What is the Difference Between Procurement and Purchasing?

While the terms are often used interchangeably, procurement and purchasing are two different things.  We know it’s confusing, so we bring you this post!

If you’re wondering, “what is the difference between procurement and purchasing”, hopefully, we’ll be able to help you stop scratching your head with what we’ve offered here.

Procurement – the strategic edge

There’s a lot more to procurement than meets the eye.  Encompassing vendor selection, the establishment of terms, vendor vetting, contract negotiation, and purchasing, procurement is purchasing plus.  Procurement’s job to create the conditions necessary for the goods and services your company buys to be optimized.

Purchasing is, in fact, a facet of the procurement process but the effectiveness of purchasing is amplified by the work of procurement.

What that means in business terms

Strategic sourcing is at the heart of an effective procurement leader’s efforts.  Effective procurement establishes stability in the supply chain by vetting vendors for supplier sustainability, minimizing the eventuality of interruptions and ruptures in the vital chain that gets the goods you need to your company.

Procurement combines several business functions that make it a vital part of any business, ensuring supply chain stability and setting favorable contractual terms via the contractual terms and pricing.

Corporate strategy

There are 4 pillars undergirding corporate strategy:

• Company capabilities
• Management issues
• Market placement
• Corporate identity

While perhaps the link isn’t immediately obvious, procurement embraces all 4 pillars.  For example, your corporate identity may hinge on sustainable practices.  If that facet of your identity isn’t readily apparent in your supply chain and procurement activities, you may have a public relations exposure on your hands.  Today’s consumer is highly aware, and sustainability is top of mind in the prevailing market.

Procurement also reflects your market placement, which in turn reflects your corporate brand and what it stands for.  Customers want to be associated with a brand which reflects their values and honors them.  Your dedication to the integrity of your market placement is readily seen in your vendor selection.

Having the right people in place (which is a management issue) is crucial to projecting to the market your brand philosophy.  These are the human resources who ensure you’re on track and modeling fidelity to corporate vision.  Their capabilities are your company’s.

Purchasing – the transactional end

In sum, procurement is in the vanguard of corporate strategy, governing purchasing by optimizing it and making it work for your company, strategically.  So, purchasing is part of the procurement process, not to be confused with the process itself.  Creating the conditions for effective purchasing, procurement is a finely-tuned, process-oriented system.

While business terms are often used indiscriminately, these are two distinct functions. Think of it this way:  purchasing is the transactional end of the procurement function, which is intimately related to corporate strategy.  Procurement gives birth to effective, strategic purchasing.

We hope that helps!

CenterPoint Group is a trusted procurement leader deploying the power of numbers to obtain supply chain stability and enhanced purchasing muscle for our members.  Contact us.

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Must-Have Attributes of Successful Procurement Leaders

Procurement is a highly specialized field, so it logically follows that there’s a specialized set of skills and attributes which comprise successful procurement leaders.

Generic terms don’t adequately describe these attributes, so we’ve put together this list of must-have attributes of successful procurement leaders to clarify and inform.

Change agent

Strictly speaking, it’s not enough for a procurement leader to embrace change.  The job is one which is intended to drive change.  Ideas and innovation flow from an effective procurement leader which enhance procurement process efficiencies, amplify the role of strategic sourcing, shore up supplier sustainability and lead to effective procurement practices, overall.

Shifting procurement from a tactical function to a strategic function which is sited in the supply chain is no mean feat.  It demands a steady hand and a leader who’s able to remain calm and focused in the eye of the hurricane. Part of being an agent of change is having the ability to influence those in the top tier of the company’s hierarchy, as well as stakeholders with an interest in the procurement process.

True leadership

Leadership is no longer a matter of domination.  The true leader is focused on fostering collaboration and participation.  Millennials are poised to become a driving force in the workplace. And what we know about the Millennial approach is that it’s most at home in horizontal structures – not autocratic, top-down rule.

This approach relies on open lines of communication which run both ways.  

True leadership implicates people throughout the organization, getting them on board and honoring their contributions to arrive at a truly beneficial procurement process.

The listening ear

Listening leaders are the leaders who get things done.  Their ears are to the ground, listening to what internal stakeholders have to say.  There are ideas to be had and they’re often very good ones.

Leading from behind may sound counter-intuitive but it’s a leadership strategy which is gaining increasing currency.  Listening is at the heart of this, absorbing the information heard and giving everyone involved a voice and the dignity of input.

Procurement of specific expertise

Finally, it’s imperative that successful procurement leaders come to their roles with the procurement specific expertise that spells “credibility”.

Expertise in category management which delivers on the promises of strategic sourcing is key.  Results that speak for themselves ups the viability of candidates who come to you with this attribute.

Problem-solving and keen negotiation skills are obviously valuable attributes, but professionals with procurement-related technology experience come out at the top of the heap.

CenterPoint Group is a trusted procurement advisor.  Contact us.

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source http://centerpointgroup.com/must-have-attributes-of-successful-procurement-leaders/

Key Differences: Strategic Sourcing vs. Traditional Purchasing

Strategic sourcing is the name of the game for procurement professionals.  It differs materially from traditional purchasing in that it works to intentionally create value and gain a competitive edge.

Creating value isn’t all about cost-per-unit.  This is the traditional metric for building a supply chain.  But strategic sourcing acknowledges that there are other key considerations in the realm of vendor selection.  An effective procurement process factors in supplier sustainability to create stability in the supply chain, which adds value by ensuring that you have what you need when you need it, without links in the chain crushing your company’s best-laid plans.

The strategic advantage

Any seasoned procurement leader will happily tell you that strategic sourcing has a strong advantage over traditional purchasing.

