The Purchasing Professional - Future Culture/Future Role
Sheila Finn, CPP
Sheila Finn, CPP, President, Supply Chain Management Consultants, Toronto, Ontario M8V 3X9 Canada, 416-253-5557.
80th Annual International Conference Proceedings - 1995 - Anaheim, California
In the past decade, the competitive demands on our organizations have created a "Challenge of Change" for our profession. Never before have the expectations of our external and internal customers been so great. This paper focuses on the mindset, strategies and skills required to meet the challenge facing us throughout the next generation.
Information technology allows today's CEOs to instantly see the impact of their decisions throughout the supply chain. The good news is that senior executives have a better perception of purchasing's potential to improve margins substantially. The bad news is that they're still suffering from tunnel vision.
Medium and large organizations see purchasing as a necessary evil, a consequence of doing business, rather than as a prerequisite for success. Small organizations see purchasing differently. Since they must maintain tight control of cash flow and inventory to survive, small businesses appreciate the value excellent suppliers bring to their relationships. This different mind-set--prerequisite over consequence-- causes a cultural change most often found in "best in class" companies. And only by reaching out to be "best" will organizations retain a competitive advantage.
Big business is now learning that bigger is not better. "Small" is back in. Organizations are downsizing and focusing on core competencies. Many are restructuring as a network of small businesses. Our challenge is this: how do we capitalize on these opportunities?
The trends of devolving into strategic business units, empowering employees and reengineering business processes are coming together in a clear way for the first time. These changes require collaboration and synergy across functions and across businesses.
In this context, purchasing acts as a gauge for success. Significant improvements in the effectiveness of the purchasing process can achieve direct cost reductions. More importantly, it can influence the business's culture and overall performance.
Most purchasing organizations today are task oriented and operate in a centralized, decentralized or hybrid structure. The focus is on action, not strategy. Purchasing can be part of the new cultural climate only by adopting a strategic focus. This demands effective management of x-functional purchasing processes.
We must challenge the purchasing profession to its core. To do this, we must focus on STRATEGY, PROCESS AND PEOPLE.
To maximize purchasing's contribution to achieving organizational goals and, where appropriate, competitive advantage, a Purchasing Strategy should identify, select and implement an overall change plan designed to re-establish the purchasing process at the heart of the business.
Features of this strategy include:-
- rationale for the purchasing process
- performance standards
- framework for the purchasing policy
- organizational structure that maximizes organizational effectiveness.
BARRIERS TO BEING 'BEST'
- Limited top management perception of purchasing role, and insufficient 'license' to operate
- Out of date attitudes to purchasing among other functions
- Disabling policies, procedures and controls
- Hierarchical and parochial organizational structures
- Poor buyer skill-sets
- Buyers trapped in high volume of low-value activity
- Lack of infrastructure and systems to enable strategic activity
- Demotivated and unproductive supply base.
Being successful means a willingness to go beyond incremental change by reengineering your business processes. Reengineering focuses on processes and then measures resources and systems against the new processes. Your first step is to form a x-functional team of individuals who are key stakeholders in purchasing. This team develops the purchasing vision and plan that provides you with a new roadmap. The roadmap identifies the gap between the purchasing organization today, where purchase must be in the future in order to meet the organization's short and long term objectives, as well as the needs of your customers (internal and external). Once you have re-engineered the process, conduct an assessment of your organization (structure and people) and systems, then develop an implementation plan, including measurements, communication plan and monitor and reward systems.
CEO's often ask, "how can our organization sustain the advantages of 'big' while restructuring as a network of small businesses?"
The issue then is not "how to organize tasks" but "how to organize so that cross-business cooperation happens in a sustained way?"
We see three scenarios today:-
- Organizations that are decentralizing purchasing within the strategic business units believing that these decisions are best handled by those closest to the action. -- This provides better customer service.
- Central/decentralized organization with a central group responsible for
developing the supply strategies, managing the supply base, negotiating
major contracts, re-engineering the processes as required, developing
policy and procedures, and training and educating users and self. The
business units are responsible for managing day to day activity through
approved suppliers only. They order the goods and/or services, expedite,
receive and authorize payment. They also evaluate the suppliers.
Anticipated results: Better management of supplies, improved customer service, simplification and standardization of process and profit contribution. Some see this scenario as a compromise between a totally central and totally decentral organizations.
- Network consisting of empowered purchasing teams at the strategic
business units. Each team reports to its own business and handles all
the supply market issues, which enables that business to achieve through
the network team.
The leader of the network team is a Senior Purchasing Executive who sits on the management committee of the organization, provides vision, co-ordination, is the catalyst for change, insures collaboration across the business units and offers purchasing expertise and internal consultancy. This person conducts audits, provides feedback, and is ultimately accountable for the EFFECTIVENESS of the corporate purchasing process.
Anticipated Results: The network creates the local buyer interaction, causing strategy, sets standards, sustains best practices, champions purchasing, and provides process leadership. The Strategic Business Units are responsible for developing and implementing purchasing strategies. They have total ownership for the results.
In scenario 2, the central group controls and manages the supply base and the business units manage the day to day activity. In scenario 3, the network is a facilitator, coach, trainer and coordinator, whereby the business units devise and execute the purchasing strategies. The business units benefit from the synergies of a large organization but manage their destiny.
Which route your organization pursues has a direct relationship on how your organization perceives the value of purchasing.
"Best in Class" organizations are seeking scenario 3.
A network structure offers an organization these benefits:
- provides room for growth and flexibility
- applies to x-department within one business location or embraces global network
- provides flexibility as organizations grow and shrink without effecting network integrity
- allows for flexibility of local decisions about local organization structures, recognizing different sizes of strategic business units. Some business units operate more effectively in a centralized organization; others, decentralized; some small, some large. A network structure accommodates all.
This type of approach will challenge the mind set of senior management who respond to pressure by reducing numbers rather than creating new teams. The key is for senior management to see the importance of purchasing as the Entrepreneur does.
The CAPS study on CEO'S/Presidents' Perceptions and Expectations of the Purchasing Function (May 1993), tell us that many CEOs perceive Purchasing as "task oriented" and not strategic.
Many forces stand in the way - most in the mind set within purchasing and management. But this new thinking will create synergies while allowing for the uniqueness of each business unit.
The purchasing strategy as a management tool is capable of revolutionizing the business and realizing a vision of "being best".
The Profile of the Future Purchasing Professional is:-
An individual that possesses good human, technical and conceptual skills and has a general management perspective.
The individual will be better educated, adaptable, flexible, innovative, a good strategist, proactive, a good planner over and above being a good negotiator.
THE CHALLENGE IS OURS.