“The measure of success is not whether you have a tough problem to deal with, but whether it is the same problem you had last year.” – John Foster Dulles
Ask someone to name the most exciting parts of the advanced electronics and pharmaceutical sectors and they’ll invariably mention the scientists working in research and development or negotiating for regulatory approval, perhaps the technicians keeping manufacturing lines up and running, the marketing professionals crafting slick media campaigns, or maybe even the sales representatives securing market share (and a hefty paycheck to boot). Those are all reasonable answers, but like clockwork an extremely crucial function is usually overlooked.
It goes by many names: purchasing, buying, procurement, all of which highlight a group dedicated to ensuring that essential raw materials and consumables are in the right place at the right time. Without proper supply chain management, production – which all the company’s profits ultimately depend on – would simply stop. To quote the classic sci-fi novel Dune, “the spice must flow.”
Purchasing, done properly, can be a powerful force multiplier which minimizes costs and risks while boosting profitability and efficiency. When an afterthought, purchasing can introduce delay, unnecessary costs, and clog the finely tuned production machine. How then can you avoid being the latter? Avoid these 7 deadly sins, and you’re off to a great start:
Don’t cry wolf
No one wants to admit it, but “as soon as possible” is one of the most meaningless phrases in supply chain. It’s a very different scenario if you need a raw material the week after next versus the day after next, and the difference can be thousands of dollars and hours of work. Some organizations expedite every purchase order as a rule, but if everything’s a rush, nothing’s a rush. Explain the impact a delay will have on your organization and your supplier will be in a much better position to support your production run.
Pennywise, but pound foolish
Don’t cut off your nose to spite your face. I’ve literally seen buyers shut down a production line because of a cost increase in the single digits. Design metrics for your procurement group to incentivize large-scale savings instead of chasing pennies. For example, you may be able to save money using a cut-rate freight carrier, but the time and resources devoted to chasing damaged and lost goods could far outweigh the benefits. Empower your team to make smart choices for the long-term.
Using inaccurate lead times
There is perhaps no easier way to paint yourself into a corner than using inaccurate lead times (or worse, none at all). The days of plentiful, off-the-shelf inventory are going by the wayside as specialty manufacturers move to a made-to-order model. You’re looking to cut costs and minimize waste, so is it any surprise your suppliers are doing the same? Understand the true lead time for your components, and make sure to build in time for consolidation and transit too.
You leave me no choice
Remember that saying about putting all of your eggs in one basket? There’s a reason the phrase force majeure exists, and that’s because sometimes events are beyond your control. In these situations, you have to be flexible and responsive. Could you go for a year or more without any of your production components? If not, then why would you rely on a single source? Qualify a second or third source for all your materials, preferably each from distinct supply chains, and you’ll be well-placed to react to any shortage, delay, or unforeseen circumstance.
Too afraid to make the call
In an ideal world, most transactions will flow through smoothly without requiring attention once the order has been placed. Unfortunately, it doesn’t always go this way. Empower your buyers to make smart, independent decisions and you’ll keep your purchasing organization from being paralyzed by the fear of making a wrong move. If your buyer has to seek multiple levels of approval for even basic decisions, even a day’s delay can turn a supply chain hiccup into a true crisis.
Brevity is a virtue (one the author admittedly struggles with), and purchase orders are no exception. Make sure that every comment has a purpose, and is being seen only by the parties the comment affects. Otherwise, truly essential requirements can be overlooked in the clutter. Whenever possible, be clear and concise.
You might have noticed a common thread of thinking and acting strategically. If you only interact transactionally with suppliers, you’ll not only potentially lose out on valuable information and opportunities but additional value-added services and interactions as well. For key suppliers, it’s in your best interest to become a strategic, collaborative partner that they’ll see as an ally to grow with rather than a fair-weather friend who’ll drop them at the first sign of trouble. Build a robust network of relationships and the sky’s the limit.