Inside every purchasing department is a profit center just dying to get out, and it's time your company recognized it.
For years, many upper management teams have regarded purchasing departments as administrative areas rather than strategic profit centers. Tired of this designation, many purchasing departments and their executives are looking to evolve their role to that of cost manager, rather than just buyer. Purchasing departments successful in this endeavor have paved the way for a new breed of purchasing professional — the procurement information architect — whose influence extends beyond ensuring the routine flow of materials. What's more, these architects are increasingly viewed as part of executive management teams, especially in manufacturing, where they often weigh in on key decisions.
The question is: how did they get there?
The answer: By demonstrating their purchasing prowess and conveying it to those in upper management; maintaining a focus on the three key imperatives — people, processes and technology; and ultimately gaining access to the tools they need to do away with the mundane and focus on the strategic.
The results of this transition — when purchasing professionals are empowered to make truly strategic contributions — are far from miniscule. A Gartner report, estimating the profit impact of purchasing and other supplier relationship management (SRM) approaches, predicts Fortune 500 companies that fail to adopt cohesive SRM methodologies by 2005 will see profits shrink by close to two percent as the percentage of sales dedicated to purchasing materials rises. In order for organizations to retain the competitive edge, a strategic approach to purchasing is not a nice-to-have — it's a must, and the purchasing department is often the primary catalyst.
Purchasing departments that have succeeded in impacting their companies' bottom lines have not done so without advanced tools, executive-level support and cross-company commitment. By now you may be asking, How am I supposed to mirror that level of success when I have little to no buy-in or understanding from senior management, my technology budget has been stripped to the bone and I have virtually no means of building an ROI case?
The answer is to start small and look to best practices.
In today's budget-conscious environment virtually all companies are holding tightly onto purse strings, including manufacturers who are traditionally very risk-averse and have been hit hard by the recent economic downturn. Any purchasing department that proposes a massive overhaul of its technology infrastructure is almost certain to encounter strong resistance and this is especially true for purchasing departments serving manufacturing companies.
In order to demonstrate their purchasing prowess and, ultimately, gain executive-level buy-in, purchasing departments may start by pinpointing one or more drivers of excess cost and complexity within their organizations. For instance, a particular purchasing department may see that purchase order (PO) processing takes way too long, consumes an unnecessarily large percentage of spend and requires extensive manual processes. This results in increased paperwork and the likelihood of human error, as well as decreased time that purchasing professionals can spend on more strategic activities, like negotiating contracts with preferred suppliers.
To start, a purchasing department should consider looking toward what are commonly referred to as best practices. Simply defined, a best practice is a proven process that delivers measurable improvements in efficiency and/or effectiveness. At the risk of stating the obvious, a best practice is marked by the following attributes: drives a measurable change in performance, is proven in practice, applies to a broad spectrum of organizations, exploits proven technologies and minimizes risk through effective controls. Best practices are synonymous with well-controlled and well-managed processes.