The role of strategic purchasing in a company has evolved from – “We need a PO!” to “Which purchasing strategy aligns with our customers’ needs and our corporate values?” Consequently, purchasing strategies are now an integral part of company strategy.
Regardless of the size of the company, there is a core group of six purchasing strategies that most businesses use.
The Six Core Purchasing Strategies:
1. Supplier Optimisation
The most common and well-known strategy is for the company to research and choose the combination of suppliers who can provide the most competitive prices and terms.
Key features include:
- Mutually beneficial
- Partnership/collaborative relationships
- Both sides of the relationship invest in the most appropriate levels of technology to simplify the process
- Faster time to market, higher efficiency and increased competitiveness
2. Total Quality Methods and Management
TQM requires the providers to supply an ever-increasing quality service with a commitment to zero errors. They must ensure purchasing best practices using several approved quality tools, (such as six sigma) while including both ongoing measurement and human resource management.
3. Risk Management
Many companies obtain supplies from countries as diverse as China, India and Indonesia, and have growing concerns about the risk management of this supply chain. Even though prices can be very beneficial, these benefits can at times be under threat from circumstances often out of the control of all parties. Areas of potential risk include:
- Physical damage at production
- Natural disasters
- Strikes and labour disputes
- Capacity issues
- Inventory problems
- Incorrect forecasts
- Ongoing delays
It is important that supply chain risk management takes a comprehensive approach to risk throughout global supply chains in a continuous process. Companies often outsource to specialist risk management providers to manage and solve these problems.
4. Global Sourcing
Global sourcing is the current trend in purchasing for large multinational companies who need to source supplies and services from vendors regardless of their country of origin. A successful global sourcing strategy should involve:
- Final Cost, where all the factors involved are included
- Assessing Laws applicable in all countries
- Currency differences and fluctuations
- Lead time
- Culture and language
5. 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 is 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 the 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 develop a global business model, they need to build supplier partnerships through collaboration, by investing in developing supplier capabilities, and by valuing the relationship.
6. 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
Whatever purchasing strategy fit your company chooses, ultimately you will seek to make cost-effective purchasing decisions from a group of efficient vendors who will deliver quality goods on time and at mutually agreeable terms.