For 7 years now the EIPM have been gathering Purchasing Professionals from around the world to its Annual Purchasing Conference and, judging from the feedback and the results of the participants’ questionnaire, this year’s Annual Conference was our best ever yet! This can be largely contributed to the quality of the speakers and of the participants (90 participants representing 13 nationalities).

The main objective of the Conference this year was to give insight on the future development of purchasing as seen from three different perspectives: academics, practitioners and consultants, and stimulate some reflection on how we can prepare ourselves for the future.

Some of the questions raised in the conference:

Highlights from the Academics
 
Joe Cavinato , distinguished professor at the Center for Strategic Supply Leadership, Institute for Supply Management

In his presentation, Professor Cavinato talked about the different types of supply chain (15 in all) giving examples to illustrate their characteristics and what companies should do to improve them. He positioned them in a matrix with two variables: profitability and complexity. The simplest type of chain in this matrix is the – “non existing one”-, which instead of bringing to company competitive advantage, brings disadvantage to the value chain. The most sophisticated one : information network chain is about having a core of efficient and agile processes that can flex and flux with service opportunities and life cycles. Operations are run by teams and not functions and Purchasing as well as Supply Chain Managers, are often seen as creators and leader/managers of those networks.

Professor Cavinato also talked about the changing roles in Purchasing and Supply since the turning point of the 1973 oil crisis and presented the results of a research run by CAPS (Center for Advanced Purchasing Studies) in 2002 on Senior Management expectations on purchasing and supply. There were 4 overriding conclusions:

Erwin Wall, Corporate VP Purchasing for Michelin
 
Mr Wall talked about the current industry trends and their impact on process and people at Michelin. He discussed how globalization has had an effect on their industry by putting too much downward pressure on prices. This may seem a “Buyers Dream” but it is effecting supply as industry price cuts are putting the smaller companies out of business.. Therefore, the view of purchasing at Michelin is to integrate suppliers in development and share resources with them, so as to stabilize both parts of the equation: competitive advantage for Michelin and long term sustainable growth and profitability for the supplier. Michelin purchasing priorities for the moment are: Building strategic Alliances navigating through Insourcing and Outsourcing and working on capital equipment savings. Each of those priorities require different skills and profiles which are very well defined. Mr. Wall pointed out that purchasing has to accept when it can not add value on any given part of the process.

Sven-Olof Kulldorff, VP purchasing for IKEA IN 2002
 
Ikea shops were visited by 286 million people. For Mr Kulldorff, the success is not only attributed to the excellence of the business idea, but the efficiency of its operations as well. The targets for the future are very ambitious : 50% price reduction for each store, and purchasing has a major role to play. Closer cooperation with fewer suppliers, and single sourcing for ¾ of articles are some of the axes. Ikea’s view on competition is very interesting: they love it, because it stimulates improvement. The type of strategy with suppliers depends on the types of the business : going from playing competition with suppliers to full cooperation (partnerships even ownership. But the ideal supplier profile is “demanding in performance”, fair, professional and honest. It should share the Ikea values.

Jean-Michel Paulange, Senior VP for the Purchasing group for Electrolux

Mr Paulange’s presentation was largely oriented towards the contribution of the purchasing function in the innovation process in order to reduce costs and complexity. It is the perfect alignment with the priorities of the business which matters and for that it needs to pass from coordinated purchasing to purchasing member of crossfunctional teams, working on relationship design with suppliers and focusing on their improvement. The objective is to create a purchasing organization which capitalizes on all the purchasing assets, focusing on the resources in the regions (giving them regional responsibilities) instead of local centres. For that, the challenge number 1 is the management of talent. For JM Paulange, the talent should not remain in purchasing. The best way to keep performance and make purchasing attractive is to open doors to other functions. Every talent should be treated differently and accordingly. Payment packages are one thing, the stimulating and challenging environment is another one. As Mr. Paulange put it : Nobody leaves the company because he/she is paid better elsewhere.

Highlights from the Consultants


McKINSEY (Vienna)
 
Günter Fuhry and Christian Harm talked about the challenges of the companies today, their implications in the role of purchasing with some recommendations of McKinsey .

Many companies have faced massive downturns due to the worldwide recession. And the important share of purchasing in the external spend, has put purchasing in the frontline of cost reduction efforts. However, purchasing is not only cash and cost down. It is about increasing revenues and managing risk as well. And for that it should reach a world class status which for McKinsey translates in: high aspirations, advantaged fact base, strategic focus, top talent, supplier network, and enabling technology. To achieve that, Mckinsey recommend focus on 4 areas :
 

Today companies need to reinvent their business and for that they have to go beyond “best practice” mentality. They have to create and execute unique new strategies. In response, Purchasing needs to define and execute a compelling strategy in supply management by exploiting changes in the environment and focusing on relentless execution. This strategy is not only focused on costs; it establishes sustainable cost leadership, and leverages on suppliers for innovation and marketing (co-selling, co-branding, enter new markets). The buyer/supplier relationships need to become more value based.
In his conclusion Mr Plaizer underlined that today’s CPO (chief purchasing executives) are at a strategic crossroad. The gap between high performance supply management organization and low performance is widening. The distant followers risk to be trapped in a low value activity spiral and be outsourced!

 

COMPENDIUM

According Robert Cole, recognition of the purchasing function as strategic will not happen automatically, it requires leadership at all levels of purchasing management:

- CPOs should be able to prove the procurement function added value to business strategy
- At Director level, it should be able to convince budget holders of procurement added value through networking
- At Supply chain level - it should be able to convince other functions in the supply chain to cooperate to jointly pursue value creation.
- At Purchasing staff level: it needs to develop staff competencies to deliver the expected results.
 

IBM Consulting service

In his opening note, Jan Buter, who has been presenting in the last 5 conferences, underlined the trends discussed in previous conferences and which are still valid. One of them is the business model transformation from a sum of functions to an integrated value chain including internal business processes and supplier and consumer network. Such an organization is flat and flexible. In theory everybody agrees, this is a form we should go for, in practice we are not there yet, because we still have the hierarchical chain of orders, rigid job descriptions and measurement systems. And most importantly organizations will only change, when people populating them will change and this takes time. Today the capabilities of the organizations are outdistanced from the thinking.
In the second part, Mr. Buter discussed the contribution of procurement in the new business reality relating to globalization and the change of focus from products to value added services.
Moreover, it will be a driver in the supply chain optimization and the management of change contributing not only to the cost reduction but to the revenue growth.

This is a world where purchasing has to be the backbone of the company. But this will not come naturally. Purchasing has to take its place and for that it has to take the leadership and shape the future.

 

CONCLUSION
 
To conclude, the future of the Purchasing function is in the hands of those who make it their everyday business.

The world is changing and change is no longer incremental but abrupt and radical.

We need people who not only have the technical expertise, but entrepreneurs and leaders capable to anticipate, create and implement!
There was one word common to all the presentations: purchasing leadership, leadership and leadership again.