Purchasing has gained respect and recognition in many organizations. Successful companies have dedicated procurement departments with the resources and support to enable significant contributions to the bottom line. Once considered paper-pushers, today supply professionals — by which buyers, purchasers, and procurement personnel are now called — are enabling companies to maximize value.
Many smaller companies have, of course, small supply management departments, usually consisting of several people or even just a single person. Some firms might not have any dedicated, well-trained supply professionals at all. At these organizations, various personnel (including administrative) and departments are doing their own research and even ordering — perhaps even the head or owner of the company itself.
At smaller organizations and even many larger companies, still, the purchasing function is not fully understood or there might be misconceptions of what supply professionals do. There are still too many situations where the supply professional is overlooked or doesn’t receive respect and senior management labels the department as a cost center instead of a profit center. Many a supply professional know they can add a lot to the success of those orders had they been involved in the purchasing process.
How is purchasing critical to an organization? Let’s count the ways. Today’s supply professional:
- Protects the legal interests of the organization by understanding the terms and conditions of the purchase order contract and working with suppliers to gain agreement
- Works with internal customers in providing accurate material and service costs so that budgets are based on sound numbers
- Works closely with internal customers to purchase their requirements legally, ethically, timely, and at the lowest ultimate cost
- Recommends when, from whom, how much, and the timing of purchases to minimize costs, beat price increases, prevent shortages, and minimize inventory levels
Develops requests for bids and proposals that foster the opportunity for qualified suppliers to gain business
- Analyzes volume purchase decisions to ensure inventory carrying costs, transportation expenses, and transaction fees don’t eat up the volume savings
- Suggests standardization, consolidation, vertical and horizontal integration, and outsourcing opportunities that improve the organization’s management of materials
- Conditions suppliers to set up cost-containment efforts and to justify all requests for price increases with documentation
- Requires all price increases to include what components increased and why and how much
- Expects a price decrease on products that the number of labor hours has decreased due to the concept called the learning curve
- Understands the product import process and is able to put together an accurate total landed cost for management to review
- Uses total cost of ownership as a tool to identify the true cost to do business with a supplier
- Recommends when and where offshoring, onshoring, or insourcing is the best decision
- Ensures that critical suppliers are in sound financial condition to prevent supply disruption
- Works to ensure that the best suppliers are selected, evaluated, developed, and managed so that the organization also gains value-added opportunities
- Implements strategies to prevent disruptions, minimize impacts, and recover rapidly
- Recommends the right number of suppliers, their locations, and relationship type to best support the success of the organization
- Aligns supply decisions to support the core competency, critical success factors, business model, vision, mission, objectives, and goals of the organization
This is a good start in describing what supply professionals are and how they can contribute or should be contributing to your organization.
If you already have a supply department, is it delivering points 1 to 18? If so, you should be seeing the positive impacts on your bottom line. If not, find and take hold of educational and learning opportunities for your purchasing staff to bring them into the 21st century of procurement. All of this can all be learned and easily put into practice with a rapid return on investment.
Marilyn Gettinger is owner and principal of New Directions Consulting Group, which works with organizations on improving their supply chains through process streamlining and reengineering. New Directions Consulting Group offers workshops and consulting to companies from 30 employees to multinational corporations to upgrade purchasing, inventory, and supply chain processes. Gettinger, who earned her MBA from Fairleigh Dickinson University, teaches total quality management, supply chain management, and international trade at several post-secondary schools. She holds a C.P.M. and is a member of the Institute for Supply Management and the American Production and Inventory Control Society.