Why should the CEO give the purchasing department greater responsibility and influence?
In a magazine with buyers as an important target group, there was an article a couple of years ago with the headline "How far does the responsibility of the purchasing function extend"? The article was a response to a question from a purchasing manager who was thinking about his department's area of responsibility. One reason was that the department sometimes received the comment "that is not part of your responsibility!". Another purchasing manager wrote: “We are treated like a stepmother in our organization. We have a low status and come in far too late in the business we are expected to support. What can we do to change the situation”? The answers provided were not unambiguous, but they point to some things that affect the status of a purchasing function;
Management's view of the purchasing function and interest in purchasing
Management's knowledge and experience in the field
The competitive situation and the need to achieve results and improvements through purchasing work
We think that the purchasing managers' issues in the magazine are even more relevant today, given the rapid development that has taken place in terms of automated and digitized purchasing and inventory management processes. In a previous blog, we talked about how our investment in AI (Artificial Intelligence) and machine learning will significantly contribute to a change in the role of buyers in many companies.
In this blog, we want to highlight the importance of the CEO and management teams to pave the way for this change process. It has already been implemented by most of Promosoft's customers, but we are convinced that there are many company managements that can benefit greatly from driving a journey of change that develops the purchasing departments and elevates the purchasing managers higher in the organizations and perhaps even into the management team.
A good sale always starts with a good purchase!
In the mentioned magazine, there are some lines that may seem a bit provocative, but which at the same time put the matter on its head: In the global world we live in with high specialization and purchasing volumes that often represent 50-75 percent of an organization's turnover, it should be extreme justified to give the purchasing function a great deal of responsibility and influence. In addition, all possible resources to do an extremely good job. Remember that a good sale always starts with a good purchase!
Perhaps it is the case that the amount of management issues that are to be prioritized sometimes means that a management team does not see the connection between common "brooding" in many retail and wholesale companies and the purchasing department's work situation: Why do inventory levels increase? Why is the turnover rate falling? Why do we sometimes have a shortage of goods that causes us to lose sales and get dissatisfied customers? Why do we have such poor forecast accuracy?
Further down in the organization, the answers to the questions can be found in the buyers' work tools, area of responsibility and challenges. If the tools consist of traditional routines, where Excel documents control the ordering process, the purchasing parameters are set manually and often become static parameters. It is also extremely time consuming to keep these updated if the number of articles is large. Purchasing decisions are often based on old order points and quantities as it is difficult to keep track of all stock parameters. In retail and wholesale companies that are in strong growth phases, the degree of difficulty increases as the quantities and number of items constantly increase. With manual routines, it is often impossible to know how much to buy.
You can ask a buyer like this: If we are to maintain a 98% level of service to customers, how much goods do you intend to buy then? For fear of ending up in situations with a shortage of goods, purchases often become too large and without noticing it in time, stock levels increase to undesirable levels.
See the purchasing department as a profitability engine!
Sometimes we feel like a bit of a bridge builder between management teams and purchasing departments. This is when we get the top management in organizations to realize the potential in automated purchasing processes, and gain an understanding that in tough markets, old paper routines in the purchasing departments are not enough. The business systems have for many years been in focus for the development of the administrative processes and have received strong support from top management. We want to help ensure that this focus shifts to the system tools that purchasing departments need.
By contributing to direct and indirect cost reductions, increased revenues (eg fewer product shortages) and the release of capital (lower inventory levels), a purchasing department can most significantly contribute to better results, increased profitability and important competitive advantages. This can be achieved by the management's view of purchasing undergoing a transformation, but also by giving the purchasing function access to powerful systems that digitize and combine the processes for inventory management and purchasing planning.
We have seen how many management's views of their buyers change when they realize the importance of the purchasing function for, for example, profitability. Is it excessive to describe purchasing departments as potential profitability engines? No, we do not think so. We can tell you about many projects that show that it is entirely possible!