Purchasing Performance

Measuring, Marketing and Selling the Purchasing Function

Derek Roylance

• Publisher: Routledge
• Year: 2016
• eBook ISBN: 9781317073147
• Topic: Business
• Subtopic: Operations
• Index: Business

If the only measure of your organization's purchasing performance is forcing down prices from suppliers then not only is your purchasing team failing to add value, they may also be damaging your supply chain and the medium to long-term competitiveness of your organization. Derek Roylance's Purchasing Performance - Measuring, Marketing and Selling the Purchasing Function is a blueprint to help you identify the performance measures and marketing expertise that matter for your purchasing team. Buyers don't exist in isolation but often find it easier to focus excessively on the external market place leading to neglect and subsequent alienation of their internal customers. The book recommends operating the function as a business within a business. Part of this approach is to increase market share by better internal marketing and selling of their procurement expertise. The author provides practical methods for measuring purchasing performance and then communicating effectively - to the whole organization - the contribution the function can make to increase competitive advantage, profitability and all-round efficiency. In an intensely competitive world marketplace, purchasing can only achieve its true potential if it can persuade top decision makers that it will pay them to involve their procurement specialists in all major strategic decisions; the book shows how to achieve this top-level influence.

CHAPTER 1

INTRODUCTION

THE ROLE OF PURCHASING

Some parts of this book are designed to arouse controversy and debate; however, few will disagree that the very essence of the buying process is about consistently locating the best suppliers to provide the best products and services at the best overall value. Just how these admirable goals are achieved is a completely different matter and far more complex than most people envisage. For a start, people are involved, and buying probably forms part of the human genetic matrix because trading is an activity that has been going on throughout the evolution of our species. It is all too often an innate emotional activity that people indulge themselves in and it can lead to business decisions being made based on feelings and subjectivity – something that does not sit well with the training to deal only in facts and objectivity that purchasing professionals receive. Right away we can begin to see a clash of cultures start to develop between internal customers who like to buy intuitively and instinctively and purchasing professionals who are seeking to apply commercial acumen to the process. However, it is the very term ‘customer’ that dictates it is the purchasing professional who must seek to bridge the gap and persuade internal customers that their expertise is worth employing. Better marketing and sales must be the key – something that the profession has to date not been very good at.

BUYER ATTITUDES

When buyers get together on courses, conferences and the like, even if they are from very diverse backgrounds, it is interesting to observe that the conversation at meal times or in the bar in the evening will nearly always revolve around a couple of recurring themes.

The first frequently discussed theme will inevitably be about ethical issues such as the crooked deals or scams that one or two dubious suppliers are currently hawking around. Stories like someone knows buyer X has accepted from supplier Y a two-weeks all-inclusive holiday in a company apartment in Monaco. Someone else knows about organization Z where brown envelopes are being accepted by buyers in return for the continuation of an overpriced deal for consumables. Gossip about corruption is grist for the mill and will certainly break the ice at any gathering of buyers. However, whilst acknowledging the importance and fascination of the subject, this book will deal with ethical issues in only one chapter: in context, it suggests that maintaining a reputation for the highest business standards is also a vital element in successfully marketing the profession.

The book will, however, address in depth the second recurring theme of buyer to buyer conversations, concerning the claim that the worth of the purchasing function is never adequately rewarded and recognised by top management. The cry always goes up that the profile of buying needs to be raised and better represented at executive level – something that never quite seems to happen in most organizations. Buyers also point out, sometimes with justification, that this lack of top-level representation and recognition is reflected in salary levels being lower than peer group colleagues in other disciplines. Recent salary surveys do not, however, entirely back up this wage gap folklore.

Back in the office at informal gatherings around the photocopier, after the subjects of the latest juicy gossip and office politics have been exhausted, the debate will sometimes turn to work and when this happens will often involve a collective denigration of ‘maverick’ buyers. In this context the aforesaid office will usually mean a purchasing or buying department with the staff earning their living by being wholly employed in some purchasing related role. They will invariably refer to themselves as purchasing professionals and other people around the organization who undertake some buying as a peripheral part of their main job activity will be labelled amateur, rogue or maverick buyers. The assumption being that professionals should be responsible for all the purchasing because the mavericks do not know what they are doing, the constant cry is ‘oh why does the organization not realize this’? We are back to recognition and profile issue again.

THE PROFESSION

If an ambitious young graduate has ambitions to rise to the top, there are far more sales or finance directors on the boards of organizations both large and small than there are purchasing directors – so perhaps their motto should be ‘better aim to sell or count young man’!

The profession has nevertheless achieved tremendous strides over the past few years, especially in the field of raising academic standards and increasing acceptance of the importance of examination results. In the UK for instance the three Chartered Institute of Purchasing & Supply (CIPS) qualifications of Foundation and Professional stage examinations plus the option of a Graduate Diploma have been widely acknowledged as being the yardsticks for measuring and raising professional standards. As evidence of this the majority of job advertisements now specify a requirement for CIPS qualifications. It is not so long ago that Richard Lamming at Bath was ploughing a lone furrow holding the only Chair in Purchasing in a British university; now there are a plethora of Chairs with several universities offering Masters of Business Administration (MBAs) and masters degrees in procurement.

