Purchasing Transformation

Over the last 20 years both consultants and scholars have been trying to pin point how purchasing can create a competitive advantage. Since you need to start with the basics (get the stuff to the factory) a commonly used approach for describing Purchasing’s creation of competitive advantage has been some kind of twist of the classical model on Hierarchy of needs developed by the American psychologist Maslow. Among others, professor Rozemeijer has made some contributions to create a framework for purchasing.

The latest contribution is however done by the Hackett group which recently launched its 5 stage model on purchasing value proposition:

1. Supply Assurance (”Right goods and services at the right time at the right place”).
2. Price (”Right goods and services AND at the right price”).
3. TCO (”Shift from lowest price to lowest Total Cost of Ownership”).
4. Demand Management (”Reduce demand activity, complexity immediacy and variability”).
5. Value Management (”Increase business value derived from spend rather than just reducing total cost/spend”).

Stages 1-4 are all fairly well know. The new thing is stage 5. Here Purchasing should not only secure the lowest cost but also increase the value of the products that are sold by the company. The activities involved could include:

• Explore the opportunities of global supplier markets to get external innovations into the products and services
• Taking a leading role in driving the work within Corporate Social Responsibility and so improve the world, increase the corporate image and strengthen share holder value creation
• Take a lead on core/non core analysis and drive outsourcing/insourcing
• Take the same approach on itself and automate and off sore non-core processes and categories.

But remember Maslow, before you make a deep dive into self-actualization; make sure you fix the air to breath, the food to eat and the shelter to sleep under.

This entry was posted on June 6, 2008 at 10:27 pm and is filed under Best Cost Country Sourcing, Global trade, Sourcing, Supply Chain Management. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.