He spoke of how the need arises for the purchasing and supply function to be linked to the organization's strategy, which in 1969 already became aware of a need and already in the 80's began to recognize the critical role that the function has.. And according to the documentary investigation that was carried out on the subject of purchasing and supply and how it positively impacts the results of the organization's strategy.
OBS Business School
Master Supply Chain Management & Logistics
January 30, 2018
How to turn the purchasing and supply function into a strategic function for the organization
David Jonathan Vázquez Moreno
Module 3: The new challenges in purchasing, sourcing and supply management.
Introduction:
As is well known, organizations today, as part of their functions, focus on making their processes efficient as a result of the need to reduce costs, for example when managing a profit margin with constant income (sales of difficult increase or prices set by competition) the only viable alternative is to decrease costs, to improve economic profitability, towards the search for positive financial leverage and an increase in financial profitability (Morillo, 2001).
In 1969 the need to strategically manage the productive activities of an organization was noticed, since then a problem arose to identify dimensions that allowed defining and classifying the different competitive options that were proposed (González BJ, 2006) and in the early 80's it began to recognize the critical role that the purchasing and supply function plays within the company and, therefore, the need to align its function with the strategy with that of the business (Carmen González Zapatero Redondo, 2010).
This need to reduce costs can alter organizations in changing their strategies and collaterally generate benefits such as in the Zara model, it is mentioned that the introduction of new management methods, such as just in time, improves competitiveness by ensuring at all times the exact supply of the finished product (Barreiro, 2008). Therefore, this same need to reduce costs, be more efficient creating changes in work systems, has shown that organizations are flexible to adapt to these changes and that a benefit is produced in the consumer as a result of this adaptation. Flexibility requires the unified and rapid response of all the components of the company implies that the different functions,processes and technologies that make up the organization are aligned with the competitive strategy that it defines in each case.
Therefore, one of the main changes that the company must make is, specifically, that of giving an important weight to the purchasing and supply function, however, in times past, little was known about the mechanisms underlying this link, and the circumstances and contingencies that strengthen or weaken it (Carmen González Zapatero Redondo, 2010). By giving weight to the purchasing and supply function, the complexity of this function will increase and if there is no clear vision of this process, integration with the company's strategy will be difficult.
In some cases, one of the actions that organizations tend to take to make the purchasing and supply function efficient is that of centralization of purchases, when it is a group of companies that buy goods in common, or that are part of a corporate, in this way they homogenize and maximize their effectiveness, in this field through this strategy advantages can be obtained in discounts for economies of scale (Enrique Rodríguez, 2010), In other cases the strategy is based on reviewing processes, as well as the work team that administers this function (Domínguez, 2015). Therefore, the effective and efficient management of the purchasing and supply function makes this function be considered as a key strategy to maintain and improve the competitive position (González BJ, 2006).
The proposal of this essay is to demonstrate that the purchasing and supply function is a strategic function of the organization, and the How is sought? This function can be converted into a strategy for the company, for this purpose, success stories of companies that have relied on the purchasing and supply function and that have positively impacted the results of the organization will be investigated and, as a result, an the actions that need to be implemented supported by various thematic documents that deal with this content.
Development:
Different circumstances influence the alignment of the purchasing and supply function with the company's strategy, this synchronization as for example depends on the increasing weight that the purchased materials and components have achieved on the final product, this increase in components has as a consequence of having an increasingly high percentage of material costs are not only due to the cost of the material itself (Carmen González Zapatero Redondo, 2010), but also to the administration that leads to the acquisition of the components, also considering issues quality or service times that are offered to customers, therefore customer satisfaction is in the hands of the purchasing and supply function.
If another factor is added to the issue of the complexity of component acquisitions, such as knowledge of demand, for example, then the need to establish effective communication and the possible use of an information system arises, which will be key to sustaining the changes. Within the organizations that are generated to meet the requirements of the dynamic market, by implementing information systems, the ability to "automate" repetitive processes will increase, functionally improving and reducing costs, and this will lead to the birth of a new knowledge-based economy. which implies the exploitation and use of knowledge in all productive activities (Barreiro, 2008). Because knowledge can come from both inside and outside the company,The last part of knowledge management then lies in customer knowledge and how to make this knowledge a strategic part of the organization.
