Jeremy Ferrer
Webinar :
Optimize your C-Class purchases and boost your results.
January
“Everyone would lose if the service Purchases played the role of the firemen every day.” Drasko Jelavic, CEO and founder of Cirtuo, gives a very colorful version of the Purchasing Department that spends the majority of its time putting out “daily fires”. In fact, the services of procurement and supply chain must both manage operations AND develop a strategy, that is to say in bulk: deal with incessant requests from the company's various departments, make purchases outside of contracts, ensure the link with decision-makers... According to this company manager, the department of purchases and supplies must stop playing firemen. He also mentions the crucial point of erroneous data when negotiating with a risky (because unique) supplier. Where do you start in the midst of this turmoil? It sounds the alarm by offering 7 points of reflection for Buyers.
“Imagine that on the way to work, while walking down the street, you see someone who is on fire. Surely you will help him put out the fire. What would happen if the next day and the following days you encounter another person on fire who needs your help? Of course, you will help him, but you will also ask yourself: “Why are all these people on fire? Where are the firemen? Why do I have to do the fireman's job? I also have my own job.”
As absurd as it may be, this same situation is experienced by Directors Purchases and their teams who must take care of both operational and strategic tasks related to purchases and supplies. They spend their day trying to manage, on the one hand, the chaos generated by the innumerable purchase requests, non-compliant purchases such as Class C purchases, the lack of connection with internal stakeholders, the constant back and forth with suppliers, and order errors. On the other hand, they are also stuck because of inaccurate data when negotiating with risky suppliers. And they can't say anything, because it's their only supplier. Not to mention the garish phone calls and emails.
Every day it's the same for the Department of purchasing and procurement. It's like adding fuel to the fire and it's not over. They eventually burn out and only manage to achieve the bare minimum for the business. Indeed, each time they have to stop doing more important things for urgent things. They are two different things.
Step zero in trying to put out fires in the department of Purchases is whether you are part of a company that encourages and eventually rewards this type of behavior. If that's the case, change will be the biggest challenge, but not impossible.
Regardless of company culture, none will say no to better savings, more added value and, as a result, increased profits for shareholders. First of all, it is important to clearly identify the driving force behind management. Is it more focused on short-term cost savings, sustainable growth, risk reduction, the implementation of operational procedures, or the application of ethical standards?
Then, the approach is to move forward in small steps, that is, to identify the ripe fruits that the company has not yet harvested, and then to build on these results. Indeed, fighting fires will only keep the business afloat. On the other hand, strategic perspectives will make it grow.
This is the image that top management and internal stakeholders need to see from procurement and they will welcome it with open arms if the image is well drawn.
This involves following a number of concrete steps to transform the function. purchasing and procurement in a truly strategic function:
This step is not easy to achieve, especially when you evolve in a decentralized structure in a multitude of Business Units or brands. Indeed, internal decision makers are not always easy to recognize in this type of organization.
The process ofpurchases involves several stakeholders internally or externally. First of all, there is the user who consumes the good or service purchased. Then, there is the buyer who is the one who carries out the act of purchase. There is also the payer, the person who finances the purchase or who engages the funds necessary for the transaction. Then we meet up with the decision maker. It is the one who decides For the purchase. He judges whether there should be a purchase or a non-purchase taking into account several parameters, including the company's cash flow, the purchasing strategy adopted, the nature of the purchase (indirect purchases, direct...), etc. There is also the prescriber, the person who initiates the decision ofpurchases.
Depending on the size of the company, the number of internal decision makers may vary. For example, in an SME, the payer, the decision-maker and the purchaser are one and the same. This is often the managing director or the owner. In larger companies, roles are held by different people, most often by the head or director of a particular department.
The identification of internal stakeholders makes it possible to control and unify the purchasing chain, optimize expenses and carry out a procurement map, which is essential for implementing a good strategy for purchases and supplies.
It is always said that a good strategy ofpurchases must be at the service of the business. To do this, it must be aligned with the overall strategy of the company, but also with that of decision-makers.
This alignment of strategies should make it possible to contribute to the company's two major challenges: creating a competitive advantage and managing supplier risks.
