Jeremy Ferrer
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Optimize your C-Class purchases and boost your results.
January
Michael Shaw — director of the American Chamber of Purchasing Managers — plays provocative with this title.
Nevertheless, he remains lucid about the evolution of the Procurement role of the position of Purchasing Director whose responsibilities go well beyond sourcing and the act of purchasing. He speaks of “Chief Value Officer” (CVO), an untranslatable title that could be assimilated to “Purchasing Value Manager”, a person likely to promote a real “hunt for added value” in the purchasing department.
Long considered an administrative function, the Procurement role is experiencing a real surge in power today. It is no longer that department to which one of the company's least strategic operations was entrusted. The purchasing manager has become a valuable ally for the director by playing a central role in the company's performance. In this article, we take stock of the transformation of the Procurement role.
He explains that the acronym “CVO” is beginning to spread — especially on LinkedIn — and thus establishes the qualities required in the Procurement role of such an individual:
Someone who knows how to create value in all possible forms and who knows how to set up indicators to demonstrate the acquisition of this value within the company
Someone who goes beyond reducing costs to integrate concepts as varied as benefits, customer satisfaction, competitive advantage, market share, social and societal responsibility, supplier relationships or even employee satisfaction
Someone who knows how to raise awareness among company managers about the strategic dimension of procurement
Finally, he urges his colleagues to claim this “CVO” title, a symbol of recognition in the organization!
The development of the Procurement role took place in several stages. In a tough competitive context where we are moving from a production economy with a large quantity of sales made to a globalized economy, companies are increasingly focused on looking for ways to increase their margins. Since it is impossible to raise sales prices all the time, the Procurement role was considered to be one of the most powerful ways to do so. This is all the more true when you know that purchases represent 60% of a company's turnover.
The procurement department's chronology includes three key periods:
The premises of the Procurement role date back to the 1850s. It developed with the railroad in the United States. It was then necessary to wait until the post-war period to see it emerge again with the efforts made to find raw materials after the war. Fayol himself said in 1916 that buying is just as important as manufacturing.
The first form of recognition of the purchasing department dates back to 1945 with the creation of the Compagnie des Dirigeants et Buyers de France. But in the end, it will only be fleeting.
In 1964, the Procurement role was considered by Henderson to be a negative function. It can hinder the progress of the company if it is not carried out correctly. However, it does not provide any added value. During the Thirty Glorieuses, there was an abundance of raw materials. The procurement function was therefore considered to be essentially an administrative function. Indeed, it consisted in particular in monitoring supplies. It was part of the famous “Materials Management” in the same way as material planning, warehousing, transport, quality control, etc.
The 1970s were marked by the recognition of the purchasing department. Increased competition and the diversification of supply have prompted businesses to seek competitive advantage by reducing costs and looking for better suppliers. Gradually, the administrative dimension of the Procurement role was relegated to a more strategic dimension. The buyer has become the one who is empowered to look for suppliers who can meet the company's needs in terms of quality, costs and delivery time.
From the end of the 90s, the profession of buyer became very professional. Thanks to the emergence of the Internet, innovative tools have emerged, such as e-procurement, e-procurement or Sourcing-to-Pay. The latter have revolutionized the Procurement role. In the mid-2000s, the profession of buyer or purchasing director became ennobled. The economic situation being difficult. The buyer is the one who can help the company maintain its margins, find strategic partners, and get its hands on innovations. By adopting a sustainable purchasing strategy, it also contributes to creating a good corporate image.
This professionalization of the Procurement role also goes hand in hand with the extension of the types of purchases. At the beginning, not all purchasing families were under the control of the purchasing manager. Some, including non-production purchases, escaped him. The evolution of the function is therefore moving in this direction. It increasingly integrates this objective of cost control through the adoption of a better purchasing strategy. It concerns all types of purchases.
The analysis of the past and current situation has prompted experts to imagine the future of the Procurement role. Numerous hypotheses have been put forward about the possible or future future of the purchasing department. One of them concerns procurement missions. We are increasingly moving towards a mission that “creates value” and “reinvents the company's business model”.
Based on the hypothesis that the future is characterized by greater complexity (the predominant role of information through the Internet and cloud computing technologies, increased consumer demands, etc.), Purchasing missions can only be impacted as well. According to experts, contributing to the creation of value for end customers and shareholders will be part of the new missions of the Procurement role. First of all, this requires rethinking company business models so that they meet the new needs of consumers. The Procurement role must play a supporting role in this change.
Secondly, creating value also requires integrating social responsibility (CSR) and sustainable development issues into procurement strategies. Buyers are in the best position to identify partners who can help businesses offer a differentiated and sustainable qualitative offer.
