Peter E. O'Reilly, D.P.S., C.P.M.
Peter E. O'Reilly, D.P.S., C.P.M., Assistant Vice-President, MetLife, New York, NY 10010, 212-578-2470,firstname.lastname@example.org.
Abstract. A recent study of how well Purchasing Departments do in meeting the needs of their internal customers showed that the more effective Purchasing Departments handle over 75% of their parent organization's procurement activities. Reaching that level of 75% is not easy, as internal customers often wish to remain very active in the buying function. Such predicaments generally result in poor morale on the part of Purchasing professionals and lost cost-reduction opportunities for the parent organization.
As a remedy to both situations 10 action plans are suggested that will migrate the buying of goods and services to the unit that can best service the needs of internal customers, the Purchasing Department. These action plans are meant to focus Purchasing Department personnel on assuming a greater role within their parent organizations.
Taking Stock. Michael Porter, of Harvard, has repeatedly stated over the years in his views on achieving competitive advantage, that firms need to do some soul searching if they are to be successful. Before a company can finalize its strategy against its competitors, it should fully understand its very own essence of being. Putting this quite simply, an organization has to know its own strengths and weaknesses.
Purchasing Departments are no different. If it is the objective of a Purchasing Organization to grow as a vital element of its company, then it first must comprehend its purpose in corporate life. Before it can venture successfully towards future gains, it is necessary to develop a better understanding of its past and, certainly, of its present competitive advantages.
The simplest way to achieve this goal is to take stock of itself. A functional inventory can identify such factors as what the department's strong points are, who their "allies" and "hard sell" customers are, and finally, but just as important, what the shortcomings of the department are. This self-assessment should also establish what the Purchasing Department's current role within the parent organization is, as well as what products and services it offers, what billing dollars it processes and what percent of the parent organization's total procurement budget it handles. The data gained from this exercise will be essential in establishing the strategy to be undertaken by Purchasing in moving forward.
Developing a Strategy. A disclaimer is needed here. Before reading the rest of this article and possibly gaining a degree of eye soreness, you must be resolute in your conviction that your Purchasing Department can (and will) do more for its company. Having satisfied my conscience, those readers who are indeed "resolute" may continue on.
A strategy acknowledges what course of action you wish to pursue as a Purchasing Department. Before you can begin to identify your strategy, you must determine the objectives and goals of the Purchasing Organization. As they relate to the subject of this article, your objectives should be oriented towards expanding the scope and breadth of Purchasing's internal influence. Specific goals are essential both from a motivational point of view and for tracking or feedback purposes. You may want to increase your billing dollars by a certain percentage, or you may wish to assume greater responsibility for additional products or services that are currently processed by non-purchasing units or your internal customers themselves.
The objectives and goals are best set by involving the entire Purchasing team, as their buy-in will be essential for a successful outcome. Your Purchasing team will be responsible for developing the strategic initiatives necessary to accomplish your objectives and goals. The strategy used should be one that you are comfortable with, but be demanding nonetheless. If you want a bigger piece of the procurement pie within your parent organization, you must be willing to take risks and be prepared for some hard work. Your strategy must answer customers' questions as to why they should give up control to become one of your customers. As you probably know by now, it is not often easy to convince your management to give you more responsibility.
Bring on the Action. With the establishment of a strategy-selling Purchasing within your organization, thereby increasing the importance of Purchasing--action plans can now be developed for implementation towards that end. It is not the purpose of this paper to dwell in the world of hypothetical possibilities, but rather to suggest some "hands on" ways to accomplish what you are seeking. Ways, in fact, that your peers are already successfully using.
These ways, or action plans, are as follows:
Create Customer Councils. Usually the biggest issue with this action plan is who to invite as participants in your customer council. Most organizations have three target tiers of potential council candidates: the great number of internal customers who use the products and services offered by Purchasing Departments, the middle management of these customers, and the senior management core of your parent organization.
As customer councils require a good deal of your unit's resources in their planning, to optimize your impact it is suggested that you aim your initial attempts at the senior management level. Since this group probably has the least knowledge of the role Purchasing plays in your parent organization, and can have the biggest effect on expanding that role, you need their buy-in.
Invite your senior management officers to attend and be active in your customer council. Use the council for two main purposes: (1) distributing information on not only what Purchasing does, but also how it can help these people's operations, and (2) allowing the attendees to voice their opinions on Purchasing. It is this later approach that gives Purchasing the opportunity to ascertain how senior management perceives their operation.
