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How the Top Ten Companies Use Best Practices to Manage Their Supply Chains

Who Should Read “The Purchasing Machine”? and Why?

As time goes by, the importance of purchasing increases.

Authors of “The Purchasing Machine” have spend a significant amount of time in purchasing and certainly know what they are talking about. They argue that since most companies nowadays outsource their parts and equipment, properly managing the process of purchasing can result in massive savings.

We recommend this book to purchasing managers, as well as to corporate executives and everyone who wants to gain some knowledge in how they can save money in daily corporate operations.

About Jonathan Stegner, Patricia E. Moody and Dave Nelson

Dave Nelson is the former leader of Honda’s purchasing sect and is currently a vice president at Deere and Co.

Patricia E. Moody is a consultant and one of the 10 pioneering women in manufacturing according to Forbes

Jonathan Stegner has practiced supply management for more than two decades, and currently is a director of supply management at Deere.

“The Purchasing Machine Summary”

The modern times pose new requirements as the markets and the business world change.

Procurement is a subject to change as well, and you should stop regarding it as a minor function that is just a necessary evil which cannot help in boosting the competitiveness of your company.

During the 60s, manufacturing changed thoroughly, but many companies failed to notice that this evolution affects traditional purchasing as well.

Generally, three aspects shifted:

• • Money: As companies turned to outsourcing, more money started flowing through the purchasing structure.

• • Power: The previous internal power balances moved towards areas which were not included in traditional manufacturing.

• Intelligence: Outsourcing changed the need for employees with hands-on skills to workers with less traditional expertise.

In the 21st century, procurement and supply-chain management are essential functions for companies which strive to capture a bigger market share.

So, if you haven’t already addressed the procurement process of your company, now is the time to do so.

Why?

Because in the next decade or two manufacturing professionals will concentrate on supply management, which will consist of:

• • Purchasing Materials flows

• • Acquisitions Sourcing strategies

• Movement and control of intellectual property

Okay, you know the answer to “why”, but what about “how”?

To achieve real supply change and purchasing management improvements, you need to create change and come up with out-of-the-box ideas.

You need to create a corporate culture where knowledge sharing is normal, you need to institutionalize best practices and pay attention to each step that makes up the supply chain.

But, let’s not forget that the first step is always recognizing that these functions are important.

Once you do, you can come up with high-performance goals – and achieve them.

Another thing to have in mind is investing enough resources in human assets.

Every, and we mean every company, should have a VP of supply management or purchasing.

ERP (Enterprise Resource Programs) do not have the right tools to address factory-flow issues, so they cannot solve purchasing problems. Hence the answers to the supply chain problems lie on the shop floor.

Companies that decide to change along with the environment and use best practices can expect up to 30% cost reductions in purchasing.

Other things that companies can expect in the future, apart from productivity savings is an increased amount of variety and lockdown.

Variety will increase since customers will be given the change to design their own products on site, or in transit. This will strengthen the need for supply chain professionals to save more in the pipeline, and become knowledgeable about outsourced ideas and royalty schedules.

The lockdown will happen when big companies will integrate smaller and midsized suppliers out of evolution, as well as a necessity.

Below, in the key lessons, we cover the best and worst practices as well as the purchasing challenges that purchasing professionals face.

So, read on.

Key Lessons from “The Purchasing Machine”

1.      Twenty Best Practices
2.      Ten Signs of Worst-Practices Purchasing
3.      The Challenges Purchasing Professionals Face

Twenty Best Practices

• • Cost Management.

• • Supplier development.

• • Value analysis.

• • MRO management.

• • Supplier circles.

• • Training.

• • Supplier information sharing.

• • Supplier study groups.

• • Supplier conferences.

• • Supplier performance reporting.

• • Supplier surveys.

• • Delivery improvement.

• • Tool and technical assistance centers.

• • Supplier support (SWAT) teams.

• • Loaned executives.

• • Early supplier involvement.

• • New Model Development Groups.

• • Written strategies for every supplier, every part, and every commodity.

• • Strategic planning, administration, career-path and academic outreach programs.

• Purchasing systems.

Incorporate all of these practices, but don’t work on them all at once.

Ten Signs of Worst-Practices Purchasing

• • Your company’s highest level purchasing executive is the purchasing manager.

• • Your buyers or planners earn less than one-third of your highest purchasing professional’s salary.

• • No representative of the supply chain is a member of your board of directors.

• • You do not guarantee strategic alliances by written contracts.

• • Engineering has the concentrate of all of your new product expertise.

• • Your purchasing planning systems are very loosely connected to manufacturing planning and execution software.

• • Faxed requirements determine supplier delivery schedules.

• • Cost date determines the compensation of purchasing professionals.

• • Ten percent of receipts are point-of-consumption deliveries of certified materials.

• Manufacturing thinks it can assure product quality by commodity and part classification.

The Challenges Purchasing Professionals Face

• • They must comprehend and direct the completion of many high-technology tasks.

• • They must lead their teams in material and intellectual property acquisition and use.

• They must continue to keep costs down and become tech gurus and experts in communication and costing.

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“The Purchasing Machine” Quotes

Our Critical Review

If you are a purchasing professional, you probably already know the things that this book is trying to teach you. You will surely come across new thoughts and ideas, but overall the material consists of general rules of thumb and purchasing concepts that you can encounter in many supply chain books.

Apart from that, because of its examples focused on mass production environments, only those in such an environment may benefit from the concepts presented in the book.

Emir Zecovic

Emir is the Head of Marketing at 12min. In his spare time, he loves to meditate and play soccer.