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Five Strategic Initiatives to Increase the Value-Added of Purchasing

Author(s):

Dr. Peter E. O'Reilly, C.P.M., A.P.P.
Dr. Peter E. O'Reilly, C.P.M., A.P.P., Director- National Purchasing and Contracts, Ernst & Young LLP, Lyndhurst, NJ 07071, 201-872-2292, peter.o'reilly@ey.com

85th Annual International Conference Proceedings - 2000 

Abstract. Much is happening to our wonderful world of purchasing. Every day we are constantly bombarded with the likes of outsourcing, electronic procurement, staffing reductions, and value added projects. Purchasing professionals are facing an ongoing dilemma, how to integrate these strategic elements into the daily operational demands placed on buying organizations by their customers, management and themselves.

It is not enough to meet the ever increasing requirements of the procurement job today. Time and resources must be allocated to study how purchasing organizations are going to look and operate tomorrow. Difficult as it might be all purchasing managers must become focal points in directing their own destiny or face a bleak set of options. A strategic game plan will permit purchasing organizations to continually demonstrate that they are vital tool in assisting corporations or other entities achieve their overall goals and objectives.

Objectives. It is the intent of this paper to review five strategic initiatives that can and should contribute to purchasing departments increasing their value added resources. This paper will focus on a review of each of the five strategic initiatives. In addition, provide some practical means of assisting purchasing units implement these initiatives into their own operations will also be offered to the readers of this article.

Strategic Initiatives. The five vital strategic operational methods that should be employed by purchasing organizations to enhance their productivity to their management are as follows:

  • greater involvement of customers
  • expand the role of suppliers
  • be more participative in the planning process
  • use technology more effectively
  • be more results oriented

Greater Involvement of Customers. In a recent survey of internal customers for 25 firms that I conducted there existed a wide gap between how well purchasing management thinks they are doing in servicing their customers and how well their customers think they are being serviced by their purchasing departments. Purchasing managers in large give themselves more credit for meeting the service demands of their customers than they should according to their own customers.

The main reason for this perception gulf in service levels falls clearly with the purchasing managers. As with most things related to services, conditions and needs are constantly changing. What might have satisfied customers a year or two ago may be insufficient today. As our external customers' needs evolve over time so do the service requirements of our internal customers.

It is both a challenge and an opportunity for purchasing departments to be on the same page, service-wise, as their customers. There is no greater strategic value-added initiative for purchasing departments to employee then to become closer to their internal customers. The advantages to purchasing organizations for accomplishing this goal can be plentiful and long lasting.

Frequent communications with customers can be extremely helpful in purchasing departments setting priorities that are customer-driven. The establishment of customers' priorities can then be instrumental in the allocation of purchasing's limited resources, that could be related to such strategic factors as staffing and / or systems. Input from customers can also assure purchasing that their objectives are in line with those of their customers and the overall firm as well. While it is always helpful for purchasing operations to be as efficient, that is doing things the right way, as possible, customer feedback also enables purchasing departments to be highly effective, that is doing the right things.

There are a number of excellent means that purchasing departments can use to gain greater insights from their customers. Some of the more popular devices are focus groups, customer surveys and attending customers' planning sessions.

Broadening purchasing's involvement with their customers demonstrates that you care for their guidance and that you are in business as Peter Drucker once said only because they want you to be.

Expand the Role of Suppliers. The universal slogan among most purchasing departments is to do more (work) with less (staffing). While the greater use of systems has been helpful towards that end it has not been enough. Advancements, especially with those associated with technology, tend to be numerous and complex. The frequency of these product and service announcements are more than the average purchasing staff can properly handle.

