In business world many organizations struggle with the appropriate method to use in purchasing of goods and services. They often neglect strategic metrics and favor more tactical and transactional ones. This type of approach just encourages a stereotypical view of purchasing that is traditional and bureaucratic. Emphasizing strategic metrics encourages a different image of purchasing and, more important, strategic-like behavior
by purchasing professionals.
One of
the key strategic metric is the number of supplier alliances. These
should be not many, and ideally be limited to suppliers that have a key impact
(significant dollar spend percent) on your total cost of goods sold. Often 20%
or fewer of your suppliers account for 80% of the spend. The emphasis should be
on suppliers that can differentiate you or give you a distinct competitive
advantage. Characteristics of such alliances should include long-term evergreen
contracts, participation in new-product design sessions, joint process
improvement efforts, exchanges of executives, direct electronic links and
cycle-lead time reduction.
Another
measurement should be the number and percentage of suppliers that are
certified: ISO 9001, ISO 14001 etc. These are not guarantees that a
supplier is perfect, but they do indicate that they are pursuing excellence and
at least have an understanding of their processes and how they perform their
work. This is a significant first step in any joint supply chain process
improvement effort. If the supplier is dedicated to its own program of process
improvement via Lean or Lean Six Sigma, joint cooperative ventures are more
likely.
Besides
purchasing having its own mission and vision statement that aligns with the
corporate plan, leading-edge purchasing departments should have their own five-year
strategic purchasing plan. Elements of this plan should include all future
initiatives, projects, metrics, goals and resources needed.
A
noteworthy area to include in the plan is professional development. Purchasing
team members should be encouraged to get professional certification, become
industry, not just materials experts, and improve their overall knowledge of
the business. The most vital area, that is often neglected, is getting more
knowledge of what is critical to the paying customer of your product or
service. Purchasing professionals should have close ties with sales, marketing,
marketing research and shadow them on customer calls.
Another
strategic measure is to have a sourcing methodology and to constantly
update it based on market and global conditions. A critical aspect of this
methodology should be sourcing with cross-functional teams, use of the Porter
five forces model when appropriate, and high visibility along with transparency
during the selection.
Ideally
these strategic metrics should be put on a corporate dashboard to be seen by
all employees. Strategic metrics should also be the catalyst for developing a
balanced scorecard for purchasing. Unfortunately purchasing often neglects
strategic metrics and focuses of fire-fighting and tactical metrics. Strategy
always trumps tactics and strategic metrics need to become a valued tool for
all purchasing organizations.
References:
Ethics in
Supply Chain Management, Abedullah Zaman
Building
Ethical Supply Chains, Forbes
Ethics Issues Prevail in Supply Chain
Management, Beroe Inc.
Ethical
Issues in the Global Supply Chain, Bodo B Schlegelmilch , Magdalena Oberseder
Bangladesh
Tragedy, Steve New
strategic performance metrics for purchasing
and the supply chain By Tom
DePaoli
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