Purchasing managers as cost killers or drivers of added value?

Why is saving money no longer enough? Most of us who started out in purchasing in the last century remember the heroic tales of brilliant managers who managed to reduce costs by tens of percent through a combination of market power, toughness, and cunning. In this golden age of cost killers, purchasing was judged almost exclusively by parameters such as hard savings, acceleration of the purchasing process, reduction of administrative costs, and reducing the number of buyers. Unfortunately, hard savings cannot be made indefinitely. There is always room for improvement, but tens of percent become percentages, and percentages become tenths, and buyers work harder and harder.

From confrontation to cooperation. With the arrival of the new millennium, the world changed, and with it the role and concept of purchasing. Tough negotiators reached their limits because even globalized supply chains cannot be squeezed indefinitely, and companies began to look for new sources of savings. In addition, it turned out that up to 85% of total costs can be saved in the pre-competitive phase, i.e., understanding real needs, quality specifications, and taking supplier innovations into account. In other words, a new source of savings has become "active co-creation of added value with suppliers," i.e., a wide range of tools that consider suppliers as a source of innovation in the form of new products and patents, optimization of cash flow, goods, and information, risk reduction, etc.

Requirements for purchasing infrastructure: Such a change in approach naturally means the need to fundamentally overhaul the purchasing department in terms of strategy, processes, tools, and buyer skills. Unfortunately, investments in the purchasing department are not usually a top priority for top management, even though they have one of the highest and shortest returns on investment of all departments, for one simple reason: the money is lying on the ground, but purchasing does not have the tools to pick it up:

• For simple components, introduce a simple catalog.

• For categories where you have a lot of competition, introduce multi-round negotiations.

• For critical components, monitor and secure volumes, but don't muddy the waters.

• For strategic components, you really need to work with suppliers, not just when you have a spare moment, but as a purchasing priority.

Let's look at what value-added collaboration means for both purchasing and suppliers:

(1) We need to create a platform with key suppliers where we can predict and actively manage risks before they arise, rather than just reacting passively:

Call or meet regularly to learn about commodity price forecasts, the impact of geopolitical instability on supplies, market dynamics in terms of supply and demand and capacity, volatility scenarios, and their impact on your end customers. It is clear that this will not be possible without data and at least basic analytical tools that will allow you to assess the impact of these risks and make the right decisions.

In Promitea, you can simply open a new "project" for each such initiative, where all the information will be in one place, the system will monitor deadlines, you can create an action plan and activate it whenever the opportunity arises. What's more, suppliers won't be able to "play for time" and hope you forget something, because Promitea monitors deadlines and the action remains open until you close it yourself.

(2) Each purchasing category must have clear objectives in terms of savings, innovation, risks, and potential opportunities.

Again, no complex system is needed. In Promitea, you set appropriate KPIs for each supplier, such as savings, impact on EBITDA, fulfillment of contractual obligations, quality, delivery dates, etc. The system finds the data in your system itself and you get a clear report that you can work with.

Beware of the common pitfall in purchasing, where we measure and report on things that no one cares about. If you want management to be interested in purchasing, measure things that really interest them and that have a real impact on their work and priorities: The CFO deals with price predictability, the CTO deals with availability and innovation, the COO is interested in quality and stability of supply, and you will win over the CEO by meeting company priorities.

And how can Promitea purchasing software help in this challenging transition from purchasing focused solely on costs to purchasing focused on both costs and added value?

First and foremost, it provides a real-time overview of all purchasing activities.

At the same time, it allows you to measure supplier performance in precisely those areas that are important to the company, in a clear and comprehensible report.

And once you have an idea, you can see it through to completion in Promitea. After all, there is nothing worse than a purchasing activity that is 90% complete! You have done all the hard work, but with zero tangible results.