Tweet

STRATEGIC PURCHASING by HARVEY SCHILLER

Guest post by: Harvey Schiller

Article Overview: The economic environment is very difficult with strong competition and cost conscious customers. Manufacturers must find ways to become more efficient and to reduce input costs. Clearly raw material sourcing and purchasing is a huge opportunity.

STRATEGIC PURCHASING by HARVEY SCHILLER

Strategic this! Strategic that! We now label everything with the catch phrase “strategic”. But one of the most vital initiatives that can be undertaken by manufacturers, very well might be “Strategic Purchasing”.

We constantly hear that manufacturers in North American can’t compete because of labour costs. Many of our clients claim that the high cost of labour gives overseas companies an unfair advantage, and to some degree they are right. But for many of our clients labor costs represent less than 10% of the total product cost, while raw material costs are in the area of 65-70% of product cost. The economic environment is very difficult with strong competition and cost conscious customers. Manufacturers must find ways to become more efficient and to reduce input costs. Clearly raw material sourcing and purchasing is a huge opportunity.

Strategic purchasing is about:

1. Reviewing key categories, contracts, prices, price history and previous strategic sourcing activity
2. Initiating negotiations with current and other potential suppliers towards improved purchasing costs, terms and conditions
3. Internal and external leveraging of volumes
4. Working with suppliers “to put their best foot forward” to retain or obtain the business
5. Structuring the purchase agreements so that they are easy to monitor and prevent future “margin creep”
6. Tracking progress for “continuous improvement”

What hurdles prevent companies from undertaking strategic purchasing? Incumbent purchasing resources are constrained and focused more on the day-to-day operations rather than on cost reduction. There simply isn’t the focus. In addition, the expertise to benchmark, negotiate and source may not exist internally. Therefore, using outside resources for strategic purchasing makes tremendous sense as the sourcing tools and techniques can accelerate timeliness of cost reduction initiatives and increase speed to savings, while providing external benchmarking and leverage.

Self Diagnostic Questions

Does your existing staff spend more time on “replenishment” and “keeping the business running” than they do on “strategic sourcing” and “cost reduction”?

Is the buying done by various internal resources rather than by professional purchasers?

Are you aware of cost reduction opportunities that you do not have the time or resources to act on?

Do you feel that you have not maximized opportunities related to movement in the dollar?

Do you feel that some current suppliers may have become complacent in their dealings with you?

If you answered yes, to one or more than you could benefit from an outside strategic purchasing initiative.

Related Articles
  How Your Procurement Practices Affect Your Sales and Brand
  What are the 3 biggest challenges faced by supply chain/purchasing professionals today? (Survey Result 21)
  One Suprising Key to Selling Value
  Save Money with Vendor Consolidation
  What are the 3 biggest challenges faced by supply chain/purchasing professionals today? (Survey Result 8)
  Dig Your Well Before You Are Thirsty
  Judging a Book
  “Strategic Benefits of Business Coaching, According To Your Strategic Thinking Business Coach ”
  “Strategic Alliances and Their Powerful Benefits”
  Strategic Business Greeting Tips From Your Strategic Thinking Business Coach
  More Strategic PR Advice From Your PR Doctor
  “Ten Strategic Marketing Actions To Ensure Success In Your New Year, From Your Strategic Thinking Business Coach”
  What are the 3 biggest challenges faced by supply chainpurchasing professionals today? (Survey Result 2)
  Strategic Tips From Your Strategic Thinking Business Coach To Improve Personal Communications
  “Your Strategic Thinking Coach’s List of Ten Key Components of Effective Strategic Alliances”
  Strategic Thinking What Does It Really Mean
  12 Strategic Questions To Ask Before Starting New Marketing Activity, From Your Strategic Thinking Business Coach
  What are the 3 biggest challenges faced by supply chain/purchasing professionals today? (Survey Result 14)
  “Bully” and the MPAA PR Dilemma
  “Bully” and the MPAA Public Relations Dilemma

Article Tags: cost reduction, labor, lean, manufacturing, offshore, purchasing, raw material, sourcing
Referred by: http://www.marshallnorthcott.com



Related Forum Posts


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

20 MORE Must-Have Search Engine Marketing Tools

Resistance to Change and How to Deal With It

E Mail Marketing Campaigns

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.