The objectives of a world-class purchasing organization move far beyond the traditional belief that purchasing ’s primary role is to obtain goods and services in response to internal needs. To understand how this role is changing, we must understand what purchasing is all about, starting with the primary objectives of a world-class purchasing organization.
Objective 1: Support Operational Requirement
Purchasing must perform a number of activities to satisfy the operational requirements of internal customers (end users within the company), which is the traditional role of the purchasing function, More often than not, purchasing supports the needs of operations through the purchase of raw materials, components, subassemblies, repair and maintenance items, and services. Purchasing may also support the requirements of physical distribution centers responsible for storing and supports engineering and technical groups, particularly during new product development and outsourcing of key processes.
With the dramatic increase in outsourcing, enterprises are relying increasingly on external suppliers to provide not just materials and products, but information technology, services, and design activities. As a greater proportion of the responsibility for managing key business processes shifts to suppliers, purchasing must support this strategy by providing the uninterrupted flow of high-quality goods and services that internal customers require. Supporting this flow requires purchasing to
1. buy products and services at the right price...
2. from the right source…
3. at the right specification that meets users needs…
4. in the right quantity…
5. for delivery at the right time…
6. to the right internal customer.
Purchasing must be responsive to the material and support needs of its internal users. Failing to respond to the needs of internal customers will diminish the confidence these users have in purchasing, and they may try to negotiate contracts themselves (a practice known as “backdoor buying”).
Objective 2: Manage the Purchasing Process Efficiently and Effectively
Purchasing must manage its internal operations efficiently and effectively, including
·Determining staffing levels
·Developing and adhering to administrative budgets
·Providing professional training and growth opportunities for employees
·Introducing purchasing systems that lead to productivity improvements and better decision making
Purchasing management has limited resources available to manage the purchasing process, and must continuously work toward improved utilization of these resources. These limited resources include employees working within the department, budgeted funds, time, information, and knowledge. Organizations are therefore constantly looking for people who have developed the skills necessary to deal with the wide variety of tasks faced by purchasing.
Objective 3: Supply Base Management
One of the most important objectives of the purchasing function is the selection, development, and maintenance of supply, a process which is sometimes described as supply base management. Purchasing must keep abreast of current conditions in supply markets to (a) ensure that current suppliers are competitive; (b) identify new suppliers who have the potential for excellent performance, and then approach these suppliers with the objective of developing closer relationships; and (c) improve and develop existing suppliers who are not competitive. In so doing, purchasing can select and manage a supply base capable of providing performance advantages in product cost, quality, technology, delivery, or new-product development.
Supply base management requires that purchasing pursue better relationships with external suppliers and develop reliable, high-quality sources of supply. This objective also requires that purchasing work directly with suppliers to improve existing capabilities or even develop new capabilities. A good part of this text focuses on how purchasing can effectively meet this objective.
Objective 4: Develop Strong Relationships with Other Functional Groups
Industry has traditionally maintained organizational structures that have resulted in limited cross-functional interaction and cross-boundary communication. During the 1990s, the need for closer relationships between functions became clear. Purchasing must communicate closely with other functional groups, who are purchasing ‘s internal customers. If a supplier’s components are defective and causing problems for manufacturing, then purchasing must work closely with the supplier to improve their quality. Similarly, marketing may spend a great deal on advertising and promotion, so purchasing must ensure that pricing is competitive and that service level agreements are being met. In order to achieve this objective, purchasing must develop positive relationships and interact closely with other functional groups, including marketing, manufacturing, engineering, technology, and finance.
Objective 5: Support Organizational Goals and Objectives
Perhaps the single most important purchasing objective is to support organizational goals and objectives. While this sounds easy, it is not always the case that purchasing goals match organizational goals. This objective implies and that purchasing must concern itself with organizational directives. For example, let’s assume an organization has as an objective of reducing the amount of inventory across its supply chain. Purchasing can work with suppliers to deliver smaller quantities more frequently, leading to inventory reductions. Such policies will show up as improved performance on the firm’s balance sheet and income statements. In so doing, purchasing can be recognized as a strategic asset that provides a powerful competitive advantage in the marketplace.
Objective 6: Develop Integrated Purchasing Strategies That Support Organizational Strategies
Far too often the purchasing function fails to develop strategies and plans that align with or support organizational strategies or the plans of other business functions. There are a number of reasons why purchasing may fail to integrate its plans with general company plans. First, purchasing personnel have not historically participated in senior-level corporate planning meetings, since they were often viewed as a “tactical” support function. Second, executive management has often been slow to recognize the benefits that a world-class purchasing function can provide. As these two conditions are rapidly changing, increased integration of purchasing within the strategic planning process is occurring in multiple industries. A purchasing department actively involved within the corporate planning process can provide supply-market intelligence that contributes to strategic planning. Effective supply-market intelligence involves:
·Monitoring supply markets and trends (e.g., material price increases. Shortages, changes in suppliers) and interpreting the impact of these trends on company strategies
·Identifying the critical materials and services required to support company strategies in key performance areas, particularly during new product development
·Developing supply options and contingency plans that support company plans
·Supporting the organization’s need for a diverse and globally competitive supply base