3 habits to re-examine when evaluating your procurement chain’s “strategicness”
In answer to the question, “Is your company’s purchasing department strategic?”, executives of many companies would tend to answer in the affirmative. But how certain can we be? Numerous elements need to be considered before we can qualify a purchase as being strategic. And preconceived notions about the strategic quality of purchases are just as numerous.
Let’s start by determining the difference between a “strategic” purchase and the strategic quality of the purchasing department. A purchase is strategic when it involves any procurement need that will directly affect the quality of the product or service that you offer. A purchase that adds value to the sale of the product or service can also be considered strategic. But when a purchasing department is said to be strategic, this defines the entire department as a strong link in your organization. The procurement chain can also contribute to your company’s excellence through the benefits it brings to the organization.
At first sight, one might think that a strategic purchase is represented by the following ideal transaction: purchase of a high-quality strategic product, reception within the desired timeframe of the maximum quantity of this product, obtained at low cost. Or one might think that a purchase is strategic because an efficient buyer places orders and has a talent for managing last-minute purchases. Although these examples are essential to the proper running of the purchasing department, they are not the only values that should be considered in determining whether the procurement chain is a strategic actor in your organization. Other indicators can help to confirm whether your practices are optimal.
Now let’s deconstruct three common habits in the world of purchasing and attempt to determine whether they really fit with the concept of strategic purchase.
Habit 1: Using the “three bidders” strategy
When launching a new project it is customary to call on three different bidders. They will offer the most competitive prices on the products you are looking for with the aim of becoming your suppliers. This practice is strongly encouraged because it ensures that the procurement process is meticulous and very often enables highly advantageous transactions to be made.
On the other hand, using the three bidders strategy is time-consuming and may not always be necessary for all transactions. Make sure you establish an enlightened procurement strategy from the very start of the project. By choosing suitable suppliers for all the needs of the project, you could avoid having to resort to the lengthy process of three bids for each request. Prioritize the “three bidders” strategy, yes, but only when the need is there.
Habit 2: Not renewing our vision of procurement chain management business practices
Choices of business practices are directly connected with the maturity of the procurement chain, and some choices are more profitable than others. First, it is important to conduct an analysis of your purchases. Identify the choices that are strategic, requiring specific handling internally, and those that could be outsourced. Also take the time to conduct an analysis of possible risks when making purchases: What are the capacities regarding deliveries? Will they meet deadlines? What type of market are you dealing with (monopoly, oligopoly, competitive)? How are the factors that influence purchase prices— such as market, stock market and labour costs— performing?
In addition, you must ensure that buyers working on your projects are adequately trained. It is vital for them to have received full training not only on your own working methods but also on the specific features of the various industries you deal with. Do you offer your buyers opportunities for training?
Habit 3: Failing to develop a purchasing strategy
Planning cost reductions daily or only when the need to purchase arises is a habit that can have serious consequences for the overall planning of your purchases. Unfortunately, this practice is more widespread than one would like to believe. Have you established a procurement strategy for your own purchasing department? How frequently are these strategies reviewed? It is important to be aware of your requirements in this regard. Once you have conducted the analyses mentioned in point 2, then set your priorities and your objectives, and establish the new steps you need to follow to improve your procurement practices. By establishing your own purchasing strategy in this way, your procurement chain once again become strategic and you will see the entire company benefit from the positive impacts.
“One size fits all? Not quite! Every procurement chain is unique!
Remember that procurement chains are not all the same. This means it is essential for you to be aware of your customers’ and your company’s real needs, and of your expectations of your procurement chain. Only then can the practices mentioned above be customized and adapted in light of what really suits you. At the end of the day, you will be in a position to develop YOUR best procurement chain management practices.
Have you any questions about outsourcing, or about the strategic quality of your purchases? Don’t hesitate to contact us for more information about our consulting services.
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