliers in the region with any complicated event — no matter how many line items or suppliers.
It might have taken years to get to this stage for each category, but CRH is in a strong position now. The business is mature enough to work with these processes, and it has launched eP2P to better connect sourcing results with spend, and capture the potential value they've negotiated.
Lesson 6: Invest in the team
Many businesses are finding it hard to get enough skilled and competent people to support demand for more and more sourcing events.
Others are finding talent easily enough but struggling to define a proper career path. Young recruits are eager to learn but jump ship when they realize there’s not enough progression in procurement roles at the organization.
It’s vital that these challenges are overcome if the business needs to deal with complex negotiations. Digital tools can help you gather answers for your analysis, but you need a skilled team to partner with the business and ask the right questions like, “What do we need to overcome with this project?” Or, “How will we measure increased performance, and what do we need from suppliers to do this?”
“Do you play video games?”
Try thinking outside the box when it comes to recruitment. The CRH Procurement Excellence function has found that gamers are a great fit for the organization — they’re able to get the most out of technology. They try out different combinations, press every button, ask the right questions, and play around until they find the right solution or way of tackling a challenge.
Lesson 7: Bring colleagues with you
CRH has found that new hires often think the company’s processes look like a lot of effort. They don’t understand why they can’t just call suppliers instead.
But when they’re shown a simple overview of the impact digital over manual processes, the reason becomes clear. Running negotiations online brings the business an average of 1%, 2%, or 3% savings every year. E-auctions can often bring double-digit savings.
A small amount of upfront effort also saves a huge amount of time later when it comes to analysis. Rather than concentrating on a few suppliers, Sourcing Optimization has no limitations. Colleagues are quickly won over when they realize the full potential of digital tools.
Lesson 8: Be proud of what you can achieve
Procurement can address so much of what is top of mind for the C-suite right now. Resiliency, continuity of supply, sustainability, and any amount of savings in this inflationary period. Now is the time to get senior-level support for projects that can achieve these goals.
In today’s environment, procurement professionals are heroes. You have an overview of all suppliers and can give the business insight into critical questions, like which products and services are coming out of Russia for example. It’s a pivotal moment for procurement to prove their value.
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