Purchasing Diagnostics & Benchmarking

Introduction

Irrespective of how mature purchasing processes and people are, there will always be opportunities for improvement. A formal benchmarking exercise simply helps a purchasing organisation to take an objective look at themselves to identify where the most significant opportunities actually are, so that they can then prioritise their improvement efforts. So it's a very positive thing to do. The term "Purchasing Audit" isn't widely used, because it gives the misleading impression that the process will be only critical of current practises; which is why terms "Benchmarking" "Purchasing Diagnostic" or "Purchasing Health Check" are more commonly used.

The Purchasing Benchmarking / Diagnostic Toolkit

includes:

• A top level review of indirect spend
• A top level review of key direct spend (if appropriate)
• Category Management Process Review
• Detailed Reviews of the Key Categories
• Interviews with Key Suppliers
• Purchasing Team Interviews
• Purchasing Team Skills Profiling
• etc

The toolkit uses "traffic light maturity matrices", like the ones shown below.

More Background About the Purchasing Diagnostic and Benchmarking Toolkit

The purchasing diagnostic and benchmarking toolkit has been developed and refined over many years. More importantly though its been developed from experiences gleaned in a wide variety of industries. For example:

Large financial services companies often have quite mature approaches to managing risk. They often have a library of contract models for different categories and a contracts manager to assist in drafting new contracts. They'll often identify the key risks for the category, using a brainstorming workshop and then the contract manager will carefully draft bespoke clauses which are added to the "boilerplate" of that particular category's contract model. The contract can then form part of the RFQ and subsequent negotiations. In many manufacturing environments its often the case that the closest thing to a written contract are the standard Ts and Cs on the back of the purchase orders. In some cases that's sufficient. In others it isn't.

Equally though, many non manufacturing organisations can learn much from purchasing in manufacturing environments. For example; the use of formal "value analysis and value engineering" (VA / VE) approaches and the way in which quality is managed during new product introductions to drive down PPM levels is often more mature in manufacturing environments than elsewhere.

What are Some of the Key Issues Which Are Covered?

The issues that are covered are too numerous to spell out on a page like this, but maybe the following will give an indication of some of the points which are addressed.

Does your purchasing team have a mandate to manage all of the spend within the business, or are there still some areas that remain "out of bounds", Marketing & PR for example ? A diagnostic performed by an objective third-party, can help to "lower the drawbridge" on "no-go" areas.

How complete are your buyer's understanding of the cost breakdowns and the drivers of those costs for their key categories?

Across the range of categories; what proportion of spend is sourced locally? What proportion should be sourced from further afield, say in low factor cost countries ? And if sourced from further afield is there any exposure to risk from a non ethical sourcing perspective? How many suppliers in the Far East have been accredited to SA 8000 for example or are working on ETI Base Code improvement programmes?

How rigorously do your buyers research their supply markets? How much do they rely on informal, rather than more formal means of researching a market? Which directories do they use for different global regions? Which trade associations or anaylsts reports ? Which information brokers, or embassies and trade missions are they using, or are they relying mostly on their networks and Google?

How well known are the product technology roadmaps for your key categories? Where will the next improvements come and how should the organisation position itself to take advantage of them? Knowing this, what are the process technology roadmaps for our key categories?

How well have your purchasing team adopted e-Sourcing? Often purchasing managers are "too busy" managing their portfolios and can't spare the time to get to grips with the fiddly configuration of the platform, so they get help from internal or external consultants to auction some high profile key categories. If this is the case its often harder is to fully embed the e-RFI, e-RFQ and (where appropriate) reverse auctions to such an extent that they become the team's way of life. Apart from the odd auction here and there which makes for good PR, it's only when e-Sourcing has become a way of life for buyers that it really begins to deliver what it has the potential to deliver.

Gap Analysis

The maturity matrices approach rapidly highlights the areas where purchasing is up there with best in class (in the green boxes) or where there are areas that could benefit from further development (the red boxes). Some gaps are more important to close than others and so these become the priorities for the proposed Action Plan which is presented to the board of the client organisation.

Action Plan

Once the opportunities have been identified and they've been prioritised, its a fairly simple step to develop an action plan. Recently the Purchasing Diagnostic toolkit was used within a global client to benchmark the maturity of their purchasing activities. Amongst a whole host of findings some of the key proposals within the proposed action plan were designed to address the following key issues:

• Although some obvious direct spend categories were being managed at a regional level, there were some big ones which needed pulling together to leverage regional economies of scale.
• A surprisingly large proportion of the client's indirect spend was being managed by budget holders rather than purchasing professionals; and
• A number of important indirect categories were capable of being consolidated and managed on a regional basis, including:
  • distribution and warehousing,
  • marketing data,
  • HR and professional services,
  • travel and expenses,
  • vehicle fleet,
  • stationery and consumables
  • etc.
• The client needed to introduce a workable approach to the governance for the purchasing of indirect goods and services.
• The client hadn't introduced an e-Sourcing platform.

The purchasing transformation action plan was unconditionally accepted by the client's COO and in the coming months the action plan implemented solutions to all of the issues which had been raised.

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© www .interim-management-purchasing.co.uk April 2008