Six Key Areas Every Purchasing Expert Should Address
There was a time when purchasing was a relatively straightforward task. You found the best price at the best terms and negotiated a contract. Signed. Sealed. Done.
Sorry to say those days are long gone.
When considering the company’s needs, you need to look very closely at the current economic conditions and trends, and base purchasing on factors that include price, brand, spend distribution, raw materials, and prevailing market trends to name just a few.
Once you’ve looked at all of these factors, then you can make timed purchasing decisions. If this sounds daunting, the reality is that every purchasing manager should have the unique skill of determining timed purchases.
Simply put, when the economy is tight or in uncomfortable flux, you should be placing short-term spot buys. When the economy is good, you have the luxury of planning far out and thereby making long-term purchases. Regardless of whether the economy is good or bad, however, you should always avoid impulse buys. As the person in charge of purchasing, you should always distinguish between wants and needs.
Here are the key areas that every purchasing expert needs to address:
1. Market trends. Is unemployment going up or down? Higher unemployment probably means lower consumption. It can also mean a reduction in manufacturing, so you may need to secure capital equipment to guarantee delivery. How are interest rates trending? If they look like they’re climbing, you’ll want to secure your needs at the prevailing lower rates to save money for your company. If your supplier is a public company, see how they are trending in the market.
2. Raw materials indexing. For those in the transportation industry, we’re always concerned about the fluctuating prices for rubber, steel, copper, aluminum, and, of course, oil. A sharp increase in any one of these might indicate a coming shortage. Less rubber can mean more expensive tires. A decrease in steel availability could mean an uptick in truck costs. You need to stay aware of global, economic, and political changes that can affect any of the raw materials you depend upon.
3. Distribution channel. Do you buy directly from the manufacturer, or are you making your purchases through a distributor? You need to know the level of support and service the distributor can rely on from the manufacturer. If you’re dealing with a local dealer, you need to ensure that they have the pull to get the product and services you need, when you need it.
4. Outsource to experts. There are so many service providers out there who can focus on specific areas better than you can. They may have better leverage due to quantity ordering. Their relationships with multiple suppliers may give them preferential pricing you can’t realize. On specific higher-cost items, this may be an ideal alternative to handling it yourself. Bottom line: outsourcing can reduce labor costs and increase your access to expertise. There may be an incremental increase for the service but when you measure ROI, it should become clear that this was a correct move.
5. Network with peers. Nothing exists in a vacuum. Know what others in your position are encountering. Whether it’s a company gathering or industry symposium, you should meet once or twice a year with colleagues to discuss the issues that are affecting your purchasing decisions. It can be an in-person gathering or ongoing online communications. It’s important to keep the lines of communications open.
6. Develop collaborative relationships with suppliers. This is where your personal skills are vital. Your suppliers should be looked at as an integral part of your business, and they should be treated that way. Good relationships with your supply base will help you manage your purchases. Often, your suppliers have access to information that is just not available to you. This information may influence your purchasing decisions. You should also create a tiered supplier base. Depending on a single source could prove devastating. Companies go out of business; natural disasters shut down manufacturing or close distributorships. Be prepared. The tiered supply chain can save you from an economic or customer service disaster.
Big changes are coming for procurement specialists in the future. But managing the factors above is a major step in the process.