Enhancing the purchasing function’s performance

Ronald M_Studio_Photo_100709.JPGThe ever changing needs and demands of customers, coupled with high market opposition, has provided Procurement professionals with more avenues than ever before to deliver value to their respective organisations.

To provide support in identifying these opportunities SmartProcurement will publish a World-Class Procurement Practice series over the next 15 months, penned by Ronald Mlalazi (MCIPS), Commerce Edge Academy’s Education Manager. The articles will be based on Chartered Institute of Purchasing & Supply (CIPS) unit content and on recent research done by Commerce Edge Academy.

Article 1: Enhancing Effectiveness and Efficiency in the Purchasing Function

Is there any real value in managing suppliers, and if there is how can this be done? Can performance be objectively measured without setting realistic goals and objectives?

This first article is based on CIPS Level 4, Unit 3, Measuring Purchasing Performance and will discuss measuring the effectiveness of a supply chain and its contribution to the cost leadership of an organisation and its bottom-line.

Measuring Purchasing performance is one of the key strategic aspects of managing the Procurement function. Procurement professionals must be able to align procurement strategy with corporate strategy and effectively measure the performance.

The three key aspects to be measured are:

• Purchasing performance
• Supplier performance
• Buyer performance

The measurement of these three aspects must be aligned in order to co-ordinate a procurement strategy which would offer to sustained corporate competitive advantage, growth, profitability, cost leadership, enhanced service level delivery and shareholder value.

Measuring Purchasing performance affords direct benefits such as the ability to identify and reduce costs related to inventories, improved service levels, continuous improvement concepts, improved procurement processes and systems and supplier rationalisation.

Procurement professionals would be able to identify and agree on a supplier’s key performance areas and objectively measure its performance. Supplier measurement can be based on on-time delivery, quality, quantity, service, price competitiveness, cost reduction initiatives, innovation and financial stability.

Understanding corporate strategy and the strategic intent is paramount for Procurement if professionals intend to formulate realistic departmental objectives and deliver value for the organisation. Key to procurement objectives is decreasing supply market vulnerability, through various research methodologies, to ensure continuity of supply and represent the organisation as an attractive business partner in the marketplace.

In order to achieve such measurable successes, there are a number of tools and techniques that Procurement professionals can adopt and customize to their operations:

• Cost  – Price Analysis
• Understanding the Total Cost of Ownership (TCO) concepts
• Understanding the real cost of carrying Inventory
• Using the ABC Analysis to understand the value/item relationships
• How to objectively measure supplier performance and set performance reviews
• How to develop suppliers
• How to develop and implement commodity sourcing strategies
• How to achieve corporate objectives
• How to map procurement-supplier value chain

The performance of buyers directly influences a Purchasing department’s performance. Therefore, measuring buyer performance is one of the hallmarks of procurement management, offering increase skills and knowledge, improved motivation and morale and greater understanding of overall business aims and strategies.

To learn more about Commerce Edge Academy and CIPS Qualifications, please contact Ronald Mlalazi, Education Manager of Commerce Edge Academy at ronaldm@commerce-edge.com.

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