Conduct Customer Focus Groups. You need customer feedback if you are to succeed in any expansion venture. Create focus groups that will address specific problems or will relate to particular products and services. Invite your key internal customers, especially those in middle management. Do not hesitate to ask some of your most ardent critics to join you at these focus groups. Customers tend to welcome the idea of providing service providers with their views. Focus groups, like customer councils, are meant to solicit both positive and negative feedback. Often it is how you react to customer complaints that will determine if your Purchasing Department will increase its value to its parent organization.
Distribute Customer Surveys. This is the media that will reach the widest cross section of your actual and potential internal customers. The proper formatting of such a customer survey can accomplish several goals.
A prime objective would be to ascertain if the levels of service provided by Purchasing meet, exceed, or fall below customers' expectations. Another purpose would be to identify, from the customers' point of view, which of your attributes (such as reliability, responsiveness, assurance, etc.) are more important than the others. This can be helpful in the allocation of scarce Purchasing resources. As with any survey, remember to inform the customers of the results and develop action plans that focus on customers' concerns.
Publish Newsletters. One good example of how Purchasing has helped a customer achieve a cost reduction or provided some type of value added can go a long way in planting seeds for the cultivation of new customers. Purchasing Departments should not be shy about advertising their effectiveness. The use of electronic newsletters is an excellent way of spreading the word in an inexpensive and timely manner.
Ask Customers to Join in Purchasing Planning Sessions and Try to Participate in Customers' Planning Sessions. You will know that you are accepted by your customers if you are invited to be active participants in their planning sessions. If this is not happening, then switch roles and ask your customers to join your planning sessions. After all, as Peter Drucker has stated, "We need our customers, they do not need us." Having your customers contribute to your strategic and tactical planning processes opens the door to some type of reciprocal arrangement concerning their planning sessions.
Involve Your Senior Management in Purchasing Activities. You will be swimming against the tide if you try to implement some of these action plans without buy-in from your own senior management. They can be an excellent resource in your attempt to expand Purchasing's role. For the most part, particularly in service companies, senior management is not always up to speed on what Purchasing does. So your function here is twofold: educate and recruit. Invite your senior management to monthly staff meetings so they can gain a better insight into all the dynamic activities going on in your shop. Also, identify some hurdles or obstacles they could help you overcome by talking to the right people.
Utilize Internal Control Organizations. If your parent organization has internal control units, such as law, auditing, compliance, ethics and controllers, use them as selling points for the greater use of your services. These internal control units generally have charters that tend to focus on the establishment of some type of procedural consistencies within their companies. What better way for these bodies to achieve those goals than to have more internal customers use the services of Purchasing. You may be surprised to find some willing partners in your strategic quest from among these units.
Identify New Product and Service Opportunities for Purchasing to Pursue. Here is a great chance to merge the information you developed from your earlier self-assessment and the results of the customer councils, focus groups and surveys. The data collected should have identified several new products and services that you could provide to your customers. Some research on the part of Purchasing may show a number of new customers the cost benefits or value added advantages for allowing Purchasing to become actively involved. Look for examples of either "low hanging fruit" (quick savings) or strategic projects, in which there is a good deal of dollars involved.
Seek Out Pilot Programs in Which Purchasing Can Demonstrate Its Benefits to Customers. Once you have identified potential new products and services, determine how you can become an involved player. If you meet resistance from customers, promote the concept of a pilot that will allow you to explore, for a relatively short period of time (say, six months), possible benefits from Purchasing's involvement. Stakeholders generally are more agreeable to relinquishing temporary "control" over a product or service than giving it up permanently. Put all of your resources into this pilot so that a successful outcome is achieved. Such winning pilots become your entree into other, more difficult, endeavors later on.
Continue to Develop the Professionalism of the Purchasing Staff. A primary reason that internal customers should use the services of your Purchasing Department is the professionalism of its staff. It is not very effective to ask buyers to do complex engineering drawings or sell your company's products. Nor is it effective to have your customers buy their own products and services. It is therefore very important that management realizes that Purchasing and not internal customers should be the source for all procurement activities. Winning this battle is not easy or you would not be reading this article. Having a buying staff that has C.P.M. designations, and routinely keeps current by attending seminars and conferences is something, once again, that you need to advertise. It is important that you use your professionalism as a marketing tool.
Conclusion. The essential factor in pursuing these action plans is using a team approach. Having a good story is not enough, you also need listeners to that story. Work on creating an atmosphere of cooperation, both within your Purchasing Department and your parent organization. Look for weaknesses, in your customers' operations that you can help to correct. Be bold when attempting to implement these action plans, but know your limits, at least as they currently exist. Go for qualitative, rather than quantitative, results in terms of selecting how many of the action plans to work on at any given time. Build momentum based on success stories. Use the resources of your entire parent organization to expand the horizons of your Purchasing Department.