Finally, value creation must also involve bringing the purchasing department closer together with the marketing and sales functions. The first explanation is that buyers need to better understand and value customer needs with suppliers. The second explanation comes down to one sentence: “you have to buy well to sell well.” Communicating the methods of monitoring and selecting suppliers to customers is a guarantee of quality, trust and traceability. Earning points of trust in the hearts of customers means having a competitive advantage.
But the future of the Procurement role will also be marked by a reversal of the power of force in supplier relationships. Greater importance will be given to the concept of key suppliers or strategic suppliers. Faced with technological breakthroughs that are disrupting traditional customer-supplier relationships, the scarcity of raw materials and energies and the increasing demands placed on suppliers, the supplier will no longer be seen as a simple supplier for the company. He will be a real partner, a supporter of the success of the company. Businesses will therefore have an interest in creating a healthier and lasting relationship with their suppliers. This must lead to more intimacy, transparency and mutual gains. The supplier should feel that he is also winning in the success of the business. The Purchasing function also plays a major role in this reinvention of relationships with suppliers.
There are currently two ways of organizing procurement in businesses: centralized purchasing organizations and decentralized purchasing organizations.
In the first case, purchases are managed by a single department. It is attached to the Directorate-General or to another department, such as the administrative and financial department. A Procurement role attached to the general management shows the maturity of the latter. It also testifies to the company's desire to give it a more strategic dimension, while a connection to the financial department focuses mainly on reducing costs, and less on the search for innovation and quality. A centralized purchasing department manages both production purchases and non-production purchases, such as class C purchases.
In the context of a decentralized purchasing organization, Procurement role are attached to the management of a business unit. This type of organization is especially common in industry. Each purchasing department takes care of a site. Far from the image of the centralized purchasing department, it is no less strategic. Indeed, each Procurement role is focused on production purchases. Non-production purchases are often managed at the head office level.
The future trend in purchasing organization is towards flexi-centralization. This means that the company is represented by a single purchasing department with suppliers and conveying a vision or common values that make them want to work with it. This also means greater flexibility. Faced with the uncertainty and complexity of the environment, the procurement department must develop greater flexibility. New e-procurement or Sourcing-to-Pay tools, such as Sourcing Force, which promote exchanges and sharing, reconcile these two requirements: flexibility and centralization.
Internal customers are the people or departments of the company who raise purchasing needs to the purchasing department. The complexity of the purchasing department's relationship with them lies in the fact that it is necessary to both satisfy their needs and work for the general interest of the company. The evolution of this relationship is towards a business partnership between the two parties. Indeed, their mutual goals must converge to create and defend the company's competitive advantage. Integrating CSR into purchasing strategies does not only involve reviewing the way suppliers are selected and monitored. It also requires supporting changes in consumption patterns and the behavior of internal customers. Purchasing management and internal customers must co-construct needs. We are then witnessing a migration from the Procurement role to demand management.
Over the past few decades, the Procurement role has become highly professional. First of all, this means raising the level of skills. The job of buyer is a managerial profession that is now accessible to holders of a Bac+5 level. As procurement is becoming more international, businesses also need highly qualified and versatile employees.
In addition, the job of buyer also requires knowledge and mastery of computer and technical tools. With the emergence of new digital tools, such as Sourcing-to-Pay, buyers must be initiators in their use.
Alongside technical skills, humans should not be overlooked either. Certainly, knowledge and know-how are needed to occupy a highly responsible position, such as the purchasing manager. However, in a constantly changing environment where human relationships take precedence, human qualities (leadership, emotional intelligence, sense of influence, etc.) are increasingly required. They allow the buyer to better manage their internal and external relationships. On the one hand, leadership allows it to have an influence on internal customers (insofar as there is no hierarchical relationship between them). On the other hand, emotional intelligence allows him to inspire and influence suppliers.
As we have seen throughout this article, the purchasing manager, as he was perceived at the beginning, is no more. He is dead. Its missions and goals have completely changed. Now, we are talking about a valuable partner both for the success of the company's strategy and for the improvement of its performance.
Today, it fulfills three main missions: to be at the heart of strategic decisions, to be the partner of operational management and to measure and manage its performance on a daily basis.
The new Procurement role must be involved in all company projects and strategies. It is no longer confined to its administrative dimension. Its performance also depends on that of the company. The buyer is also a man in the field. It understands and challenges real needs. He provides his analysis and advice and seeks the best solution to enable the company to achieve its goals in terms of quality, cost and time.
In short, the Procurement role now plays a central role in the performance of each company, both operationally, financially and in decision-making terms. Get support from an expert in the digitalization of procurement to improve the performance of your purchasing department. Adopt digital solutions, such as Sourcing Force, to make rapid progress in modernizing your Procurement role.
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