Of course the UK experience is not unique. In the USA the National Association of Purchasing Managers (NAPM) has engineered a similar academic revolution, as have our colleagues in Europe and other parts of the world. The academic progress that the profession has made of late is certainly something to be shouted from the rooftops. The question remains, however: has this academic progress been reflected by the profession operationally? Most of us would say ‘not as much as we would like’. There certainly still appears to be some lagging behind in the practical application of the theory in our profession.

Perhaps it can also be said that purchasing management training is currently too narrowly focused on specialist skills exposing a gap in all-round business acumen that may become apparent at the board room strategic level. It can therefore be anticipated that in general a Managing Director would be more likely to accept advice on running the entire business from a Financial rather than a Purchasing Director.

BUYERS AT WORK

There is a wide variety of ways that buying is handled across both the private and public sectors and apart from some basic procedures there is no perfect way of carrying it out. In practice we are employed in a ‘horses for courses’ profession. Some of us are working in the Stone Age whereas others, such as the automotive, electronic or fast moving consumer goods (FMCG) sectors, are operating in a state-of-the-art supply chain environment.

As examples, consider a lone buyer juggling stock record cards in a small engineering company fire-fighting late deliveries, compared with the sophisticated manufacturing resource planning (MRP) computer systems operated by buyers at Toyota, Ford or Nissan. In the public sector there are also tremendous differences in the way that buyers work. Compare for instance the basic methods employed by some small local authorities with the most advanced areas of NHS procurement. However, at both ends of the scale, whether private or public, the show must go on!

Whilst being cognisant of the wide diversity that exists in the profession, it must be not be used as an excuse to rest on our laurels and give up on pushing the profession forward across the board. There are many acknowledged but neglected best-in-class methods that can be made to work in most purchasing environments, given application and effort. Few for instance would disagree with the statement that ‘purchasing is more effective working proactively rather than reactively’. In other words, the earlier buyers get involved, the better the outcome. We all know this but how many of us are still spending far too much time chasing our tails and fire-fighting?

Buyers as a whole will quite rightly preach the message of objectivity and fact-based decision making. However, as human beings, try as we might, we cannot ignore the fact that emotions and feelings will inevitably also be part of the equation, often at a subconscious level. Sales people are trained to understand and exploit these hidden and silent parts of the human psyche. By the same token buyers who wish to improve their people skills would also do well to equip themselves with the means of interpreting the subtle silent messages that we give out and receive all the time using our body language.

SKILLS

If we define the profession as consisting of people who earn their living by being involved in buying, there are tremendous differences in the skills and expertise levels available.

On the one hand there is a requirement for a great deal more training of existing staff which is properly targeted to meet job needs as organizations adopt a more enlightened view of procurement. On the other hand it is pointless parachuting in bright, highly qualified young graduates if top management do not have the vision to organize a progressive career structure to employ them effectively.

MEASURING

Traditionally the profession as a whole has not been very good at measuring its own performance. When consultancy work is being undertaken, it is a constant surprise that when buyers are asked how much their spend is per annum they often struggle to come up with an answer. Surprising because most buyers will readily acknowledge that without having basic figures available such as:

• how much? (Total spend)

• who is spending it? (The decision makers)

• on what? (Products or services purchased – spend on each commodity grouping)

• with whom? (Spend with each supplier)

it is impossible to even begin to assess the contribution that the function is making to the organization. In the commercial world the major aim of purchasing should be to contribute to increasing both profit and competitive advantage. Translated into public sector parlance these major aims are to stretch budgets further, or even underspend them, coupled with striving to achieve continuous improvement in the quality of the goods and services obtained.

Even if buyers do take on board the importance of performance measurement, and computerization is making the financial analysis much easier, unless the information is presented to internal customers in an attractive and interesting manner, significant progress will not be achieved.

MARKETING AND SELLING

Buyers are wasting their time constantly complaining about their status within the organization being low and that their skills are not being recognized unless they are prepared to question why and decide what they can do about it. The first question must be: how good is purchasing at marketing itself? The answer must be: not very good, because very often it is far too busy reacting to external events that come along as a series of continual surprises. Some people even enjoy fire-fighting and treasuring piles of paper work!

It is far more comfortable to focus one’s gaze externally when suppliers, desperate to gain attention and influence, strive to make life easy and pleasant at all times for the buyer. By contrast, internal customer colleagues can be difficult and extremely demanding in their expectations of the buyer. No wonder therefore that there is a preference to spend more time than may be strictly necessary on looking outside the organization, but this is at the risk of neglecting and alienating internal colleagues who collectively pay the wages and affect career prospects.

