Buying Your Way to the Top Summary (McKinsey&Company)

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Purchasing Teams – A New World Order

Strategic Supplier Relationships – Purchasing teams find themselves being relied upon more than ever to build and maintain supplier networks. With production costs nearly tripling in the past half century, organizations are discovering that a new definition for the role of company purchasing guru is long overdue, as duties have shifted from chief negotiator to strategic contributor.

The Evolution of Purchasing

  1. Serve the factory: Keep the site running by satisfying clerical and logistical tasks.
  2. Lowest unit cost: Purchasing is defined as it’s own entity, with its primary function being to lower materials costs through cost analysis and negotiation.
  3. Coordinated purchasing: Find ways to lower materials costs through methods such as cooperative purchasing and coordinating multi-site agreements.
  4. Cross-functional purchasing: Focus on design and supplier development at the strategic level as part of total systems cost as opposed to pure negotiation.
  5. World class supply management: Defined by strategic supplier selection, relationship management, and supplier development.

Barriers

  • Poor Information: What is actually being spent on which items?
  • Weak Administration: Senior purchasing management frequently finds itself bogged down by day-to-day tasks.
  • Skill Gaps: Purchasing is still largely trapped in the “negotiation” mindset.
  • Low Status: In some sectors, purchasing is still seen as a less desirable function in an organization.

Overcoming Barriers

  • Get the basics right – this includes maintaining the right organizational infrastructure. Building cross-functional teams offers benefits in adaptability.
  • Do your research – assemble facts that will help you know the suppliers better than they know themselves. This includes getting their input.
  • Make design decisions knowing the future cost implications.
  • Build your supplier networks – it’s important to have options and continually demand improvements in both quality and efficiency.

 

Read the full article “Buying Your Way to the Top” here.