PurchTips edition #423

I have two similar questions for you. One is easy to answer.  The other isn’t.

The first question is “What is the role of a purchasing strategy?”  The second is “What is the role of your purchasing strategy?”

The universally correct answer to the first question is “To support the organization’s overall strategy.”  Easy. But there is no universally correct answer to the second question. The specifics needed to answer that question require a thorough understanding of your organization and its overall strategy.

That’s often a key link that’s missing. Many purchasing departments place top priority on achieving cost savings. And that is very appropriate if you’re working for a mature organization that sees challenges in maintaining profitability as it reaches the “decline” phase of its business cycle.

But, if the organization’s strategy is to be the most innovative company in its industry to capture market share, purchasing cost savings should take a back seat to supply base innovation. If the organization’s strategy is to develop a brand as the highest-quality company in its industry in order to monopolize a niche, quality improvement should be a higher priority than cost savings.

Mismatches between purchasing strategy and organizational strategy run rampant. Sometimes, it’s an embarrassment to the profession. I encourage you to be part of the solution, not part of the problem. To do so, I recommend that you immerse yourself in understanding your organization’s overall strategy. Then, develop the best answer to this question: What should we be doing in purchasing to maximize our contribution to that strategy?

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