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 Strategic  Purchasing

 

Contents

1. Strategic Purchasing Model

a. Vision (Introduction to Setting the Company Strategy)

  • Identify real Strategic Competencies

  • Vision Statement

  • Mission Statement and Customer Focus & Relationships

  • Critical Success Factors CSF

  • Core Values - Guiding Principles

  • Corporate Balanced Scorecard

b. Alignment (Matching Purchasing to Business Strategies)

  • Analyze the Supply Market: The macro environment - The trading environment

  • Analyzing the company: Value Added & Supply Chain Mapping

  • Analyze the suppliers: looking at the role & function of: first, second & third tier suppliers

  • Purchasing Mission Statement: The role of purchasing function to achieve the company Strategy

  • Purchasing Balanced Scorecard BSC

  • Purchasing Strategic Priorities Matrix

  • Purchasing Strategies by Segment of Strategic Matrix

  • Strategic Goals for Purchasing Function according to the company Business plan, BSC,

  • Re-designing procurement processes - select appropriate procurement processes BPR

  • Reverse Marketing Strategy

  • Supplier Performance & Relationship Management

c. Deployment (Implementing Purchasing Strategy)

  • Tactical Action Plans

  • Purchasing Best Practice

  • Standardization and Simplification - Systems & Procedures

  • Staff Training & Development

  • Performance Analysis and Benchmarking

2. Purchasing Mission Statement

a.  What should be in Purchasing Mission Statement

  • Purchasing Roles & Initiatives to reinforce, support or backup the organization Competitive Advantages (Technology, Innovation, Price, …)

  • How it will take into consideration the Stakeholders Interests (External &Internal Customers, Suppliers, Owner, Employees & the Society)

  • Ethical, Business and Social Values & Believes that govern Purchasing

b. PACCAR Purchasing Mission Statement

  • Purchasing is responsible for providing procurement leadership, coordination and strategy for all the organization’s divisions. Purchasing mission is to enhance the organization’s long-term profitability and growth by:

    • Identifying and developing a managed, consolidated SUPPLY BASE of financially viable, efficient, technologically advanced suppliers who are involved in the development and delivery of products/services and linked to their suppliers as well as the company through supply management agreements.

    • Securing the highest QUALITY products/services which Add Value to the organization’s operations and which result in the Lowest Total COST, Highest Perceived value and Total CUSTOMER SATISFACTION at Minimal Risk.

    • Implementing effective SYSTEMS and PROCESSES supporting an efficient, paper-less exchange of information between the organization, its suppliers and their suppliers.

    • Recruiting bright, talented and enthusiastic employees whose actions EXCEED CUSTOMER EXPECTATIONS.

    • Fostering an energetic, supportive organization conducive to creative ideas, team effort and personal development.

    • Supporting and adhering to the organization policy, Purchasing department procedures and Internal Audit guidelines.

c. Xerox Procurement Philosophy

Objectives

  • The primary goal of Xerox Corporate Procurement Functions is to insure the sound location, selection, development, administration and motivation of suppliers to Xerox for purchased components, materials, equipment, supplies and services, in order that a dynamic blend of the following technical, business and financial objectives may be achieved:

Balanced Value

  • Optimum Quality

  • Continuity of supplies

  • Minimum Final Cost

  • Supplier Know-How

  • Supplier Service

  • Good Xerox/ Suppliers Relation

Profit Contribution

  • Tight Economic Control

  • Constant Search for Value

Creative Business Leadership

  • Innovative procurement Techniques

  • Highly Qualified and creative People

  • Flexible organization

d. Dow Global Purchasing Mission

  • Our mission in Purchasing is to deliver substantial sustainable competitive advantage for Dow's businesses.

  • We will deliver competitive advantage to the businesses by obtaining the world's lowest prices for all raw materials and services, always striving to secure a purchase price lower than that secured by our competitors.

  • We will focus on total cost impact, not just on the price, recognizing that implementation is as important as the original deal. 

  • In order to sustain this advantage, we will structure our processes to help our low-cost suppliers win, rewarding them with the majority of our global business.

  • Global Purchasing has committed to realizing this vision through the implementation of a three-part strategy that is focused on effective negotiations, excellent contract implementation and on an efficient organization. 

3. Purchasing Strategic Priorities (Positioning Matrix)

4. Procurement Strategies by Segment

a. SPOT Procurements

  • Goal

    Reduce administrative burden, drive out complexity, and reduce paperwork

  • Possible Actions:

    • Simplify requisitioning, buying & invoicing.

    • Standardize wherever possible.

    • Automate, consolidate & delegate.

    • Systematize to greatest possible degree.

    • Consider stockless purchasing and possibility of moving to leverage quadrant.

b. Leveraged Procurements

  • Goal

    Maximize cost savings

  • Possible Actions

    • Group similar procurements together.

