Buying Gets Strategic!
Welcome to the new strategic buying! Purchasing has been elevated from an administrative function to a strategic business driver and this has important implications for sellers.
(a) The Strategy Behind The Purchase
Managers are required to demonstrate how projects and purchases fit with strategic priorities and drive business performance.
That is because major purchase decisions made by managers and their departments can have important strategic implications for the entire organization.
With a diverse portfolio of projects and purchases competing for scarce organizational resources organizations must reflect their priorities in their purchases, based on business need and impact.
Buying decisions that previously focused principally on the ‘what’, ‘where’, ‘when’ and ‘how’ of major projects and purchases, have now been re-focused in terms of the ‘why’, that is the business case, or rationale.
(b) Purchasing As A Strategic Function
Ensuring the buying decisions reflect strategic choices is at the core of modern purchasing.
Purchasing once an administrative function at the periphery of the organization is now seen as playing an important strategic role. That is because, with purchases of goods and services accounting for 20%, 40%, or even 60% of turnover, purchasing can have a major impact on business performance.
The performance, flexibility and innovation of all the members of an organization’s supply chain can have a major bearing on its success. Thus, by getting better at purchasing organizations can drive superior business performance through the more effective management of buying decisions, suppliers and projects.
(c) The Revolution in the Purchasing Department
Previously purchasing was a bureaucratic department that completed transactions and managed the associated paperwork. Now it is considered to be an integrated function, which aims to ensure professional buying skills and practices are applied to all corporate buying decisions organization-wide.
How the role of purchasing has changed is summarized in the table below.
|The Revolution of The Purchasing Function|
|Traditional Purchasing||New Age Purchasing|
A Stand-alone Department
A Organization-wide Philosophy
Procedures To Follow
Better Decisions – Business Case
|Lowest Cost Bid
Finding the cheapest source
|Total Cost of Ownership
Value, flexibility & innovation
|Relationships: Adversarial and Reactive
(e.g. that batch is rejected)
|Relationships: Collaborative and Proactive
(e.g. how can we improve quality)
|Controls Buying Decisions||Coaches, Guides Buying Decisions|
(d) Purchasing – The Managers Friend
From seeking to control all buying decisions, purchasing is seeking to be the manager’s ally and friend. It increasingly acts as a buffer to shield managers from the unwelcome attention and undue influence of vendors. It also assumes the role of ‘buying police’ – protecting the organization from opportunistic vendors and bad deals. Its mission is to deliver a more sophisticated, structured and scientific approach to how purchased decisions are made.
1. Vendors must ask how they can impact on the performance and further the strategic goals of the buyer’s business. They must see the bigger picture –that is their sale in its wider project, or strategy context.
2. Sellers must recognize the role of purchasing in the buying process and abide by its rules.
3. Vendors must increase their importance to their customers, progressively transitioning from the role of supplier to strategic partner.