Achieving excellence within the purchasing department requires the right mindset, technologies, processes and a clear strategy.
It also requires the purchasing function to be embedded within the operation of the business, engaged and invested in the Continuous Improvement culture of the organisation. All too often, the purchasing function is managed centrally, in a head office far away from the factory floor, physically removed from operational processes and even further away from the customer requirements.
However, proactive purchasing leaders with a truly hands on approach to production planning and in-depth insights into business operations are emerging. Building the CI mindset into each process from end to end and developing strong supplier relationships that agree and achieve mutually beneficial goals.
We put together this advice on how purchasing professionals can develop a strategy towards CI and improve both their own and the business performance.
- Embrace technology
In a recent study from MHI/Deloitte, 61% supply chain leaders felt automation of the P2P process would play the largest role in determining the effectiveness of a procurement strategy. Granted, this automation will remove some of the repetitive tasks from the procurement team, however it’s what they do with this new-found time that will make the real difference.
- What insights does your data bring?
The importance of analytics is well known. Many organisations have experience with spend analytics, however this is often limited to sporadic spreadsheets provided by the finance team on request – outdated by the time it is received. Better is technology that enables visibility at category and supplier levels with ‘live’ spend levels across invoices, POs, PCards etc..
Today however, more data is available than ever before and companies are increasingly operating within a data eco-system that includes their own internal operations and sales departments, but also external bodies such as suppliers, resellers, channel partners and industry bodies, even including customer data from social, mobile and other publicly available data.
Bringing more data to the table enables procurement organisations to make better, quicker decisions – for example improving visibility of commodity availability or product-sales demand can forecast price fluctuations and reduce stockouts.
- Increasing Competition versus Supplier Relationships
In conflicting studies from Deloitte and Proxima, increasing competition and supplier management came out as top levers for CPOs. While maintaining healthy and prosperous relationships with key suppliers is critical, managing hundreds of infrequently used suppliers is overwhelming and sucks precious time out of the business and has a knock-on effect on other departments – like accounts payable, manufacturing and inventory.
Managing less suppliers leads to better quality, deeper relationships that function more like partnerships, where both companies grow together with mutually beneficial outcomes.
In rationalising suppliers, complete a Pareto analysis of your current suppliers ranked in order of annual spend. Analysis of your data will tell a story about your supplier performance. Certain suppliers can be eliminated with no impact on your company. Key suppliers can be ranked on performance against your purchasing KPIs and the business benefits and not the loyalty or familiarity of the relationship (don’t forget that many suppliers have sales teams whose sole job it is to build a warm and fuzzy relationship with you and your team, regardless of how good quality their product or service is).
This approach reduces complexity and gives you time to think and implement a robust CI initiative that delivers effective change.
- Shared and mutually beneficial goals
Many purchasing leaders create a collaborative “Partnership Handbook” containing all the guidelines for becoming an approved supplier. This can include purchasing policy, KPIs and service evaluations and quarterly performance reviews.
The most effective handbooks come from a collaborative approach – engaging with the suppliers at the outset to draft the handbook, sharing your and their goals and strategies and developing the KPIs to ensure both businesses develop and grow.
Communicating your CI initiatives will help eliminate complexity, cost and waste from your procurement process, however CI is not a quick win. The first year, there is lots of admin, management and activities, the second year will see some benefits and the third year will see significant improvement and gains both for individuals and the business as a whole.
Author: Ian Yates, Founder of Barcanet - Ian has over 25 years experience of using technology to help businesses achieve competitive advantage - reduce costs, automate processes and create efficiencies. Barcanet analyses over £22bn supplier spend. To book a call with Ian e-mail him on info@Barcanet.com