To create an effective purchasing strategy it is not sufficient to simply make some notes in a notebook. Only with reasoned and structural planning, a company may expect measurable benefits.
Good planning also means relevant time management and the ability to adapt company’s activities to internal clients’ needs that change during a year. What is the difference between an effective planning and outlining a plan?
Depending on the model of purchases in an organisation, development and the position of the purchasing area within a company, the role of purchasing planning may be either reactive or proactive. Reactive purchasing (focused on responding to the needs submitted by an internal client) is activated ad hoc. It does not require a complicated planning process, but skilful buyers who are able to quickly satisfy purchasing needs of an internal client, although it may not necessarily be the best way it terms of planning and overall effectiveness of an enterprise. If a company do not operate a policy of contractor selection under framework contracts or supplier qualification, then reactive purchasing is like going out to the nearest shop or making the purchase from one “proven” supplier. This situation is not in any way related to a strategic approach to purchasing or purchasing planning. In a long perspective, it may cause a significant lack of effectiveness in satisfying purchasing needs. Typically, the reactive model results from certain habits, immaturity of the purchasing service or from the culture on an enterprise that fails to promote and introduce relevant behaviours and processes related to planning of its activities. Such a model may be optimal for a small company in the initial stage of its operation (limited financial outlays, multitasking of employees), however as a company develops, it becomes an important reason for loosing its operational efficiency.
On the other side of the purchasing planning, there are advanced purchasing models that actively support the purchasing planning. Proactive purchasing (the role of purchasing defined at the stage of creating a product, development planning, renovation or investment activities planning, looking for products and market alternatives) that is engaged in the internal client’s operations planning as early as possible would be an optimal solution. However, it requires a mature organisational culture and highly qualified purchasing personnel. In such a case, the role of purchasing in the process of planning and creating added value (process and cost effectiveness) is significant. Having influence on what is planned, what technologies will be applied, on products, semi-products and finally on contractors who will perform a given task, purchasing departments may significantly help internal clients and together develop an accurate plan of acquiring necessary goods and services. Naturally, as in any other process, at some point, the effect of each additional unit of time/potential of the organisation involved into the planning process will not exceed the value of this unit for the company.
The Purchasing Department should ensure that the company is able to translate its purchasing needs into the language of requirements and conditions that are understandable for the market. This means that the purchasing organization has to be prepared to express the organization’s substantial needs in the language of e.g. tender specifications or contents of the order sent to a supplier. Purchasing specialists should also know how to find an optimal supplier and make the purchase in the right time, i.e. without haste or pressure, and not when an internal client is requesting the purchase from the purchaser, because it was not possible to plan the expenses in advance. This is where the purchasing specialist has the opportunity to use his/her skills, relevant reasoning based on a defined planning process, to convince internal clients to specify their needs accurately and competently. Naturally, during the planning stage, a person who manages individual investment, renovation or administration processes will not and does not need to have specific purchasing knowledge. However, such a person should not be allowed to act without a plan or to define ad hoc orders, as this could hinder or make the efforts of the entire purchasing department more time-consuming and less effective, and consequently expose the company to a less favourable purchase conditions.
How to find a balance?
Every organization should adjust the purchase planning process to its capabilities to avoid exaggerations. A small organization with an uncomplicated production process based on several products and running individual investment projects may well use simple computer tools (Excel) and a basic system for its planning process to satisfy purchasing needs in a way similar to the reactive model. The situation is different in big and multi-unit organizations, in which purchasing plans should constitute separate activities essential for the strategy and performance of the entire enterprise. It should also be remembered that each zloty saved during the purchasing process translates directly at a 1:1 ratio into the company’s profit, but only if the purchasing needs are satisfied in a correct way. In the case of the proactive purchasing, planning using the TCO may significantly increase this ratio, because e.g. appropriate selection of technology will save x zlotys in the year of purchase, but will also save x zlotys in each year of using the technology. Where to find the balance? How to prepare the process of purchasing planning? There is no simple answer, but it is advisable to apply the above-mentioned rules, and primarily look at the efficiency of the current process and define goals to be attained over time. Models used in the market and implemented in many enterprises show that taking an appropriate approach towards the purchasing planning process “forces” optimization of many different processes inside the company. Management should bear in mind such essential processes as purchases based on an effective planning model, define the roles and tasks for purchasing units, and not forget about proactive purchasing relying on relevant planning processes.