Purchasing should become more strategic - how can this be achieved?
I was asked to restructure the purchasing organisation in a company: "Turn purchasing into strategic purchasing". The path should lead away from operational to strategic purchasing, the employees should now be encouraged to work proactively. In the first discussions with the buyers, it immediately became clear that this was exactly what they wanted. They wanted to work strategically and not enter data into Excel spreadsheets all day. If the company and the employees want the same thing, what is the reason that it does not work?
One employee said to me: "I would like to have the time to talk to my suppliers about what we are going to do in the next weeks and months. But I don't really know what we have in the pipeline - we don't get any information from the top." So here is the gap between the information from the top and what procurement has to do or can do.
Shutterstock.com | Marko Aliaksandr
Purchasing belongs on the board and in management meetings
A first clear and good solution is that strategic purchasing and project purchasing must be members of the board. This way, information on the market, production and future planning can flow. This can be done via the purchasing management to the individual buyers in order to create action plans. But this information gap must be closed immediately. My proposal for the company was that purchasing should be part of the management meetings from now on. Up to now, the meetings have included people from Sales and Controlling, Development and Legal as well as Human Resources - so why not include colleagues from Purchasing and Logistics? This does not mean that 20 or more people now have to take part, but a department or group head who passes on the important information to close the gap.
It's all a question of goals
In order for purchasing to take on a strategic role and be a strong internal partner in corporate strategies, it also needs information about the company's goals. What direction will the company take in the next five years? What has the management planned? From this, the purchasing goals can be derived and, in turn, the purchasing policy and strategic orientation. If the company's goal is to optimise the profit situation, then the goal for purchasing is to minimise procurement costs. It acts accordingly - in the market, towards suppliers, in negotiations, etc. If the company's goal is to expand production, then it becomes clear to Purchasing that the team has to open up new markets together and look for new input material on the market. This requires a completely different orientation than reducing procurement costs. Here, it is necessary to conduct market research and look at new markets where the input material can be procured. However, it is of little help if the head of operations from production was at the management meeting and received this information, but purchasing only finds out about it two years later. Then the alarm goes off immediately and the same action is taken as would otherwise be the case in an emergency situation - and that only because of missing information. The fact is that such an emergency situation first costs the buyer money that could have been saved. Another business objective can be to improve the supply of raw materials. This is a hot topic in many companies today. Here, the purchasing manager has the task of further developing the raw materials market with his team and identifying efficient sources of supply. However, this is not only possible from the desk, even if a lot is already possible from there. Personally, I always tell people to go to trade fairs, look at production facilities, travel to other countries, talk to suppliers and partners.
The objectives of the entrepreneur clearly have an impact on purchasing. The challenge is to see and accept purchasing internally as a partner at eye level. We have to build up the purchasing organisation and our employees in such a way that they are able to enforce such target agreements in the market.
Insight leads to strategic purchasing
In our case, the management was not very enthusiastic when they heard from me that the buyers cannot completely strategise on their own. They did not like the idea that something also had to change in the management for this to succeed. But there was an understanding, purchasing became more involved, took part in management meetings and was thus able to align itself strategically with the company's goals.
What is your experience with strategic purchasing in your company? Is there still room for improvement and do you not know exactly where to start? Let's get into an exchange about this. Gladly on LinkedIn or in a personal meeting.
You can also listen to more on this and other topics for future-proof strategies in purchasing in my podcast.