    • Utilize blanket orders.

    • Keep initial contracts short, i.e. one year.

    • Make suppliers responsible for tracking and reporting.

    • Seek consolidated monthly invoices, early payment discounts and staged volume discounts.

    • Move into Strategic quadrant as appropriate.

c. Critical Procurements

  • Goal

    Reduce Risks

  • Possible Actions

    • Consolidate needs to improve leverage.

    • Research options and pre-approve suppliers.

    • Contract to reduce risk.

d. Strategic Procurements

  • Goal

    Maximize cost reductions, minimize risk, and create competitive advantage

  • Possible Actions

    • Consolidate needs to improve leverage.

    • Seek long term “Partnering” agreements, i.e. 2 –3 years.

    • Build in Continuous Improvement Program & Performance Metrics.

    • Consider joint ventures with selected suppliers & customers

5. Purchasing Balanced Scorecard Perspectives and Objectives

 

Financial Perspective

 

Customer Perspective

 

Internal Business Process Perspective

 

Learning & Growth Perspective

6. Performance Analysis and Benchmarking

a. Benchmarking Areas

a1. Strategy & Process Benchmarking

  • Contribution and Influence

    How well purchasing is positioned, and allowed to have influential input to strategic decisions?

  • Purchasing and Audit

    Evaluation the mission or role statement, the nature of policy and procedures manuals, flexibility in approach, and the extent to which buyers are empowered or restricted.

  • Organization

    Evaluate the nature of the organization with focus on centralization or decentralization issues. Assure appropriate ratios between Upstream and downstream activities.

  • Relationships (External and Internal)

    • Internal:

      Purchasing involvement early in the procurement cycle, the effective management of cross-functional teams, and the effective management of the buying organization's contacts with suppliers.

    • External:

      Evidence of strategies specific to a supplier or group of suppliers. For certain key products and where appropriate- Evidence of supplier involvement in design, development, and enhancements in product quality, delivery and service. Techniques used for measuring and enhancing supplier performance are also evaluated.

  • Systems

    Effective use of information technology which provide buyers with real time information that can be used to make supply decisions

  • Staffing and Training

    the levels of qualification (professional) of purchasing staff - the nature and effectiveness of training programs

a2. Result Benchmarking

Supply Chain Performance Indicator

  • Time from customer order to delivery (lead time - days)

  • Delivery frequency of suppliers

  • Delivery reliability of suppliers (%)

  • Delivery frequency to customers

  • Delivery reliability to customers (%)

Financial Performance Measures

  • Purchase orders by amount

  • Cost of operating the purchasing function as percent of total revenue

  • Percent of total purchasing requisitions processed by the purchasing function

  • Total purchases of goods as a percent of total budget

  • Total purchases of services as a percent of total budget

  • Total construction purchases as a percent of total budget

a3. Customer Satisfaction Measurement

  • Evaluating Service to User

b. Benchmarking Steps

  • Analyze the procedures used in accomplishing subcontracting and purchasing functions.

  • Evaluate the quantitative and qualitative aspects of purchasing results

  • Determine gaps in performance.

  • Work teams to accomplish targeted projects to meet higher-level goals based on benchmarked results.

7. Supplier Performance & Relationship Management

a. Developing a World-Class Supply Base

a1. Identify, Assess, and Rationalize the Supply Base

Step 1. Identify Strategic Supply Chain Needs

Step 2. Search for Competitive Suppliers

Step 3. Establish Performance Metrics and Supplier Assessment

Step 4. Supply Base Rationalization

a2. Problem-Solving Development

Step 5. On-Site Risk Assessment by Cross-Functional Team

Step 6. Problem-Solving to Eliminate Suppliers’ Deficiencies (“Reactive)

a3: Proactive Development

Step 7. Establish Open Relationship through Feedback and Information Sharing

Step 8. Systematic Supplier Development

Step 9. Maintain Momentum

a4: Integrative Development

Step 10. Supplier Integration in New Product/Process Development

Step 11. Establish Performance Improvement in Second-Tier Suppliers

Step 12. Establish Integrated Supplier Network

By Office of Procurement & Assistance Management, Department of Energy DOE.

This page contains links to a great deal of information on the subject of the Balanced Scorecard (BSC) by Office of Procurement & Assistance Management, Department of Energy DOE. It is intended to assist DOE employees, contractors and anyone who is interested in BSC methodology.

This training material was created by a Government-Industry Partnership with Federal funds.  Hundreds of Federal employees and Government contractor staff across the United States have been provided the training to improve and streamline their processes.  The material is available for use ONLY for the purposes of Government and Government contractor training, and the material is not intended for commercial application without prior approval.  

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