A good purchasing policy should allow the company to develop its business through differentiation. This means for the Department of procurement and supply chain to find competitive and innovative suppliers.
For a purchasing strategy to serve the strategic challenges of the company, it is also necessary to provide for good supplier risk management, i.e. to implement a good supplier assessment or supplier audit.
Gap analysis, also called needs analysis, is a management tool that allows a company to identify the best way to achieve its goals. It consists in comparing your real performance with the skills you need in order to develop a strategic growth plan. A gap analysis can be done to gather the data needed to establish a purchasing strategy, among other things.
This management tool can thus be used to solve function performance problems. purchases. It makes it possible to identify weaknesses or shortcomings related to the policy Purchasing and procurement current. Once the cause is determined, it will be easier to improve the buying process to improve the situation. Finally, a gap analysis can also be done when decision makers need more context. It makes it possible to assess the resources available and their use over the past year. The results of the analysis then make it possible to define how to use them more effectively in the future.
At the time when the purchases represent 60% of a company's turnover, or even 80% in certain sectors of activity, the purchasing function should no longer be considered as a simple “support” function linked to production. It should be integrated into the business process and strategic planning. Indeed, it has long been thought that only the optimization of the commercial function makes it possible to increase sales and margins. It's not true!
Through the optimization of purchasing processes or the outsourcing and globalization of purchases, the function purchases and supplies could also contribute to reducing costs, and thus to the profitability of the business.
The control of purchasing processes, made possible thanks to new technologies such as e-sourcing and e-procurement, makes it possible to transform procurement into strategic drivers of the company. The emergence of Sourcing-to-Pay or Procure-to-Pay solutions, such as Sourcing Force, allows buyers to become more efficient and to play a strategic role in achieving company goals. Indeed, these tools allow them to bring the competition into play, and therefore, to reduce costs and deadlines.
Improving the function ofpurchases also involves the use of appropriate skills. People with the right skills and who are able to implement the strategy should be selected.
With the digitalization of purchases, buyers must also enrich and adapt their skills to the needs of the company and the market. In this sense, five skills are required of them in particular: the ability to source innovation effectively, to implement a responsible purchasing strategy or responsible purchasing in English, to master new digital solutions, to manage the strategy in times of crisis and to analyze the vulnerability of the supplier network.
A good strategy ofpurchases must also be well structured. Strategies must be developed by categories, risks and suppliers. This structure makes it possible to better understand each situation as well as the various risks associated with the process ofpurchasing or supply chain.
Category management consists of segmenting the procurement market in order to optimize the purchasing and procurement process to generate cost savings. It also makes it possible to understand supplier risks that can have a significant impact on the smooth running of company activities.
Key performance indicators, or KPIs in English, are numerical data that make it possible to monitor or evaluate the effectiveness of an action or action plan in relation to defined objectives. They allow decision makers to monitor the evolution of the company's overall performance and make more informed decisions about strategy.
KPIs don't add value to the business. However, they have become essential to enable him to achieve his goals. There are two categories of KPIs: indicators for measuring company activities and those relating to the impact of actions on the market. It is also necessary to differentiate between the result indicators that express success and the monitoring indicators that serve to pilot action.
Performance indicators can be implemented for all actions implemented or strategies adopted within an organization in order to monitor the achievement of a global or specific objective. A good KPI should include a metric, target, data source, and reporting frequency. It should also be aligned with the company's strategy and goals and provide action plans. An unactionable indicator is not effective. For example, if the indicators you selected allow you to know that your costs have decreased by 20% thanks to your strategies purchasing and procurement. They should let you know why. In this way, you could know what actions to continue or stop to optimize the results.
According to Drasko Jelavic, digital tools are the only real “water cannons” that can put out fires! As a support to the process ofpurchases, they become essential at certain stages of it. They bring structure, discipline, and credibility to the management of large amounts of information on purchases and supplies.
Drasko Jelavic is convinced that once purchasing managers and their team are armed with this type of knowledge, they will no longer be firemen. Their experience and expertise can be put to good use to enable Department of purchases to achieve its goals.
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