importance of purchasing
reason 1: adding value
- every firm has primary and supporting value activities, performed to design, produce,
market, deliver and support products that are valuable for customers.
- to improve your competitive position, you need to focus on your core activities, on the
needs and requirements of their customers
- therefore non-core activities are increasingly outsourced to special suppliers
- often specialist suppliers can perform the outsourced activities at a lower cost and
with higher value-added than the buyer
- so actually professional purchasing these services and products can help your
organization to
→ Porters value chain
OW: Cost, quality, dependability, flexibility, speed
Importance of purchasing
Reason 2: Saving costs
- in the average app. 50% of the cost of sold goods are taken up by purchased
materials and services
- when you include other business costs (office suppliers, services, lease cars, etc…) it
can be 68%
- a small reduction of purchasing costs can increase the return on investments ROI
significantly
- so that´s why managing directors have lunch with their purchasing manager as well
nowadays (and not only with the sales manager)
, ROI: total amount utilized to make profit. Purchasing contributes to improves ROI in 3 ways:
1. reduction of all direct materials costs (improving sales margin by using less materials
used, less suppliers, standardization)
2. reduction of net working capital employed. (improving capital turnover by paying your
bills a bit later, less inventory via JIT or leasing equipment)
3. improving revenue-generating potential. (think of innovation on products and
processes, challenge your suppliers)
Cost-saving
- is not only about finding the lowest price
- checking your purchasing process is just as important
- so analyze it
Analysis
How can value be added and costs be reduced?
It all depends on the purchasing analysis
- classification (in other words what are you buying)
- type of purchasing (what kind of purchases are we talking about and how we do it)
- the role of the purchasing department in the organization (who´s in charge, who
decides, who´s signing the contract)
1. Classification (analysis of purchasing goods & services)
A. raw materials (coffee beans, iron ore)
B. Semi manufactured products (steel, plastic foil)
C. Components (batteries, electronic parts)
D. investment goods (machines, computers, buildings)
E. maintenance & repair materials (lubricants, detergents, copier paper)
F. services (Security, cleaning, catering, integrated FM)
2. type of purchasing
A. repetitive purchasing or straight rebuy
(think of routine items or bulk products)
B. changed or modified purchasing (new
product of same supplier or the other way
around)
C. new purchasing situation (high degree of
uncertainty, extensive decision-making
process)
reason 1: adding value
- every firm has primary and supporting value activities, performed to design, produce,
market, deliver and support products that are valuable for customers.
- to improve your competitive position, you need to focus on your core activities, on the
needs and requirements of their customers
- therefore non-core activities are increasingly outsourced to special suppliers
- often specialist suppliers can perform the outsourced activities at a lower cost and
with higher value-added than the buyer
- so actually professional purchasing these services and products can help your
organization to
→ Porters value chain
OW: Cost, quality, dependability, flexibility, speed
Importance of purchasing
Reason 2: Saving costs
- in the average app. 50% of the cost of sold goods are taken up by purchased
materials and services
- when you include other business costs (office suppliers, services, lease cars, etc…) it
can be 68%
- a small reduction of purchasing costs can increase the return on investments ROI
significantly
- so that´s why managing directors have lunch with their purchasing manager as well
nowadays (and not only with the sales manager)
, ROI: total amount utilized to make profit. Purchasing contributes to improves ROI in 3 ways:
1. reduction of all direct materials costs (improving sales margin by using less materials
used, less suppliers, standardization)
2. reduction of net working capital employed. (improving capital turnover by paying your
bills a bit later, less inventory via JIT or leasing equipment)
3. improving revenue-generating potential. (think of innovation on products and
processes, challenge your suppliers)
Cost-saving
- is not only about finding the lowest price
- checking your purchasing process is just as important
- so analyze it
Analysis
How can value be added and costs be reduced?
It all depends on the purchasing analysis
- classification (in other words what are you buying)
- type of purchasing (what kind of purchases are we talking about and how we do it)
- the role of the purchasing department in the organization (who´s in charge, who
decides, who´s signing the contract)
1. Classification (analysis of purchasing goods & services)
A. raw materials (coffee beans, iron ore)
B. Semi manufactured products (steel, plastic foil)
C. Components (batteries, electronic parts)
D. investment goods (machines, computers, buildings)
E. maintenance & repair materials (lubricants, detergents, copier paper)
F. services (Security, cleaning, catering, integrated FM)
2. type of purchasing
A. repetitive purchasing or straight rebuy
(think of routine items or bulk products)
B. changed or modified purchasing (new
product of same supplier or the other way
around)
C. new purchasing situation (high degree of
uncertainty, extensive decision-making
process)
