The implementation of purchasing strategies has evolved from pure necessity to choose one that will align with customer needs and company values. Consequently, purchasing strategies are now an integral part of company policy. By choosing the most effective strategy, a company can increase sales, make smarter decisions, and improve customer relationships.
With such a variety of purchasing strategies to choose from, it can be difficult to identify which one would be best suited for your business.
Let’s explore six purchasing strategies, from latest to oldest and consider which is best for your company.
1. The newer trend of Global Sourcing
Global sourcing is the current trend in purchasing for large multinational companies sourcing supplies and services from countries around the world. Normally, this strategy is used to obtain the most cost-effective goods, based on the manufacturer costs in the supplier’s country. A successful global sourcing strategy should involve:
- Final Cost, where all factors are included
- Assessing Laws applicable in all countries
- Currency differences and fluctuations
- Lead time
- Culture and language
2. Increasing partnerships with Vendor Development
Three main factors have contributed to an awakening of the perceived value of supplier partnerships. These are:
- Complex business models at global scales where companies set up manufacturing or assembly facilities closer to markets and locations to reduce conversion costs.
- Advancement in technology and R&D capability are leading to shorter product life cycles. New versions and product innovation mean products become obsolete faster.
- Lean Manufacturing and cost per unit concept are demanding that managers keep looking to reduce the procurement cost as well as procurement logistics cost. Supplier companies now hold inventories closer to the buyer and postpone taking inventory ownership up to the point of consumption.
Companies have realised that to create a global business model, they need to build supplier partnerships through collaboration, by investing in developing supplier capabilities, and by valuing the relationship.
3. The customer-led demand for Green Purchasing
Over the last two decades, growing concerns about ecosystem quality have led to a renewed interest in environmentalism, especially in many customer bases. Purchasing professionals are now rethinking purchasing strategies that have traditionally neglected environmental impacts. Areas now being addressed are:
- Ecological factors reshape supplier selection decisions
- The role of “green” purchasing in reducing and eliminating waste
- Effects of “green” purchasing on packaging decisions
- The effectiveness of regulatory compliance, pollution prevention, and resource recovery
- Ethical worker policies of suppliers are beginning to impact decisions
4. The TQM benchmark
TQM or, Total Quality Management is a well-known strategy that focuses on improving the quality of service and the performance of the supply chain. This strategy focuses on integrating and managing functions and processes based on quality to ensure top products and services.
TQM looks at what quality measures need to be put place, at all touchpoints including design, development, quality control and improvement, to ensure a commitment to zero errors. Ongoing measurement and human resource management are both important practices to keep in mind when ensuring the best purchasing strategy.
5. The Four Stages of Risk Management
Risk Management strategy incorporates four different stages to help evaluate the risks involved in a system, or procedure within your supply chain.
Stage 1: Identification
This stage focuses on identifying the potential risk and issues that could have a negative impact on your company’s goals. Areas of potential risk that this process takes into consideration include, physical damage at production, natural disasters, strikes and labour disputes, inventory problems, ongoing delays and more.
Stage 2: Risk Assessment
At this step, the focus is on interpreting the probability that a risk you’ve identified will occur and judging the potential impact that risk will have.
Stage 3: Control
After identification and assessment of the issue, it must be contained and controlled. The level of control must be comparable to the level of potential risk.
Stage 4: Monitoring
The final stage of the risk management process requires a continuous monitoring process. Using a risk register is an effective tool to monitor potential risks and their outcomes.
6. The advantages of Supplier Optimisation
One of the better-known strategies in the business world is the Supplier Optimisation strategy. After thorough research and comparison, businesses choose suppliers based on who will be able to provide better prices and conditions when it comes time to making deals and providing products or services.
This system is mutually beneficial for both supplier and business and creates a strong collaborative working relationship. Both sides of the relationship invest in the most appropriate levels of technology to simplify the process, meaning products make it to market faster. This strategy makes processes highly efficient and increases the competitiveness among suppliers, meaning your business is more likely to secure a great deal.
Which strategy is best for you?
Regardless of which purchasing strategy is best suited to your company, the ultimate goal is to make the most cost-effective decision from a group of efficient vendors who will deliver quality goods, on time, and with mutually agreeable terms.