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The Most Unenviable Job in Purchasing

June 15, 2020
When a source is selected primarily on price, the dirty work falls to the OEM buyer.

The buyer role varies significantly depending on a company’s organizational structure. In smaller companies, a buyer likely wears most—if not all—purchasing-related hats. This adds to workload but also allows individuals to orchestrate actions so that procurement activities are made in concert. A generation or two ago, this is how most buyers operated. It is not this role that I’ll be discussing in this article.

Buyers for today’s large Original Equipment Manufacturers (OEMs) are, on the other hand, the tail of the dog. They get wagged a lot but have little to say on strategies or direction. For instance, today’s buyers are not involved in selecting sources, instead being expected to focus solely on procurement-type transactions. Sourcing decisions are made by what is usually called a strategic sourcing function. In theory, this function focuses on the whole range of sourcing considerations, including supplier prospecting, financial well-being, manufacturing capability, order fulfillment risk, and overall value per an employer-centric Total Cost Formula; i.e., competitiveness.

 My experience is that in many organizations, strategic sourcing gives lip service to supplier financial health, capability, order fulfillment and overall value, instead focusing primarily on piece-price. This, under the assumption that the lower the price, the more efficient the processing and the higher the value. Price does not necessarily correlate with cost, and it goes without saying that applying this thinking in a general matter is a mistake.

When I was in industry, we had a term for jobs that gave positive visibility without having to do much in terms of heavy lifting. We called such jobs creamers. In my estimation, people who work in strategic sourcing—as practiced today—have definitely hit the creamer jackpot. In essence, their sole performance metric is based on finding low-price suppliers. Why should this function be considered light lifting? First, because you can always find suppliers who are willing to give you a lower price, even if overall sourcing with them will cost more over time. Second, since the buyer is responsible for all day-to-day transactions (translate: negotiating on-going pricing, setting up orders as well as overseeing quality and order fulfillment) the people in strategic sourcing can in effect wash their hands of responsibility once they have delivered the lowest piece-price suppliers.

 If those who determine which suppliers can quote on jobs are considered strategic, then what about buyers? Unfortunately, the answer is they are usually considered tactical. Even though this may be true per Webster’s, using it as a label in describing a position gives the impression that the people working there are considered the B-Team and that the processes they are responsible for are not important, at least compared to those of strategic employees. In my mind, nothing could be more from the truth, especially when strategic sourcing short-circuits the source selection function as described above.

Read more of Paul Ericksen's supply chain management articles

In essence, when a source is selected primarily based on price, there is usually plenty of heavy lifting required to ensure that their parts are received on-time and to spec. And you guessed it, this dirty work falls to the buyer. And, if—regardless of effort—parts arrive late and/or are not usable due to quality defects, it is the buyer who typically receives the criticism. And no one wants to hear from buyers that the supplier performance shortfalls happen because strategic sourcing didn’t do proper due diligence on the sources they select. After all, strategic sourcing is the A-Team, and a buyer is only considered tactical.

What is a buyer to do?  It’s almost impossible to change an organization’s structure/processes once it is in place. Why?  Because that usually requires a change in performance metrics—departmental and personal—and my experience is that organizations believing purchasing’s primary function is to deliver lower piece-prices only reluctantly transition to a more holistic total-cost perspective. This is because material variance—year-over-year pricing—is purchasing’s primary financial metric, and chief financial officers are hesitant to open their minds to change what they learned in MBA school.

It probably sounds like I carry a grudge against the strategic sourcing and, for that matter, the financial function. If you think this is the case, you would be correct. Over my years in purchasing—and consulting with OEM purchasing organizations—I tried to make clients aware/take advantage of the other positive financial impacts that purchasing can bring to the table. Many times—more often than not, actually—what I really received for my effort was pushback from both strategic sourcing but especially finance; i.e., they would cite standard accounting practices. Those same standards, by the way, that say higher production batch sizes lower cost.

I strongly feel that purchasing functions that focus on piece-price will remain tactical. In other words they will not have a seat at the table when enterprise goals and metrics are being set. A better approach is to find suppliers that can offer lower overall cost above and beyond than piece-price.   

My next article will focus on some behind-the-scenes examples of what happens when strategic sourcing operates under the above parameters.

Paul Ericksen is IndustryWeek’s supply chain advisor. He has 40 years of experience in industry, primarily in supply management at two large original equipment manufacturers.

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