The purchasing function provides services to internal businesses and functions as well as to other companies. Based on a recent benchmark survey, commonly provided services include:
- Strategic: Sourcing goods and services, supplier management, risk management, value analysis, supply strategy, and spend analytics
- Operational: Account payables, contract management, purchase order processing, supplier scheduling, and supplier tracking
What is interesting is that purchasing is similar to sales in at least two functions: providing services and attending to clients.
Sales and Customers
In representing a company, a salesperson provides goods or services to the customer/client, employing a work process to better assist the clients. Step one is to perform client segmentation to identify the strategic, preferred, and tactical clients. Each business within the company gets to define its own strategic clients.
Strategic clients are those you must give more attention, provide more services, and engage the leadership more frequently. It is well known that strategic customers will receive periodic visits from directors, vice presidents, and even the CEO.
For strategic customers, salespeople provide market information, bring new products, discuss price trends, collect strategic insights for future development, and propose dashboards to follow up on the projects and metrics agreed to by the customer.
Given all this attention to strategic customers, why don’t purchasing organizations follow a similar framework with their internal clients?
To create effective client engagement, companies must have three guiding principles: Accountability, clear interface, and governance.
- Accountability: Clear roles, responsibilities, and metrics for both purchasing and clients
- Clear Interface: Client meetings that are well defined and clearly managed
- Governance: Established mechanisms that ensure alignment at all levels across the organization
Following these guiding principles will improve your relationship and credibility with businesses and functional clients. More important, it will elevate purchasing’s stature and obtain a seat at the table for strategic planning and decision making.
Just as sales has different businesses, purchasing has different commodities, such as raw materials; packaging; logistics; maintenance, repair, and operation (MRO) supplies; capital; and others. For each one, we can define the strategic clients.
For each commodity, I recommend developing a current-state baseline, performing a gap assessment, and then defining a prototype for further rollout implementation.
The baseline is developed through a series of 30 client questions. For example: What is procurement’s role in this process today? What metrics are being used to measure procurement performance? What interfaces with the partner are used as part of this process? Is purchasing a part of strategy development and the budget-setting process?
Each answer will have a score, and the overall score gives the current-state baseline. Comparing the current state with the ideal engagement model, you can assess the existing gaps.
The ideal engagement model is to have sourcing teams reporting to sourcing councils, which in turn report to an executive council. Each level of purchasing is engaged with a corresponding level from the business or functional clients.
Each council has a clear definition of participants, roles and responsibilities, and frequency of engagement. Each council then defines its respective dashboards with a spend profile, commodity dashboard, strategic alignment, spend to be sourced and benefits (savings/avoidances), and specific client metrics.
A yearly satisfaction survey will check how well the engagement is working and be compared to the baseline established at the beginning of this journey.
For strategic clients, the objectives of client engagement should be to:
- Assure strategic alignment between purchasing and clients
- Engage clients in sourcing and project management
- Engage clients in supplier management
- Engage clients in target setting and performance management
Our recent benchmark survey detected that 82 percent of companies have some kind of client management activity in place. However, only 33 percent perform a satisfaction survey.
With this in mind, there are several questions you need to consider: Do you have strategic clients? Do you have a formal engagement with these clients? Do you measure client satisfaction?
If you can answer yes to these questions, you have an effective purchasing organization with regard to client engagement. If not, you should start thinking about how to engage in this journey so that both purchasing and clients can benefit from it.
Paulo Moretti is Principal with PM2 Purchasing Management Consulting, a boutique consulting company focused on excellence in the purchasing function for manufacturing industries. He has more than 12 years of international purchasing experience with a Fortune 50 company. There, he was able to transform a global purchasing function from tactical to strategic. Previously, Paulo developed experience in such diverse areas as manufacturing, R&D, sales, marketing, finance, strategic planning, and e-business.
A native of Brazil and now based in the U.S., he holds a bachelor degree in chemistry and chemical engineering, with master’s degrees in industrial management and in business, and executive course certifications at Kellogg, Wharton, and MIT Sloan.
This article was originally published at My Purchasing Center and has been republished with permission. For more stories, visit MyPurchasingCenter.com.