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Procurement Skills Increasingly Critical to Supply Chain

If you've been reading recently published articles, surveys, and reports on the role of the procurement manager, you'll realize that purchasing professionals are taking on added responsibilities at high-tech companies trying to maximize supply chain effectiveness.

As more high-tech manufacturing shifts to western locations, and as companies take advantage of the shrinking cost gap in manufacturing between China and the US, procurement managers may be presented with new opportunities to source components and negotiate contracts.

Additionally, new rules and regulations mean procurement managers must stay abreast of emerging compliance policies. For example, the Dodd Frank Act that calls for companies to disclose whether their products contain conflict minerals such as tin, tungsten, and tantalum from the Democratic Republic of the Congo, and the ongoing changes to the Restriction of Hazardous Substances (RoHS), designed to prevent electrical and electronic equipment that contain hazardous substances from entering European Union countries, are measures that directly impact the role of the procurement manager.

The procurement manager's challenge
Procurement managers are faced with other concerns that have a direct impact on their roles and responsibilities. In a published online survey of purchasing managers conducted by My Purchasing Center, one participant said he manages capital expenditures and materials. He leads, or is a member of, an executive steering committee tasked with developing policies and procedures for the organization, and he also resolves issues that arise with business processes and the organization's SAP operating system.

He concluded that “It appears that my responsibilities and roles within our organization go beyond the title of Corporate Purchasing Manager.”

Another respondent described their role as “Building/sustaining a team that sets strategy and sources all products necessary to sustain continuous manufacturing operations throughout North America at the best cost to my company.”

And yet another said their job included “Commodity management, supplier selection, early purchasing involvement, material selection, technology assessment, contract negotiations, influencing early design, total cost analysis for new product launch and product transfers between manufacturing sites.”

In another survey published by Ernst & Young that polled 267 chief procurement officers (CPOs), one high-tech CPO recounted the frustrations of his job:

I need to deliver more savings, but I'm under-resourced and I'm not getting the data I need from my systems. I want to play a more strategic role within the organization, but every day I find myself reacting to another unexpected situation. I just can't seem to get ahead of things.

The BPO solution
In Ernst & Young's report, entitled “It’s Time to Think Differently About Procurement,” analysts conclude that companies should consider business process outsourcing (BPO) as a way to alleviate the workload of purchasing managers who are under pressure to deliver cost saving, but are limited in their ability to do so because they don't have enough resources to do the job.

The Ernst & Young survey found that 65% of CPOs said finding more savings is their No. 1 challenge, while 48% said their biggest challenge is talent constraints.

According to the report:

CPOs are getting everything they can from the resources they have, but they need more. Additionally, as the pace of business continues to accelerate and their needs evolve, CPOs find that they don't have the right competencies to manage procurement activities in-house.

BPO enables CPOs to get the right mix of resource skills, flexibility, and scalability to proactively address organizational needs and deliver the savings that the organization demands.”

Manufacturing's impact on procurement
Another report from research firm IDC, entitled Is Procurement Now the Key Supply Chain Skill?, discusses the impact of manufacturing trends on the role of procurement across the supply chain.

According to Simon Ellis, the report's author, many companies are really “brand owners” involved in the innovation and product design process, but not in the manufacturing of products that are made by third-party contract manufacturers. Given this, the role of procurement manager and the skills required to do the job have evolved over time and become more important to supply chain management.

Ellis said in his report:

This is a trend that has been heavily in favor of less owned manufacturing capability rather than more. So in a supply chain organization that doesn't make anything anymore, how important is manufacturing experience really? The reality, for many of these manufacturers, is that the product-making facility interacts via procurement — the sourcing organization.

Ellis continues that, while the key supply chain skills at some companies remain tightly attached to manufacturing operations, “The longer-term reality is that more manufacturers will be managing external suppliers than they will internal factories, putting a premium on procurement and sourcing skills.”

What do you think? Do you agree with Ellis's statement that across the supply chain perhaps the most important experience of all is that of procurement manager? How are purchasing managers coping at your company? And is it a good idea to consider hiring BPO companies to help procurement managers do their job?

6 comments on “Procurement Skills Increasingly Critical to Supply Chain

  1. Daniel
    July 4, 2014

    “As more high-tech manufacturing shifts to western locations, and as companies take advantage of the shrinking cost gap in manufacturing between China and the US, procurement managers may be presented with new opportunities to source components and negotiate contracts.”

    Nicole, I think most of the companies (atleast my company) are doing procurement through open tenders and there is less chances for negotiation.  When they are going for rate contract they can negotiate for better pricing.

  2. journeyman1865
    July 5, 2014

    Often items have been outsourced with out consideration of the support system required. Same occurs when items are brought back in house.

    One example was a company that had an EMS buid its product offshore. They no longer considered it necessary to update the BOM's as changes were made. Items became dock to stock. Without systems in place to support this process there were delivery and quality spills, and eventually loss of design control and the creation of an offshore competitor. Even with sytems some of this would have occured, options were truncated as design control was ignored.

    In some industries manufacturing knowledge must be retained if the product is competely outsourced. Where it resides in the organization can vary. Auromotive requires the procuring company be responisble for the supplier and is expected to follow the APQP process. The goal is to avoid the nightly news if all other considerations are ignored.

    Bringing manufacturing back in house puts a different strain on the system. Rather than being responsible for higher level functions but placing fewer orders and releases, detail knowledge is required of componet materials and supply chains. The procurement group may have to compete with a multibillion dollar purchasing group when only millions of an item are now required. One late part is an undelivered/sold item.  The order of magnatude or more in purchasing volume is a cost that is an obstacle. This is reflected in the overhead required per order placed and the volume discount from a supplier. There are other compelling reasons to do this, as anyone who has received 6 containers of unsaleble product can understand.

    Both illustrate that leadership requires limber thinking, planning and execution. Each company has a different requirement and method on how to control the above sitiuations. Some chose to put the responsiility completely on Supply Chain functions. Others fragment it. The diasater waiting to happen, considers that support functions as not required.

  3. _hm
    July 5, 2014

    Most work listed is shared work. Most part is done by designer, complinace engineers and others. Yes, procurement guy does get involve may be at last stage of product.

    I will say this is team effort.

  4. t.alex
    July 5, 2014

    Procurement person involves not just at the last stage. He/She should keep close watch on the vendors and the components so as to avoid any disruptive factors to the business.

  5. FLYINGSCOT
    July 7, 2014

    I agree that more companies are becoming procurement rather than manufacturing companies.  In many industries the barrier to entry is too great to be a world class manufacturer (capital costs etc) so the trick now is to be able to choose the best manufactureres at the right price, capacity and responsiveness.  That is easier said than done.

  6. SP
    July 8, 2014

    Yes procurement managers keep getting unexpected situations many times. And its so hard for them to be innovative apart from lookng into their regular schedule. Sometimes I feel the procurement department also few people dedicated to strategic thinking and planning. And there must be competely different team for regular procurement firefighting. But in reality organizations dont give this must importanct to purchase department.

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