It becomes paramount to make progress that Purchasing as a function must re-orientate itself to pay more attention to the internal dynamics of the organization. This initially means finding out precisely what internal customers are requiring – their true wants and needs – marketing. This information is then used to promote and present an offer in such a way that it is irresistible to the customer – sales.

Fortunately it is not necessary to re-invent the wheel, especially when buyers experience sales and marketing techniques from the other side of the fence nearly every day of their working lives. Practical application is, however, not as simple as it may first appear.

DEALING WITH PEOPLE

With sales people constantly beating a path to the door with the objective of making friends by being extremely complimentary about the buyers’ every whim, it is hardly surprising that buyers are not used to making much effort to establish relationships. Taking on sales and marketing aspirations is, however, a different matter entirely because, with the shoe on the other foot, people skills become vital for achieving success. Buyers tend to underestimate and even decry the soft selling skills that are practised on them every day but it is essential for them to master them in order to positively influence the outcome of any relationship-building objective. This is the reason for the chapter on body language, because a basic understanding will provide an insight to people’s subconscious feelings that are such an important part of all human face-to-face communication.

THE FUTURE

It is not too difficult to predict that the purchasing profession will in future be subjected to tremendous changes, but precisely what they will be no one can tell. It does appear, however, that in an ever-faster moving world the conventional departmental box-like structure that most organizations currently operate is a barrier to efficiency. The breakdown of these barriers could therefore lead to a move to more project-based methods of working, with traditional departmental style job demarcation becoming extremely blurred at the edges. It is therefore likely that in future, generalist business management skills will be in much more demand than specialist skills.

With regard to a question of semantics, some purists may take exception to the way that the words buying, purchasing and procurement are used in more or less the same context throughout this book. Whilst acknowledging that strictly speaking this is not always correct, these three words are nevertheless usually interchangeable in a workplace setting. Above all, the aim of the author is to offer practical down-to-earth advice.

CHAPTER 2

THE MANAGEMENT ROLE

A PERSONAL VIEW OF MANAGING PEOPLE

Most people in the workplace do not like change and will inevitably be initially resistant. As this book advocates major changes in the way that purchasing teams operate, it is as well to examine the role that management, as the major catalyst, must fulfil.

What is the definition of a manager? The IBM definition: is anybody who has one or more persons reporting to them is a manager. Everyone who has made that first step, perhaps to become a supervisor, will remember the experience very well. Most of us initially thought that we could remain mates with our colleagues on the shop floor but soon discovered that it did not work, as they either resented our promotion or took liberties with the friendship. It was difficult to withdraw slightly without them saying that we were taking on airs and graces, but we soon learnt that it was essential to maintain a slight distance if we were ever to make an impact on managing and leading people.

Managers are encouraged (quite rightly) to constantly ‘stroke’ and praise staff as part of a successful team-building process, but quickly learn to become resigned to not receiving much in return. Everyone always thinks that they can do a better job than their line manager. Any praise that managers do receive tends to be of an ‘obituary’ nature. By ‘obituary’ I mean that it is extraordinary how managers suddenly become marvellous people and great leaders when they leave or die! Perhaps this is a somewhat cynical illustration of the need for budding managers to be self-confident, pragmatic and even thick-skinned.

To some extent I am of the school that believes that great managers are like great teachers – they are born not made. But there again, who am I to judge when I never made it to be anywhere near being Managing Director of a large organization? Managing 100 staff was the height of my achievement and was quite enough to stretch me to the limit and beyond!

The cut and thrust of operational buying is exciting and stimulating so, when taking the first tentative steps into management, people often find it difficult to delegate. After all we all usually feel that nobody else can do the job as well as we can. Of course the problem is reduced if we have good people to delegate to and in this respect the importance of effective relevant training cannot be overemphasized.

As managers take on more responsibility, the sheer amount of work on hand means that just ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Foreword by David Hewitt
• Acknowledgements
• 1 INTRODUCTION
• 2 THE MANAGEMENT ROLE
• 3 THE PROFIT AND LOSS MEASUREMENT SYSTEM
• 4 MEASURING AND IMPROVING BUYER PERFORMANCE
• 5 MEASURING SUPPLIER PERFORMANCE
• 6 MARKETING THEORY
• 7 PRESENTATION AND SELLING SKILLS
• 8 THE PRACTICAL APPLICATION OF MARKETING AND SALES THEORY
• 9 MARKETING RESEARCH QUESTIONNAIRE – SAMPLE QUESTIONS
• 10 REVERSE MARKETING
• 11 BODY LANGUAGE (NON-VERBAL COMMUNICATION)
• 12 TECHNOLOGY COMES TO OUR AID
• 13 ETHICS
• 14 CONCLUSIONS
• Appendix 1 A Sample Set of Supplier Evaluation and Accreditation Procedures
• Appendix 2 A Sample Set of Supplier Rating Procedures
• Index