The Current Challenge
Facing a difficult economy, many companies are inclined to place higher expectations on their purchasing managers to deliver ever-increasing, quantifiable results. These results are normally requested in the form of cost reduction, cost avoidance, or improved supplier value. Recently, it has become increasingly difficult to produce year over year tangible improvement. How are purchasing managers expected to accelerate savings given rapidly rising commodity prices and the current economic conditions? Internal cost pressures and lean purchasing teams have made fewer resources available to buyers as they carry out their endless list of responsibilities. As the economy continues to look bleak, new burdens are being placed on purchasing departments. The global marketplace is growing in complexity and the speed of change is increasing, thereby dictating the need for greater adaptability in the future. Therefore, purchasing managers must be proactive rather than reactive with regards to the volatile economy, utilizing every available tool as effectively as possible. In order to become proactive, several hurdles must first be jumped:

Purchasing managers must juggle these tasks and others, all while doing so efficiently and effectively.  Is this feasible?

The Global Economy’s Impact
The rapidly increasing complexity in the global marketplace is making procurement more reliant on an escalating base of knowledge while having less time and resources to carry out its responsibilities. Sales teams are generally much better trained in their product and marketplaces than the purchasing professional they are selling to. After all, sales teams only have to focus on their market and their product, while purchasing departments must focus on many markets and many products.

The number of purchasing options available today creates more headaches for purchasing managers. Many additional considerations must be taken into account.  Examples include green packaging, minority suppliers, low-cost countries and rapidly shifting technologies.  

Another concern regarding purchasing responsibilities is the various sources of supply across the globe.  Buyers are expected to interact with suppliers who are located in different countries and different time zones, communicate in different languages and embody very different cultures. The relationship between a buyer and a supplier is likely to suffer if a supplier’s country’s culture is overlooked.  

Global energy rates and some raw materials pricing are also rising at an alarming rate.  Some companies who have outsourced their operations to China are now considering the option of moving production closer to end markets in order to avoid rising shipping costs.  Purchasing departments are also being asked to provide oversight in spend categories previously outside their purview.  Some of the responsibilities that were once delegated to IT, marketing, HR, and finance departments are now burdens on purchasing. When under attack by this kind of dynamic environment and accelerating expectations from within our own organizations, it is understandable that many purchasing professionals default to traditional defensive tactics.

Reasonable Reactions
A standard response to a need for cost control or cost improvement is the RF“X” process to drive competition. Although a valuable tool, the process can be overly cumbersome and may actually discourage suppliers from engaging if they are being asked to supply a great deal of non-essential information and statistics in the preliminary stages of engagement. Source One Management has found that the biggest problem with the process is an over-reliance on its results. Quite often, suppliers will agree to many additional concessions when they are engaged in a collaborative process.

Another tactical reaction of some buyers is to agree to price increases with the incumbent supplier to ensure an ample supply for the buyer’s organization so as to not interrupt production.  This type of decision is generally predicted upon a buyer’s assumption that they already know all of the available sources of supply and that they have good market visibility.

Over-reliance on purchasing technology tools and processes is another commonly used tactic. Usually technology will only automate the inherent problems with the existing processes and will further exacerbate results. Before implementing new technology, put existing processes through a thorough analysis to identify opportunity for improvement.

Out of concern about the challenging business conditions, some purchasing managers will take great pains to document to their senior management what the forces are that are driving less than optimum results.

Viable Options – Becoming Creative
Rather than just taking the tried and true approaches to the changing business climate, there may be creative solutions using other available resources. Changing strategies can help you to shift from playing defense to offense.  

“If life hands you lemons, make lemonade.”

Purchasing managers may need to seek out solutions beyond the “lemon” they have been given and find other fruit or processes to create an original fruit punch.

In the face of the growing “buyer-side” deficit of information (as a result of all of the stated conditions), we see three valuable assets available to the purchasing professional to help level the playing field:

1.  Rather than require suppliers to demonstrate their capabilities and pricing, ask three key questions.

• What do you (supplier) need from us (buyer) in order to succeed in a mutual engagement?

• What is your (supplier’s) fantasy wish-list from an engagement with us (buyer)?

• How can you (supplier) help us (buyer) distinguish ourselves from our competition?

When suppliers are engaged in an arms length RFP process, buyers receive an arms-length result.  With the opportunity to have their needs and desires considered, we find that suppliers are much more likely to shrink the knowledge gap voluntarily and be much more motivated to help the buyer meet his/her goals.

2. Use technical purchasing tools as tools and not answers. No tools provider has the answer for any vertical market. Used properly, these tools can provide insights into a marketplace in terms of pricing strategies and new players. These tools can also better facilitate project communications, shrink project timelines, and retain templates and analysis for future use.

3. Outsourcing services can also prove to be useful in dynamic environments. These services offer:

• Best practice processes    
• Market data
• Domain or category expertise
• On-demand resources
• Effective tools
• Negotiation experience and insights
• Identification of off-shore manufacturing and
distribution channels

Most importantly, outsourcing services may have a better understanding of how suppliers can answer the three key questions mentioned previously.  

Many companies are aware of the benefits associated with procurement outsourcing. Aberdeen Group reported in November 2007 that “40 percent of enterprises indicated they will be outsourcing all or part of their procurement functions in the next two years.”

Summary
In these tough times, buyers need to expand time and resources to effectively navigate markets. The greater the visibility buyers have into markets, the easier it will be to meet the high expectations placed on them. Third party providers such as GPO’s and Procurement Service Providers have access to leveraged pricing, market data, alternate sources of supply, subject matter expertise and on-demand resources. Purchasing managers can utilize Procurement Service Providers as additional tools in their sourcing arsenal to bridge the gap between supplier and buyer knowledge. When buyers are under internal and external attack, service organizations can help in the shift from a defensive posture to an offensive one and provide the resources and tools required to help sourcing professionals be creative, proactive and produce results.

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About Source One Management Services, LLC

Source One Management Services, LLC has been a leading Procurement Service Provider for over 16 years. Our main objective is to generate savings for our clients while maintaining the highest levels of quality and service. With great visibility into many different industries and categories, Source One is able to offer subject matter expertise and insights which are useful to Purchasing Professionals. As a nimble and flexible consulting group, we are able to act as an intimate part of your sourcing strategy or simply as an on-demand resource.  

Contact
Steven Belli, CEO
Tel: 267-913-6264
E-mail: sbelli@sourceoneinc.com
Website: www.sourceoneinc.com