The importance of optimising procurement: A conversation with Alejandro Alvarez

A seamless procurement set-up can help companies mitigate risks, save costs, and further incorporate ESG measures at the core of their businesses. Alejandro Alvarez, NCPO Director, Nordic Capital Advisors, discusses Nordic Capital’s approach and the latest industry trends.

How has the procurement market evolved?
The underlining trend is that companies that understand the value of procurement, are now investing and developing their teams. But nothing triggers the focus more than a crisis as cost-efficiency is essential for almost all portfolio companies and the function finds itself under the spotlight.

From a procurement perspective, what challenges are the portfolio facing?
During inflationary periods, companies do everything to protect margins. Managing external costs is of critical importance – and this is an ongoing challenge that has been accentuated by multiple economic and geopolitical factors.

Making certain that supply chains are resilient is another important challenge that requires teams to be creative and explore solutions that may not have been necessary before. To do so, ensuring that the right talent is in place is critical – if you do not have the right people to act from the data, it can be problematic.

Are different companies facing different challenges?
Companies face similar challenges regarding inflation, talent retention, shortage of certain components, recession fears and so on. Whilst these underlining challenges are similar, the impact they can have vary as the companies operate in different sectors and geographies.

Having the right level of transparency, a challenge in itself, across the supply chain is essential when navigating in uncertain times.

Despite minimal immediate exposure toward operations in Ukraine or Russia, the Nordic Capital portfolio is still affected by some consequences arising from the war, such as supply chain disruptions and energy inflation.

To cope with the challenges – how does Nordic Capital support its portfolio?
The Nordic Capital Procurement Optimisation programme (NCPO) was launched in 2009, with the purpose of ensuring that the right people are connected and value creation is maximised. This is done by putting a particular emphasis on an active management, best-practice sharing, the NCPO Academy, leveraging cross-portfolio spend for framework agreement with partner suppliers, and by developing and rolling out strategy- and company-specific programmes.

The NCPO platform is modular and customised to meet every company’s needs. It's open for all portfolio companies but mainly directed at larger entities or entities with a complex supplier base.

Why is Nordic Capital doing this?
Because it delivers results. Companies need the right people, tools, and processes to maximise profitability. The NCPO platform helps companies be more efficient. Every euro or dollar we can save can go directly to the company’s bottom line and be invested in future growth. As such, procurement has proven to be a very valuable leaver.

The NCPO fits nicely into Nordic Capital’s Owning Well approach. The objective is straightforward and about ensuring that the portfolio has the proper procurement and supply chain set-up, the right people, and the right tools to deliver according to their growth goals. It helps procurement, finance, and supply chain teams to have full transparency on the entire supply chain.

The fantastic thing about NCPO is that we support the portfolio companies through the Operations Team to build trust and give something back. An essential aspect of the NCPO is putting the community of professionals together. Procurement spend represents approximately 50% of the revenue across Nordic Capital’s portfolio companies. As such, procurement excellence is regarded as a key value lever that can deliver a sustainable competitive advantage, act as a catalyst for innovation and fuel future growth.

How can procurement support companies with sustainability?
ESG is fundamental to Nordic Capital, and procurement can be crucial in working towards improved ESG scores. Here are some examples of how procurement can improve the ESG score:

• Understand the ESG impact across the supply chain
• Develop and promote supply partners that prioritise sustainability objectives
• Embed ESG criteria in the supplier management and selection process
  
  

Companies must face questions such as, should we work with a partner closer to home to reduce carbon emissions, or should we work with a supplier located in China to reduce costs? This is a case-by-case judgement, but it is an important question to ask and answer. Key to remember is that cost effectiveness and ESG targets do not conflict with each other, but rather go hand in hand.

Any concluding thoughts?
I recommend that more companies investigate their procurement setup as it delivers a 5-10 % bottom-line uplift and a more resilient, sustainable supply chain. Companies should ensure they have the right people in the portfolio team and invest in the function because the payback is potentially substantial.