Innovative Solutions for Business Profitability

The Power (or lack thereof) of Purchasing Departments April 2, 2010

Recently, I read an interesting post by Mark Hunter on PowerHomeBiz which paints procurement departments as a weak link which can be easily marginalized. Since Mark trains thousands of salespeople on how to increase their productivity, it is important to not only understand his perception of procurement but the work that must be done in the future by your procurement department in order to successfully fulfill its mission and fiduciary obligation to your company.

While his entire article can be found on his website, http://www.powerhomebiz.com, I will pull a few excerpts and comment below:

“One of the most difficult parts of a salesperson’s job is dealing with purchasing departments. Whether you are a new salesperson or a seasoned veteran, you likely will agree that dealing with a purchasing department can create a tremendous amount of stress for a salesperson. Unless you are truly unprepared, there’s no reason for anyone to fear dealing with a purchasing department.”

“(purchasing knows) how expensive switching to a new supplier can be.”

If you are involved in a purchasing role or responsible for a departmental, business unit or division’s bottom line, this type of “trash” talk should really get your attention. The article reduces your procurement process into a ‘price only’ play and actually encourages salespeople to do an end around the purchasing department. Further, it creates an adversarial atmosphere between suppliers and purchasing which we know is totally counterproductive.
After all, a company is only as strong as its weakest supplier.

Before I go further into the role of purchasing, I want to point out that Mark is correct in his analysis that there are companies which do not adhere to best practices of management and the type of activity he describes has become their de facto behavior. And this “bad” behavior is not confined to small and medium firms. Some of the most respected larger companies which have installed the latest and greatest versions of Oracle, SAP, Ariba and other platforms have failed to embraced a culture which properly blends the business operations knowledge of a department manager with the third party detachment of an independent purchasing authority.

What do I mean by this statement. Good purchasing requires adherence to best practices, leveraging core competencies and sourcing solutions so the outcome is a positive return on investment for the company. And it may be said that any given department of a company has needs that are unique to that department and those needs can best be solved by subject matter experts who work within that department. That’s right – the answer to a business problem oftentimes lies within the department and not in purchasing. So why do we even need an separate purchasing department? You might think that (purchasing) is probably going to get in the way like some type of government red tape. And this would be true if purchasing is only allowed to become involved only at the very end of a transaction, after the problem was allegedly solved and a supplier was selected. Purchasing would only have price to dicker about and perhaps delivery or payment terms to negotiate as their only function and you can only toy around with these variables so much until you get an inferior product or put the supplier out of business.

Purchasing exists because there needs to be structure within a company that ties company mission statements, goals and budgets to the needs of each department in a way that gives value to the company and its investors. After all, it would be unheard of for a department head to hire a manager without going through human resources. Or a salesperson to offer a new product feature set without the blessing of marketing, manufacturing and operations. In a similar manner, purchasing leverages the best practices of buying goods and services by creating a organized medium for bringing new suppliers into the company, setting delivery, quality, terms, supplier expectations and hundreds of other variables which would be impossible for each individual department to pull this off in a standardized way.

And remember that most department member(s) are constrained by the amount of time they have to invest on trying to figure out how to solve purchasing and logistics problem and oftentimes have to cut corners in their supplier sourcing, bidding and negotiations. Many choose to rely on suppliers they have used at previous companies, friends or a quick internet search. So they either propagate a previous bad decision, put themselves in an awkward situation or blindly accept Google’s paid search results.

So take the points that Mark made and my comments as your marching orders. The procurement function today is more important than ever – don’t let anyone marginalize it.