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A Revolution in Purchasing

Rainer Machek

Detlef G. Möhrstädt

Jürgen Schmiezek

 

 

1

Foreword

2

Purchasers – The Industry’s Jack of All Trades

2.1

A Shift in the Business Perspective of Purchasers

2.2

The Everyday Madness

2.3

The Problem with Purchasing Education

2.4

What is a Purchaser Worth?

2.5

Tools to Professionalization

2.6

The (Not So Secret) to Professionalization

2.7

What Will Be Expected from Future Purchasers?

3

Social Buying

3.1

Social Networks

3.2

Social Networking in the Company

3.3

Social Buying

3.4

Open Innovation

3.5

The Significance of Social Networks in Purchasing

3.6

Seven Theses on the Future of Purchasing

3.7

Professional SRM (Supplier Relationship Management) in Social Buying

3.8

How “Social” is Your Company?

3.9

Purchasing in the Year 2020 – A Forecast

4

The Purchaser’s Toolbox

4.1

An Overview of Tools for the Purchaser

4.2

Software is a Nuisance!

4.3

Software Helps!

4.4

Challenging the Future

5

Practical Examples

5.1

Google, Inc.

5.2

OMV AG

6

About the Authors

7

Endnotes

1

Foreword

“Purchasing as we know it is dead, rest in peace!” This is the message of the text that lies in front of you. In the future, it will be understood for industrialized purchasing, that modern information and communications technologies – and especially social media – will be necessary for use with the initiation of business relationships with suppliers, but also for all facets of supplier relationship management.

Rainer Machek, Detlef G. Möhrstädt and Jürgen Schmiezek have aptly chosen the topic of social buying for this theme. They will explain every aspect and clarify these subjects that “digital natives,” those who are permanently online and active, already characterize today, as well as the procurement process of clients, which will increasingly dominate and revolutionize the entire purchasing organization.

Through the potent enabling powers of Informations and Communications technology comes a new dynamic in procurement. The authors argue for an appreciation of purchasing in a company, while having all of the arguments on their side. They wager a view in the crystal ball and predict structures and processes of industrialized buying in 2020.

This makes it clear: The beauty sleep of procurement in industry is long gone. Finally, the realignment of buying returns to the agenda of business leaders. It’s no wonder then, in light of the fact that German companies are responsible for 60 percent of the procurement market, that the impact of a solid purchasing team carries so much leverage.

It would be negligent not to systematically implement this lever, with today’s modern IT possibilities. Surely the old Hanseatic merchants knew: in sales lies the blessing! Purchasing was a top priority to them. This old wisdom will be further revisited in unsure times. The creation and implementation of this new type of purchasing requires significant investments in personal, organizational and technological technologies, but - as the BME eSolutions Day shows year after year - these investments are worthwhile.

For an appreciation and upgrade of purchasing there are convincing reasons: the purchase of materials like NF-metals, steel, plastics, and agricultural raw materials are in the time of Globalization and crazy changing prices turned into a strategic work. The raw materials and energy costs are a result of the dynamic growth of the world economy, especially in the increasingly rapid emerging markets, which press mightily on the margins. With important component suppliers there is – in this time – an economic bottleneck, and a long delivery time.

The supply chains demand agile steering. Purchasing is not only significant in regards to the optimization of costs and fixed capital, but it must also ensure that the companies can produce with flexibility in a time of economic ups and downs.

To this point, the quality of products, the influx of innovation from the delivery basis, and the risk exposure of the client depend solely on purchasing.

Which strategies stand in focus of modern buying?

It is only through bundling and standardization of today’s demands that cost digressions can be reached. Furthermore, the promotion of the expansion of foreign references, as well as the central completion of careful negotiated contracts, lies in the foreground. The innovation of developmental and technical strategies regarding conservation of materials, as well as substitution of expensive materials, works parallel to these procedures. The buying teams start in the manufacturing and logistic processes of the suppliers, and from their sub-suppliers, and together they search for opportunities for improvement. Working strategically with suppliers, developmental projects are implemented.

In front of this background, many businesses have and will revise evolving purchasing structures and processes. The modern information and communications technology, paired with highly skilled ERP systems and integrated web-based front-end applications acts – when used properly – as an intelligence amplifier and sophisticated enabler of networked forms of organization in purchasing. Social networks reinforce this trend and ultimately enable “Social Buying”, as will be illustrated in this text.

In place of the distinct hierarchies and functional organizational systems that shaped the past image of a purchasing office, organizational forms come up that combine the central and decentralized elements to create a scope for strategic purchasing and to define, optimize and automate the business processes of operational procurement. The old traditional linear orientation of management processes will grow obsolete in the age of social media.

Which trends in purchasing organization are important to observe today?

An enterprise-wide integrated database, with material and supplier encryption will be created, will provide the unique answer to an integral question: In business, who purchases what, in which quantity and under what conditions, and with whom are they purchasing it? The existing supplier contracts will be seamlessly recorded. This serves to create a previously unseen level of transparency and promotes the observance of compliance rules.

In purchasing, the Chief Purchasing Offer both claims and receives for all established sourcing goods, such as materials, services, investments and energy. The Chief Purchasing officer forces a bundling of volumes and the exhaustion from synergies and opens the international procurement markets to others. He reports to the board.

The focus of strategic purchasing will be on specific groups of goods and foreign-related leadership-focused lead purchasers or sourcing groups will be established, that will combine the demand according to the well- known motto “one for all” and they will negotiate as specialists together for all demands. They settle contracts with suppliers to satisfy the central needs in a company.

Requests for information for quotations and negotiations, particularly in the form of reverse auctions, will be made electronically in increasingly large quantities.

In a well-organized business, all relevant information about strategic purchasers, necessary for procurement decisions and supplier talks, can be acquired with the click of a button. SRM converts this from a word cloud into reality.

For the operative realization of the procurement operations that lead to payment (procure-to-pay), uniform processes will be defined.

In the course of a continuous Supply Chain Management will suppliers and logistic service providers electronically bundled over a collaborations platform.

Thanks to increasingly powerful ICT technology, new infrastructures for cross-functional and inter-organizational collaboration are emerging, through which the economic transactions and collaborations costs are practically eliminated.

These short observations, which are not by any means exhaustive, make it clear: In the Information Age, the script for professional procurement must be rewritten. To this purpose, this text makes an inspiring contribution. The two well-chosen practical reports from Dr. Bernd Huber (Head Sourcing Center of Excellence, Google), and Stefan Wagenhofer (Senior Vice President Procurement, OMV AG) demonstrate which futuristic solutions are already possible in practice.

Organization and ICT are important enablers of a new orientation of purchasing in the industry. However, they alone are not enough: the third enabler, Human Resources, must also be included. The “new” industrial purchasing must be manned by highly qualified leaders and professionals, with both a technical as well as a business background. They are, however, few and far between. The war for talent is in full swing. Only those who succeed in winning - and keeping - the best employees for purchasing will be able to reach – and sustain – a newly established purchasing organization and “Social Buying.” In recruiting and retainment, there remains much to be done. The businesses should approach and engage this task. The use of social media can also make valuable contributions, to begin with the revival of “new” buying.

Cologne, December 2011

Prof. Dr. Robert Fieten
(Leader of Management Research Team, Cologne
and member of the BME, Frankfurt am Main)