The knowledge of the client makes it possible to know then the requirements of the demand and as a consequence we work on having a flexible manufacturing system and therefore a customized production, this requires having just in time production systems, and consequently contributes to the transformation of the organization of work, with significant improvements in productivity, quality and flexibility, where simultaneously work with small human teams, organized in groups, responsible for complete processes and less subject to traditional bureaucratic control of functional departments, then a basic modification occurs orientation in companies from a supply chain approach focused on cost advantage (supply push),towards another oriented to respond to the needs of consumers, which implies the development of purchasing and supply systems focused on the consumer.
The effectiveness of purchasing and supply management depends not only on technical processes, but also on the availability of the information that is available and on the need to carry out a management check to determine its effectiveness, for this Lozano (Lozano, 1995) proposes to use some ratios or ratios to be useful in evaluating the performance of said management, some ratios are: supplier dependency, supplier reliability, urgency factor, price deviation, among others.
Until now we have commented that the purchasing and provisioning function are key to the competitive strategy of the company, and it has been derived, for example, having an information system that helps spread knowledge of external factors such as customer needs, as well as It is important to highlight that the function must be evaluated to know the effectiveness of this function, so information technologies are important as well as key performance indicators and must be present within the actions that must be established to have a positive impact on results of the organization, on the other hand Enrique Rodríguez (Enrique Rodríguez,2010) mentions that the centralization of purchases is adequate, but in the case of a global purchasing strategy for companies with business units or companies with several production plants or multinationals. In addition, it facilitates standardization, much needed in this global purchasing approach. The creation of a purchasing group and supply strategy allows for uniformity that leads to economies of scale.
González proposes (González BJ, 2006) schemes that distinguish four basic priorities, dimensions, or objectives, such as cost, quality, delivery times, and flexibility. Now the purchasing function in this case contributes significantly to achieving each of these generic objectives, and hence its strategic importance. For example, in the reduction of costs, the purchasing department improves the efficiency and use of the human and physical resources it has, and above all, reduces the purchase price and transportation of supplies and inventory levels, and one more aspect, contributes above all to the quality, performance and functionality of the products, which leads to high durability.
If, for example, you need to reduce order and delivery times, and to create a reliable supplier base, the purchasing function will help to compete in the delivery time and can help improve the flexibility of the company, configuring a supply network capable of easily altering production volume.
However, to demonstrate the positive impact of the purchasing and supply function through different actions that have been taken by different organizations, several success stories will be presented.
Success case 1: Bankia:
Bankia works to transfer the entity's values, policies and behaviors to the entire supply chain, and integrate all suppliers as an element to consider in the development of business strategies. Bankia's relationship with its suppliers is to achieve mutual benefit, an involvement of suppliers in the entity's projects and strategy, as well as working together to establish long-term relationships and the satisfaction of all customers in the company. entity.
The success stories describe some of the experiences of the relationship between the suppliers and the entity and reflect shared commitments and efforts to improve responsible management with a common goal, to provide the best service at the lowest social and environmental cost. In 2016, Bankia paid its suppliers in an average of 10.45 days, which represents an improvement of 10.3% compared to 2015 (www.bankia.com, sf).
Success story 2: Starbucks:
A success story in value chain management has sought differentiation through offering value. With this new business model, Starbucks has managed to create a community of consumers faithful to its brand.
The company's agents travel to Asia, Latin America and Africa to purchase high-quality raw materials to bring the best coffee to their clients. Agents establish strategic relationships with suppliers, based on and partnering with a supplier that builds upon recognition and communication about company standards. By adding value in the supply and marketing chain, margins improve in each process and the benefits for the company increase (Starbucks: A success case in value chain management, 2016).
Success case 3: Aciturri:
He developed an advanced purchasing function led by Cristina Álvarez, transforming the team and processes completely, in 2011 Aciturri received an audit from its largest client Airbus, where it was evaluated with a resounding zero, there was a big problem and a challenge ahead:
Cristina Álvarez, together with her team, turned Purchasing into a pillar of her company, based on the following principles:
Management support, a key aspect in any organizational change.
