Developing a Supply Chain Rather than “Buying”
To be strategic, Purchasing needs to set challenging objectives and demonstrate results. They need to be developing supply chains and not merely buying products. They need to know the products they are buying as well, or better, than the companies supplying them. They need to be looking at total cost of ownership instead of being forced to the myopic view of lowest piece price.
Don’t Wait to be Asked to Contribute
As important is it is for Purchasing to be strategic, an organizational structure is not going to change to create a void for Purchasing to backfill. Instead, the Purchasing team will have to get strategic and demonstrate their value to create their own space in the leadership of the organization. I once heard, "what you do speaks so loudly that what you say I cannot hear".
It takes things like: get an organization that is convinced that lowest landed cost is the best metric to assess a buy to consider total cost of ownership by factoring in elevated warranty, containment and premium freight expenses with the "lowest cost" bidder. It can be an uphill battle, but with budget and forecasting upside, Purchasing can demonstrate strategic value if the company focuses on the long-term big picture. Of course, leadership that only focuses on the current quarter results are not likely to appreciate Purchasing's potential strategic contribution.
Department Metrics or Organization Optimization?
The optimal Purchasing department needs to think beyond procurement. They’ll need to know how the business operates, the business needs and goals. In an organization that rewards and punishes based on departmental metrics, it takes courage to optimize the organizational metrics instead of sub-optimizing the Purchasing performance indicators. However, to have strategic impact, Purchasing must learn to provide solutions to the organization while providing purchased goods to run the operations.
The department that only focuses on Purchasing metrics will only be brought in at the last minute for “the buy” and the function will be administrative. Purchasing has to work with the cross functional organization and bring solutions to make them successful. Purchasing has to insert itself in the process early so they can strategically influence the direction.
Hire and Train for Strategy
For a manager that wants their procurement group to be strategic, you need to hire the best people you can find, train them, and require that they continue to invest their time in building their knowledge and skills so they can think and operate strategically when they have the chance. The objective is to build a group where the internal cross-functional team members want to come to it for help and expertise rather than just issue a purchase order. To maximize value for the organization, the hiring and job descriptions must match the ambition. Traditional Purchasing clerical skills must be preceded by working knowledge of Program Management, Sales, Quality and Operations.
1) A Purchasing department that would be strategic will have to focus on developing a supply chain rather than “buying”.
2) They’ll have to take the lead and start contributing strategically where they can before the rest of the organization asks them. The skill has to be evident to create the need for it.
3) The strategic Purchasing department will need the courage and self-confidence to prioritize Company performance over departmental metrics.
4) Finally, the people on the team will have to have the skill and experience to contribute strategically. So, the hiring and training will have to be focused on the objective.