With the expanded use of long term contracts, purchasing organizations need to incorporate the knowledge level of their suppliers into their own operations. A growing number of purchasing managers have supplier representatives working side by side with their own staff. This is vital to staying current and productive. It is also a win-win situation for both the purchasing departments and the suppliers, not to mention the customers. It finally puts some "teeth" behind the term "customer-supplier partnership". And yes, a purchasing organization and its customers will pay, whether directly or indirectzly, for such on-site supplier support. However, such expenses should be considered a small and wise investment in developing a program to keep customers informed of new productivity ideas and solutions. This is truly a strategic value-added opportunity that should not be missed because of staffing limitations, in terms of both numbers and scope, on the part of purchasing organizations.

Many purchasing departments are employing such devices as supplier councils and supplier fairs to assist in educating their customers on recent developments.

Be More Participative in the Planning Process. This strategic initiatives touches on the planning processes of both the purchasing departments and their internal customers. It is vital for purchasing organizations to include their customers in their own planning process for many of the reasons mentioned in the first strategic value-added initiative, greater involvement of customers. Developing a planning process with its associated goals and objectives without customer input would just be inviting trouble in the form of faulty priorities and wasted resources.

Customer feedback in purchasing's planning process can be helpful in identifying potential new products and services sought by the customers. It can also give customers a sense of ownership in the direction taken by their purchasing operations.

For purchasing departments to be included in the planning process of their customers is the ultimate in demonstrating customer acceptance of the role purchasing plays in that firm or entity. While purchasing has long been involved with the planning processes of manufacturing concerns it has only been in the past five years that internal customers in service industries see the strategic value of including purchasing departments in their planning processes.

Purchasing organizations can learn much from attending planning sessions of their customers, particularly when discussing long term forecasting of products and services. Such interactions give purchasing departments an excellent forum for showing value added opportunities to their customers and solidifying a true partnership.

Use Technology More Effectively. Nothing has impacted the way purchasing has been performed in the past one hundred years as the expanded role played by electronic systems and associated tools. At any purchasing conference the majority of suppliers presenting their goods and services are clearly oriented toward some aspect of technology. A few years ago we were all aghast at the operational advantages offered by such technology-driven factors as edi and the p-card. We are now faced with an abundance of e-commerce applications and systems. The use of the Internet for the processing of purchasing orders is no longer a yes or no decision but one based on when and which systems to employ.

The increased role of technology within purchasing also has a significant bearing on staffing. Today's purchasing professional needs different job skills than a few years ago. Many of these skills are related to understanding and appreciating the impact technology can (and should) have on the way purchasing does business. Technology can be an excellent tool of purchasing in striving to attain competitive advantages for the corporation.

Be More Results Oriented. How does your purchasing organization measure success? While many purchasing organizations utilize some of the same best practices, such as electronic procurement, purchasing cards, supplier measurement techniques, etc., there is a wide disparage among purchasing entities in identifying and counting critical success factors.

Measuring success can be a vital element in determining the feasibility of outsourcing a part or entire component of a purchasing organization. Gone are the days of tracking the growth of requisitions and or purchase orders. What is needed now are means to determine the productivity of purchasing organizations, especially in light of the impact of electronic ordering systems.

The Center for Advanced Purchasing Studies (CAPS) in their benchmarking endeavors has earmarked a number of potential strategic measurements that any purchasing department could utilize. Not only can purchasing departments track their own performance over the years with these measurements but they can compare their performance levels in these various criteria with standards in their own industries. The results of which could be valuable in demonstrating the importance of your particular purchasing operation to senior management.

Results should be reported periodically, such as monthly. These measurement tools should focus on productivity, effectiveness, staffing and savings. It is this last element, savings or cost reductions, that is at the very core of most purchasing departments. To add credence to your savings numbers you might want to establish a validation mechanism that solicits input or approval from such internal control entities as the auditing or controller's departments.

In Conclusion. Purchasing organizations need to be and stay dynamic. They need to have their fingers on the pulses of both their customers and their management. Purchasing departments must fully utilize the strategic tools available to them in the form of suppliers and technology. And finally their successes should be presented to all in the form of clear and concise results.


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