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Ever thought how much fun it is to spend money? Now imagine how much fun it could be to spend other people’s money! A job in purchasing gives you the opportunity to do just that every day and get paid for it; however, responsibility comes with it.

Get it right and the chief executive and finance director will know all about you.

Get it wrong and the chief executive and finance director and a whole host of others know all about you. That said, if you enjoy a challenge, purchasing offers the chance to make your mark in an industry that’s really on the rise.

For many organisations their biggest cost (anywhere between 35–80% of total costs) is the cost of goods and services bought from third parties. As such, purchasing is the most important single area of expenditure that businesses can control – the difference between good and bad purchasing can be 30% or more.

Increasingly, organisations are recognising the benefits that good purchasing can deliver. These include enhanced profits, a more effective supply chain and therefore purchasing is taking on a more important role.

Recent developments in the industry

The purchasing industry is definitely on the up due to a combination of factors including:

A strong focus on cost cutting and efficiency has been a characteristic of the business environment of the early twenty-first century particularly in the last 12 months. This has played to the message of efficiency and savings – a key facet of what procurement can deliver.

Risk and reputation – today purchasing is regarded as having a key part to play in mitigating business risk (for instance through ensuring the supply chain for key products and services is secure) and through safeguarding reputation via responsible sourcing. These factors have raised the profile of procurement; particularly in sectors which have not traditionally been cost focused and added new dimensions to its role.

The Chartered Institute of Purchasing and Supply (CIPS) has worked hard to raise the profile of purchasing as a profession in a variety of ways including the establishment of an accreditation scheme (to set an industry standard in terms of best practice) and the launch of the CIPS Awards in 2003 to recognise purchasing achievements.

The Markit/CIPS Purchasing Managers’ Index (PMI), which was established in 1948, is now recognised as a leading indicator of manufacturing and overall economic growth. A composite of five weighted indices (new orders, production, employment, supplier deliveries and inventories) the PMI is popular because it is generally considered to be accurate and easy to interpret.

Together, these and other factors have brought purchasing onto many boardroom agendas, raising both visibility and expectations there.

Thinking beyond price

It’s little surprise therefore that successful purchasing is now seen going beyond simply negotiating the lowest price – it is also about getting the right specifications and service levels and understanding the total costs incurred over the lifetime of owning something.

Purchasing people need to be smart with lots of commercial acumen, good numeracy and strong negotiation skills.

Gaining ‘buy in’ to buying

There is an increasingly strong relationship management aspect to purchasing as organisations continue to develop longer term, strategic partnerships with their key suppliers.

Typically only a proportion of cost savings come from reduced prices; the majorities are achieved via managing supplier contracts effectively on an ongoing basis.

Managing a long-term contractual relationship with a key strategic supplier is a fine art – particularly more complex relationships such as those with consultants, lawyers, or marketing agencies.

This relationship management aspect goes beyond suppliers – you must be able to ‘sell’ buying to your colleagues. Nine times out of ten you will be negotiating contracts on behalf of other functions in the organisation including marketing, IT, operations and so on.

These individuals have a diverse range of needs which you must be able to challenge and clarify before going to the market, all the time making sure that they are happy with the process. Having negotiated a deal you also need to be able to influence your colleagues’ behaviour in terms of consumption (i.e. how much they use) and process (i.e. how they buy).

If you do not carry the business with you, then your colleagues may choose to ignore you or will be looking for an excuse to go back to the arrangements they had in place previously.

Where is it heading?

As the corporate world continues to evolve, so does purchasing. We believe some of the fundamental changes affecting purchasing include:

Outsourcing of procurement

In order to be more competitive, many businesses have split their purchasing into ‘directs’ (key products and services which are used in manufacturing or sold on) and ‘indirects’ (all non business critical purchasing – i.e. office costs, purchased IT, purchased marketing, etc.).

Direct spend gets the internal focus, whilst the management of the indirect spend is being outsourced to third parties (such as Proxima).

Corporate Responsibility

CR is an area organisations ignore at their peril. This focus extends to the public sector where sustainable procurement is now a hot topic. When it comes to delivering the CR agenda purchasing has a key role to play.

This might involve challenging requirements for products, devising strategies for what happens to outdated goods purchased and looking at green energy. Furthermore, procurement must ensure that goods and services purchased support CR objectives and are commercially viable.

Low cost country sourcing

Economic growth in China, Eastern Europe, India, etc. has transformed the manufacturing of many products. Procurement professionals need to develop the opportunities this trend presents whilst also mitigate the risks associated with sourcing from abroad.

E-procurement

Electronic procurement tools are becoming ever more affordable for organisations of all sizes and it is increasingly prominent in a number of forms, ranging from electronic auctions through to the automation of a range of purchasing activities. The challenge facing purchasing professionals today therefore is to get the most out the complex array of tools at their disposal.

Getting the best people

The sector has been growing, probably faster than it can easily grow good people. This makes it a great profession to join – particularly since demand will drive up salaries.

These trends seem set to continue and will undoubtedly be joined by others, making procurement an increasingly multi-faceted industry to work in.

A successful chief procurement officer has to understand, anticipate and manage the impact these trends have on the purchasing landscape alongside the day to day handling of colleagues, the board, competitors and suppliers. Great fun if you like a challenge!

About the Author

  • About Guy Strafford and Andrew Tseng: Guy is responsible for key client relationships, advising on procurement strategy and business development across Proxima. Guy joined Proxima in 1996 and was an Account Director for a range of clients before taking responsibility for sales. Prior to tra

Guy Strafford and Andrew Tseng

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