Professionalization of the team and separation of functions and responsibilities.
Use of a high-level electronic purchasing tool.
The main decisions of the award processes and their modifications are taken in a collegial manner by the people involved in the purchase (Purchasing Department and internal customer).
A studied management system of key performance indicators (KPI's).
Lean thinking for the constant search for excellence in all processes.
The result? A 14% savings in Aciturri's purchases and contracts, improving relations with suppliers and promoting an ethical and committed relationship with them (Domínguez, 2015).
Success case 4: Danone:
Danone launches a contest called Danone Supplier Awards which reaches its fifth edition in 2015, created with the aim of recognizing the contribution of suppliers and ranchers to the company's success. A total of 19 awards, divided into three categories, are awarded annually at a gala reminiscent of the Oscar ceremony. Danone informs its suppliers and ranchers of the results of the previous year and of the objectives and strategic plan of the company for the following year, which gives a very good feedback on the work carried out and allows aligning efforts in the priority lines of work of facing the future.
In addition to recognizing the work of its collaborators, these awards have fostered their competitiveness, serving as a commercial lever in most cases, have given internal visibility to the purchasing department and its function, and have greatly improved Danone's image as a brand (Domínguez, 2015).
Success story 5: Easter quality:
When David de la Calle was asked that he had to renew the almost 600 vehicles (not counting the trailers) of the Pascual Quality fleet, he had no doubts about the amount of work that lay ahead. He had to combine the needs that HR required of him in terms of Occupational Risk Prevention, cost efficiency and the low risk that should be sought from purchases and that the solution be respectful with the environment. As David himself said: "We needed tanks to protect our employees, that they were cheap and that they did not pollute." It was not an easy task.
However, thanks to an exhaustive market study and a correct internal customer segmentation (a salesperson did not require the same vehicle as a manager), they succeeded. The balance solution came from the new Opel Meriva and Insignia, its reliability and, especially, the fuel they use: Liquefied Petroleum Gas (Autogas) and improved diesel, with low cost and environmental impact (Domínguez, 2015).
Success case 6: Company that manufactures industrial machines:
Machines with a high number of components, this caused the purchasing area to manage a high number of parts and product families, in turn the company worked with external workshops, which increased the level of complexity. After preliminary diagnostic work, it was observed that the panel of suppliers was not balanced and that they handled parts with a single supplier with the high risk that this implies.
On the other hand, the supplier meetings focused on technical aspects and less on strategic issues. There were communication problems too, it was purchased without having clear criteria for the company. After this phase, a project was launched to increase the efficiency and results of the purchasing department, working on three aspects: Strategy, Processes and People.
For the definition of the purchasing strategy with suppliers, the Kraljic matrix was used to classify them based on the complexity of the market or difficulty in finding suppliers and the importance at an economic level for the company, creating four groups (Strategic, Levers, bottle and Commodities).
At the process level, work was done on concentrating purchases in the department and defining purchasing criteria for those that were not going to be carried out directly by the department. For this, the “Who buys what” matrix was worked and after this work it was concluded that 80% of the purchase volume of the production references were hired by Purchases but instead only 5% of the total number of services.
With the people, we worked on the analysis of the tasks that each one performed in their job, identifying those that provided value and those that did not, and reorganized the functions of the positions and reassigned priorities. The team was also trained through eminently practical training in negotiation skills and techniques by introducing “Rol-play” to empower them and improve their results (www.improven.com, 2018)
Conclusion:
This essay talked about how the need arises for the purchasing and supply function to be linked to the organization's strategy, which in 1969 was already aware of a need and already in the 80's the critical role began to be recognized which has the function.
And according to the documentary investigation that was carried out on the subject of purchases and supplies and How? positively impacts the results of the organization's strategy, I have written a list of activities that I consider to be key elements in achieving this impact.
The key elements that I consider do not come from a single source, but rather that different sources were analyzed and the actions that led to success stories in the organization were compiled from each one, some speak of involvement with suppliers such as example of Danone (Domínguez, 2015), who annually recognizes the involvement of the supplier and in turn is recognized by expressing the result of the year or the previous year, and what is expected from the following year, others for example are betting on corporate purchases because economies of scale can be established, however they can only be applied to a group of companies that are normally part of the same shareholders,other companies, for example, see the purchasing and supply function as a pillar of the organization where they professionalize the work team, for example, other organizations focus on reviewing their purchasing strategy, processes, and stopping and reviewing the needs of purchases.
