For the final part of our bachelor's degree at Hauge School of Management (BBA), we wanted to examine how the Norwegian aquaculture industry uses procurement as a strategic value driver. Although the procurement function can contribute to savings, innovation, and increased competitiveness, we find that companies are relatively immature in this area.
In this article, we share the key results from our survey.
The survey and results
The aquaculture sector, which plays a central role in Norwegian business and economy, does not pay enough attention to its procurement function. The oil industry had to pay dearly for disregarding the full value of procurement in time, and we hope the aquaculture industry will steer clear of ending up in the same situation. We find enormous, untapped potential in working more strategically with procurement across the organizations.
Model and respondents
We designed a survey based on the Norwegian Digitalisation Agency's (Digitaliseringsdirektoratet) 4-step model for streamlining strategic procurement efforts;
Spend overview and transparency
Contract overview and insights
Procurement and purchasing plans
Strategic and digital tools
The purpose of the survey was to understand how efficient and strategic the procurement departments work across the industry.
Among the 25 largest fish farming companies in Norway, 17 participated in the survey. The participating companies represent more than 70% of Norway's total production, thus fairly representing the industry as a whole.
Insights and findings
First of all, we would like to highlight a probable discrepancy between action and perception. Several companies do not have a procurement department in place at all. Still, all of them claim that procurement is important or moderately important for the company's competitiveness.
Our main findings indicate that the aquaculture industry has procurement functions that are highly inefficient and do not serve as a strategic, value-creating unit. For multiple respondents, the procurement department is very immature or virtually non-existent;
7 companies (41%) do not have a procurement department
7 companies (41%) do not use procurement analytics tools
4 companies (24%) do not have an overview of their contracts
6 companies (35%) do not prepare purchasing plans
7 companies (41%) do not utilize category management
6 companies (35%) have not digitized any part of the procurement process
By scoring the different questions included in the survey, with a maximum total score of 17, we tried to estimate the procurement departments' maturity;
Score large companies: 9.55
Score small companies: 5.87
Average score all companies: 7.82
The results indicate a relatively immature industry with a huge potential for utilizing procurement as a source for competitive advantages.
Creating value through strategic procurement in aquaculture
The importance of procurement is snowballing. And maybe especially in aquaculture, where spend accounts for almost 90% of a company's total costs and the industry faces significant changes in various ways.
Production costs in fish farming companies have escalated during the last few years. According to a report from Nofima on salmon farming, real production costs have increased by 70% from 2005 to 2018. However, due to the high salmon prices, there has been limited focus on managing costs and spend. Although aquaculture is one of Norway's most indispensable sectors, we need to question whether the industry's wealth and margins will persist.
Although an essential part of strategic procurement is to optimize spend and drive cost savings, it is also more than just adequately managing your spend. Strategic procurement has, among other things, the ability to be a true enabler for innovation, sustainability, and supplier collaboration. These are all crucial elements to ensure a competitive aquaculture industry in the future.
For your information. The author of this article, Ingeborg Bakke, is currently a full-time employee at Ignite Procurement.
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