For a CEO, purchasing is a subject he is confronted with every day. For most of the actors of the purchasing ecosystem, they directly affect the operations of the company. When we start our activity from scratch, purchasing questions do not come on the top of the priority list. Why worry about buying badly if the product or service we are going to offer isn’t working anyway? The priority is the Product. Next comes the commercial start-up to win over “Customers”. It is only when success begins to arrive, that one enters the phase of hyper-growth that one then begins, sometimes, to ask oneself this type of question.
As such, without being too obsessed by purchasing at the start of the project, it does not hurt to acquire upstream a minimum background on the fundamental concepts of purchasing: categorization, negotiation, supplier relationship, regulations, etc. When it becomes essential to install a robust purchasing organization, this minimum background allows for an easier transition: from both a human and organizational point of view.
Therefore, how to think about the purchasing function within your company and succeed in purchasing? By appropriating yourself its human capital and by modifying its organization.
We have to change corporate governance. No effective action to improve procurement management can be negotiated without governance reform.
The question of purchasing is a multifaceted, complex and transverse subject for all companies and all organizations. If a person from the management committee must necessarily be THE person responsible for purchasing, he/she cannot act alone. The omniscience of a single person, a big “IKE” (I Know Everything) in purchasing and related risks’ management is an illusion.
On the other hand, in the organization chart of the management committee, a person shall appear as being “The Referent”, in this case the Purchasing Director. HE/She will be responsible for the overall purchases of the organization. But not the only one. It is the first building block of better procurement governance. It is recognition of the following fact: managing purchases and a fortiori the risks linked to these responsible purchases is a subject in its own right.
Purchasing Ownership, therefore. More generally, responsible purchasing must have action levers:
- technology, supervised by the IT department in order to manage purchasing tools and secure data (suppliers, contract, specifications, payments, etc.)
- human resources to provide training for employees in order to explain and make them aware of the criticality of buying on behalf of the company, explain the risks inherent in an act of purchase.
- relays of these “purchasing” subjects in each of the company’s entities. The leadership must empower these relays so that they can transmit the same messages as it. It must ensure that all employees recognize purchasing as a discipline in its own right, essential for profitability and therefore the future of the company.
The second building block of healthy governance in responsible purchasing comes with the creation of a “Purchasing Committee” (multidisciplinary team including business buyers) which reports to the company’s Executive Committee.
This committee must be entrusted with several missions:
- Regularly assess the state of the company on its purchasing management with a clear and refined vision of the purchasing perimeter to be monitored.
- Manage purchasing risks and above all analyze incidents by putting them into perspective.
- Define precisely, then pilot, analyze, evaluate and above all regularly update the responsible purchasing strategy.
With such an overall vision, this committee is then able to defend budgets and above all, to justify investments.
Most of the time, my experience in companies of all sizes, in various sectors has shown that there is a severe lack of funds for this whole topic of sustainable purchasing.
Money (as always) it is one of the nerves of war.
If the Executive Committee of the company does not recognize the necessity to start by devoting a budgetary envelope to purchasing policy in order to improve good practices, then the maturity has very good chances to remain weak.
On this question, I could observe a real schizophrenia of companies which all think that purchasing is both a challenge (the famous “savings”) and which, however, are under-investing in the field.
You just have to ask a manager “who is for you the main constituent parts of your business.” Few will spontaneously put suppliers there…
Likewise, if there is a budget and it is not known how much one spends and what the purchasing expenses relate to precisely, then it is almost certain experience that the company manages and controls its purchases badly.
So, managing purchases is a metier, it is one of the actions that will allow companies to be more efficient tomorrow. Even better, by managing its suppliers ecosystem, the company takes care of one of its most precious assets (and no longer liabilities or charges).
Obviously, doing this comes at a cost.
It remains to be seen how to better organize the whole company to ensure that the model I defend for responsible purchasing can irrigate the whole company and its constituent parts.
Vertical, top-down governance, called into question in the various management models offered today, has proven to be largely ineffective in terms of managing sustainable purchasing. As we have seen, if a purchasing manager is recommended, he/she must in no case be alone. Above all, he/she must not assert a vertical truth which would not take into account the feedback of the teams on the initiatives implemented and on the actual state of the company’s purchases.
Exit therefore the verticality! We naturally lean towards a horizontal organization of people and purchases. The latter has the merit of empowering the teams, increasing their motivation and promoting living together.
However, this is not the one I would recommend for purchasing management, I would go beyond established patterns and tend to break the codes.
To properly manage purchases and the risks that go with it, I propose an approach that takes a step aside. From the various lessons I have learned from my meetings with companies that have drawn on my expertise in managing their purchases, it emerges that in terms of governance, the most effective is what I would called the P.C.G. : Purchasing Circular Governance.
What is P.C.G.? In order to be truly shared by all, the purchasing committee becomes the first link in the chain, and it will irrigate to the other entities: finance, human resources, sales, marketing, communication, production, supply chain, social responsibility of company. Each of the entities applying an identical purchasing process and each of the departments sharing its experience with the others with the aim of improving the entity’s purchasing system as a whole.
Furthermore, circular purchasing management allows significant flexibility as to the purchasing categories to be favored, the choice of categories of purchases to be secured and finally to the crucial elements to be protected (contracts, supplier data, patents, etc.).
Correctly managing your purchases involves a disruptive and participatory approach. It is high time for Companies to evolve their vision of investing to be better equipped and therefore more efficient in terms of sustainable purchasing.