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Challenges & Opportunities for Procurement

October 19, 2010

Last week, I interviewed Mr Geert Peeters, Chief Procurement Officer at Levi Strauss. Geert and I will both be among those presenting at the Procurecon conference in Brussels, November 2nd – 5th.

The theme of our conversation was ‘Challenges and Opportunities for Procurement’ (to access the audio file of our interview, click here).  On the surface, after more than 150 years in business and with a leading global brand name, it would seem that the role of procurement should be well defined and predictable. But that proves to be far from the case.

A major challenge for Levi Strauss right now is its dependence on cotton. Traditionally a stable commodity, recent times have seen increasing turmoil. This year, prices have risen some 40%, mostly propelled by the devastating floods in Pakistan. But it turns out that supply disruption is no longer an isolated experience; a couple of years ago, it was the disaster in Haiti and before that, the impact of the tsunami on crops in Sri Lanka. Topics such as climate change are therefore very high on the agenda.

“Sophistication in risk management” has become a critical skill for the Procurement function, according to Geert. Procurement staff have also had to re-think the commercial model for their agreements. Historically, forward buying, hedging and other methods to manage future costs were not considered important. But of course this is just one aspect of managing supply risk. Procurement is also actively involved in work to seek alternative materials and to bring innovation to the industry.

Levi Strauss was a leader in introducing a Code of Conduct for its suppliers back in 1993. This aligned with the company’s philosophy of ‘profits through principle’ and is a component of a rigorous approach to Corporate Social Responsibility – another key area for Procurement involvement. Geert explained the commitment to transparency, citing as an example the fact that all the company’s suppliers are listed on its website.

I asked Geert how they ensure flow-down of their ethical standards to sub-contractors. “We have collaborative policing of the Code of Conduct”, he explained.  And he went on to describe how the Code is now being extended to the cotton fields themselves – clearly a demanding task, given their remoteness and the difficulties over access to many of them.

Like many others, the Procurement group at Levi Strauss has recognized the growing difference between direct materials and services contracting, with the latter demanding ‘a more commercial approach, because value really matters’. They are also cautious in their use of technology, especially in managing the supplier interface. Geert believes his team must still build physical relationships and be visible to the supply base, while using technology to simplify and assist communication and knowledge transfer.

On the subject of knowledge, Geert also highlighted the growing importance of learning across industries. Historically, there was a tendency to see the procurement problems and opportunities as somewhat industry specific, but today there are many benefits from cross-learning. Key issues such as climate change, social responsibility, the use of technology and risk management ‘best practice’ are topics that affect any global business and good ideas can come from anywhere. That, he assured me, is why he finds venues like Procurecon so helpful!

One Comment
  1. Syed Khan permalink

    Hi Tim
    thank you for this nice article, I always find them realistic, informative and interesting.

    Sincerely
    Syed Khan MCIPS., C.P.P., C.P.M.

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