Most of the manufacturing companies’ external Supplier Spend is 50 to 70% of their sales revenue. But, how much do they invest in their Purchasing Teams to achieve competitive advantage?
In a study by IBM in 2013, it was found that the companies who have built high performing purchasing team have seen boosting their margin by 22% in comparison to those who do not.
What does Organization expect from Purchasing Team? Studies shows there are mainly 6 areas where Organization expect the Purchasing Team to perform:
- Increasing Overall value of its products
- Collaborating with other function to implement Organization Purchasing Strategy
- Support in winning new Business
- Attainment of Cost Savings
- Supply Base Agility and
- Customer Service Improvement
Increasing Overall value of its products
The savings Purchasing team bring doesn’t worth until and unless those savings bring improvement to margin. On the other hand, often Engineering and Operations team complains about the cost to implement these saving projects. This is because in many cases, where Purchasing Team report savings are not the total cost, merely the cost of purchasing.
To add more value to the company’s products and services, the first significant element needed to be done by Purchasing is to establish supply base that can help the organisation to give better quality than the competitors at the same price or different reasonable price.
More value can be added by Purchasing by increasing the delivery speed.
Does our supply provide additional expert advice that we can pass on to our customers?
Does our supply base help us to improve our product’s design and packaging?
If answer is yes, Purchasing is increasing overall value of the product.
Supply Market Analysis In Strategic Procurement?
Collaborate with other function to implement Organization Purchasing Strategy
Firstly, Purchasing Team expected to be collaborative with other internal functions and internal customers. Secondly, Purchasing Team need to have the capability to facilitate these collaborations and should have ability to work in multi-functional team. Purchasing Team also need to develop, track and share the purchasing metrics that tie in with overall organisational goals.
Support in winning new Business
The faster purchasing team develop the outsourced components the faster a new order can be executed by the organisation.
One of the most successful approaches to achieve faster supplier development is to involve key suppliers in to the concept development – and design phases as early as possible. This is known as Early Supplier Involvement (ESI), a form of vertical collaboration between supply chain partners in which the manufacturer involves the supplier at an early stage of the product development process.
On the other hand, if a business cannot timely execute a new order, it hurts its reputation and ultimately its overall value. An organisation’s response to new business is now directly linked to a company’s brand and overall value.
Attainment of Cost Savings
Organisations believe Purchasing need to demand same price reduction from supply base that the company is giving to its customers. I feel, Organisation’s this expectation from Purchasing is not wrong neither overly expecting. If supplier doesn’t deliver in line with the demand of the customer, organisation have to make up the difference.
Purchasing team need to build the internal capabilities that are necessary to deliver expected cost savings
There should be clearly defined process for tracking cost reduction ideas and their financial impacts. Material cost saving activity should be reported as a part of monthly or quarterly profit reports.
Supply Base Agility
How fast our suppliers can adapt to new market conditions and react to new opportunities while maintaining discipline and efficiency, is the measure of Supply Base Agility.
Purchasing team need to develop the supply base that can master new processes and technologies faster.
Customer Service Improvement
Purchasing team should plan its key activities keeping the customer demand as focal point. Customer wants and needed should be the base for designing Purchasing Strategy. The moment Organisation expect its customer to accommodate their process, it starts losing its customer, if it’s not a purely sellers’ market.
World-class Purchasing organisations are service-oriented and customer-focused in their approaches. They design services and processes from the customer perspective or outside in rather than from the inside out.
Conclusion:
In a nutshell, Organization expects from Purchasing Team to Increase the overall value of its products by collaborating with cross-functional team. All activities of Purchasing Team should aim at gaining better customer service, winning new business and real savings with bottom line impact.
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