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Results Oriented Purchasing

Author(s):

Giles Wright, Jr.
Giles Wright, Jr., Vice President, ADR North America, LLC, Ann Arbor, MI 48106-0366, 734-930-5070, http://www.adrna.com, giles.wright@adr-international.com
William L. Michels. C.P.M.
William L. Michels. C.P.M., Chief Executive Officer, ADR North America, LLC, Ann Arbor, MI 48106-0366, 734-930-5070, http://www.adrna.com, bill.michels@adr-international.com

85th Annual International Conference Proceedings - 2000 

Introduction. Today's Chief Executive is no longer content to grow the top line to improve profitability alone. Demand for higher returns for shareholders are driving the modern CEO to grow top line sales and reduce bottom line costs.

Commodity Managers become Business Mangers. In business today, there is little value for a purchasing department that is merely managing transactions with a low return on investment. The new requirement is for commodity managers as business people with strategic vision, plans and results. It is not uncommon for a business to demand continuous cost reductions of 5% or more from the purchasing department. Commodity managers are being asked to manage cross-functional expenditure in companies where organizational difficulty is high and expenditure is extremely strategic and complex. How can a company be transformed to provide results year after year? The Results Oriented Purchasing strategic map below should be implemented.

Figure not available in text-only version of this article.

Baseline Assessment. The first step that must be sorted out is a statement of where the company is in terms of its purchasing evolution. Business issues, processes and practices should be assessed. Asking the following questions can help determine your company's baseline:

Business issues

  • Is there integration from the business plan through the supply chain?
  • What level of support is given by management/business to purchasing?
  • How is non-traditional purchasing done? What is the spend?
  • How are all of the buy plans non-traditional coordinated?
  • Does purchasing create business alliances?
  • What other business influences must be evaluated?

Processes

  • What processes support effective purchasing?
  • Is there a process for NPD (new product development)?
  • Is there a process to eliminate roadblocks?
  • Are there processes for reporting?
  • Are there processes for change?
  • What are the other processes that facilitate good purchasing?

Practices

  • What tools do buyers have? Do they include
  • Strategic purchasing
  • Source plans
  • Cost analysis
  • Relationship mapping
  • Portfolio analysis
  • Financial analysis
  • Global market research
  • What other practices do Buyers need?

External consultants have these baseline checkpoints and it is often cheaper to commission the study than develop these criteria and practices, but it can be done in house.

Gap to Best Practice. When a company develops the criteria of best practice, it is easy to overview a template and identify areas of strengths and weaknesses.

Vision. Once the weaknesses are known, a vision of where purchasing should be, can be developed. The vision should be short, to the point and clearly the end objective.

Reorganize for Success. A critical evaluation of purchasing must be made in line with the new vision. Normally, reorganization to get focus and direction is necessary. In many cases, the staff can meet the challenges of the vision, but in some cases, they cannot.

Introduce New Processes. The baseline highlights the poor processes and business needs for effective purchasing. A careful cross-functional approach to overhauling business practice is required.

Enhance Buyer Tool Kits. The baseline approach will highlight the needs to be developed. In many cases, project management, cost management, presentation, writing, financial, strategic planning skills require enhancement.

Create Metrics. Real, auditable metrics for buyer/supplier performance must be developed

Conclusion. A complete review of purchasing and close of gaps to best practice in today's environment of e-commerce, consolidation, integration, and other changes to the supply base will lead to Results-Oriented Purchasing.


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