Let’s face it: A lot of companies take the Purchasing function for granted. As long as you’re quietly rolling along, don’t expect much attention.

But acquiring goods and services can represent as much 70% of your company’s budget. Nonetheless, most execs focus on Purchasing as merely a way of getting the lowest costs on necessary goods or services.

There is much, much more to what you do — and what you could do. Too many times, companies overlook the talent in Purchasing — talent that can implement more effective strategies and improve overall performance.

Here’s one success story, culled from the May 2008 McKinsey Quarterly newsletter:

A European company achieved significant savings in less than a year after re-assessing spending categories, the role of specific departments — and then creating cross-functional purchasing teams.

The company broke Purchasing down into a three-pronged function: leverage buying power, leverage product changes, and optimize processes.

Each area generated a significant portion of cost savings.

Leverage buying power (30% of savings):

• renegotiate contracts
• bundle volumes
• change suppliers

Key requirements:

• market/supplier know-how
• negotiation skills

Leverage product changes (40% of savings):

• standardize
• change product specs
• design to cost
• find substitutes/alternate materials
• manage demand

Key requirement:

• close working ties between Production, Purchasing and R&D

Optimize processes (30% of savings):

• reduce joint costs with suppliers
• reduce inventory
• design to process

 Key requirements:

• close Purchasing-Manufacturing ties
• collaboration with suppliers
• skill handling supplier-management relations

Tags: buying, purchasing, supplier, team