Listed below are a series of actions that I consider to be key elements for the success of the purchasing and supply function in the company's results:
Implementation of information technologies that support information traffic to make decisions, which in this case focuses on knowing the customer's needs.
Establish a correct investigation and implementation of key performance indicators (KPI's)
Establish a corporate purchasing system.
Disseminate standards, values and policies to suppliers.
Integrate and involve suppliers in projects in the organization's projects.
Establish a differentiation factor supported by offering value to end customers.
Involve the purchasing executives of the organization.
Convert the purchasing and supply function into the pillar of the organization.
Involve senior management.
Professionalize the purchasing team, as well as separate roles and responsibilities.
Implement electronic tools in the purchasing and supply function.
Make decisions on product acquisitions, this by a collegiate group together with internal clients in the organization.
Apply Lean Thinking in the processes.
Recognize the contribution of suppliers through an annual award ceremony.
Provide feedback to providers on the results and objectives for the following year.
For internal acquisitions that are not part of the sales product, the needs of internal clients must be studied, I brought it to measure.
Classify suppliers based on market complexity and economic importance for the organization.
Review purchasing criteria, for example knowing who buys what.
Study times and movements of purchasing staff to identify actions that do not generate value and eliminate them.
Train purchasing staff in negotiation skills to empower them and improve their results.
These actions will lead the organization to achieve positive results, which I mention below:
They reflect shared commitments and efforts in improving management with a common goal.
Provides a better service with the lowest social and environmental cost.
Profit margins improve, the company's benefits increase as liquidity and profitability.
Improves relationships with suppliers and fosters an ethical and committed relationship with them.
By exercising feedback and recognition to suppliers, it promotes the organization's competitiveness.
Substantially improves the image of the company.
Increases the efficiency of human and physical resources.
Reduces the price of acquisitions.
Reduces the price of transporting supplies.
Reduce inventory levels.
Increases the liquidity and profitability of the organization.
Contributes to the improvement of product quality.
Contributes to the functionality of the products and high durability.
Improve the supply network.
I hope that the intention of this study has met expectations, we can mention the actions and benefits of this link of the purchasing and supply function with the organization's strategy, but everything moves to a common factor, the human resource, people, good training, good training, and an excellent approach to human resources to detect needs, will be key to generating changes in organizations.
Bibliography:
Barreiro, AM (2008). Towards a new fashion system. The Zara model. International Journal of
Sociology (RIS), Vol. LXVI, 105 - 122.
Carmen González Zapatero Redondo, JG (February 2010). An explanatory proposal of the competitive effects of the integration of the company's purchasing and commercial function: Illustration in the fast-fashion sector. Salamanca, Spain: University of Salamanca. Obtained from
Domínguez, JM (June 2, 2015). Club-mba.com. Obtained from http://www.club-mba.com/2015/06/02/3- cases-of-success-since-aerce-2015 /
Enrique Rodríguez, MP (2010). The integration of project management with the integrated purchasing function, a practical case. XIV International Congress On Project Engineering, (pp. 516 - 525). Madrid Spain.
González, BJ (2006). Competitive effects of the strategic integration of purchasing management. Universia
Business Review, 10-21. Retrieved from
Lozano, AR (1995). Procurement management control. General Magazine of Infarmation and
Documentation, Vol 5, 285 - 294.
Morillo, M. (2001). Financial profitability and cost reduction. Accounting News FACES. Year 4 No. 4, 35
- 48.
Starbucks: A success story in value chain management. (April 27, 2016). Obtained from
www.bankia.com. (sf). Obtained from http://www.bankia.com/es/gestion-responsable/provederos/casos-de- exito /
www.improven.com. (January 7, 2018). Success story: Gaining competitiveness through the transformation of a purchasing department. Obtained from https://www.improven.com/blog/productivity- case-of-success-optimization-of-the-purchasing-department-of-an-industrial-company /
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