And the heart of that advantage is the quality of the buy-vendor relationship. 

By working in a mutually beneficial relationship which acknowledges the core competencies of vendors and leverages them accordingly, supply chain partners and buyers become an interdependent reality, adding value and offering bottom line efficiencies.

Traditional purchasing, with its focus on unit cost, overlooked the intrinsic value of approaching vendor-buyer relationships strategically – creating synergies which serve both parties and creating collaborative opportunities which serve the same purpose.

The raw differences

There are several key categories which point out the raw differences between the two approaches.

The first is cost.  Strategic sourcing sees the big picture, acknowledging the importance of items like overall value and total cost of ownership, going well beyond the traditional purchasing cost-per-unit model.

Traditional purchasing’s focus on unit cost is geared toward obtaining products at the lowest possible price in order to pass on superior discounts to end customers.  Strategic sourcing goes further than that, putting quality in the mix while considering cost-per-unit.  Low cost + high quality = happier buyers.

Strategic sourcing’s reach is also wider than that of traditional purchasing, sourcing vendors further afield to achieve its ends.  The traditional model keeps its vendors close to home.

But it’s the relationship between the buyer and supply chain partners that genuinely distinguishes strategic sourcing.  It’s more than just a casual thing.  The relationship becomes one which is sustained over time, as the two parties find new ways to work more effectively together and to sustain the relationship to the advantage of them both.

Finally, traditional sourcing reacted to ruptures in the supply chain and other deficiencies, while strategic sourcing nips problems in the bud proactively, effectively preventing them and the cost associated with them.

Are you the exception?

To conclude, we’re going to be upfront and admit that strategic sourcing has a price tag attached which is higher than that of traditional purchasing.  If your company is smaller, it may not be the way forward for you at this time.  But larger companies are compelled to consider this model of procurement.  It works well for organizations with several physical plants which require goods and services unavailable from local suppliers.

CenterPoint Group is a trusted procurement leader, leveraging the undeniable power of collective indirect spend for our members.  Contact us.

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source http://centerpointgroup.com/key-differences-strategic-sourcing-vs-traditional-purchasing/

Starting at the Source: Sustainability in Supply Chains

There is no issue more compelling in our times than that of sustainability.

This applies to supply chains directly.  Companies are increasingly called upon to respond to consumer demand by examining every corner of their operation, from paper and utility consumption to the supply chain.  Not doing that can lead to courting disapproval in the market and that disapproval can be a public relations nightmare.

This post addresses starting at the source:  sustainability in supply chains. Let’s read more about this increasingly pressing need and how it can be built into your supply chain.

Reconciling mission with reality

Another factor in the growing rush to respond to consumers seeking sustainability is corporate mission statements.  Many companies are building sustainability into these. So reconciling mission with reality is crucial.

When consumers note that your walk doesn’t mesh with your talk, there’s trouble ahead.

The procurement process and supplier sustainability within that process is a key area which can serve the need for integrity in the mission.  That’s something today’s consumer actively seeks out and genuinely appreciates.

Making sustainability a priority in your strategic sourcing game adds value, undergirding corporate mission with real world action that gives you an edge in the market.  All too often, companies pay lip service but fail when it comes to their purchasing game.

A competent procurement leader knows this and acts, to create an effective procurement process which delivers dividends by enhancing public profile.

Reducing impact

Strategic sourcing is about much more than the cost of the items being purchased.  Where were these items made? Who made them? What are these items made of? These are all questions which should be firmly entrenched in procurement’s practices to ensure that you’re meeting the contemporary benchmarks for sustainability.

Reducing the impact of your purchasing means looking at the environmental costs of materials, packaging and production.  But it doesn’t end there. You also need to know what the human cost of your production is. Are your products ethically produced and are workers treated with dignity and fairness?  Those are key questions you need to answer.

Innovation in the area of sustainability is burgeoning, so shoring up the integrity of your supply chain in this regard is becoming easier.  Products are now being made in more energy-efficient ways, with reusable and recyclable materials.

That’s why your supply chain holds the key to reducing your carbon footprint and bringing your operations in line with your mission.

Supply chains – key opportunities

Supply chains present key opportunities to create a more sustainable commercial presence.  It’s at the supply chain level that 80% of greenhouse gases are produced and 90% of environmental impacts reside.  It’s therefore imperative that sustainability in the supply chain be actively pursued, inviting innovation through collaboration with your vendors.

CenterPoint Group leverages the power of numbers, pooling the resources of our members to create the muscle they need to reduce costs and streamline their procurement processes.

CenterPoint can help you create a more sustainable supply chain.  While you look great, the planet gets a break.

The post Starting at the Source: Sustainability in Supply Chains appeared first on Centerpoint.

source http://centerpointgroup.com/starting-at-the-source-sustainability-in-supply-chains/

Key Strategies for Wrangling your Indirect Spend

Even companies with the most cost-effective, efficient operations can struggle with indirect spend.  Often not centralized and left in the hands of a variety of players in disparate locations, it’s all over the place.  

So, this post is dedicated to sharing some key strategies for wrangling your indirect spend to get it working for your operation and not against it.

The challenge of managing indirect spend

The wide array of categories in play makes indirect spend a challenge to manage effectively.  Managing the diverse supply chain involved can be daunting.

But spend per category tends to be lower with indirect spend.  When companies aren’t buying in volume, they don’t have the leverage they need to get the best pricing from suppliers.  But while that’s true, companies tend to order more frequently, across multiple categories. When this function is based on manual processes, it represents a profound drain on resources.

And when indirect spend is spread out across multiple locations or departments, things can get out of control quickly, due to cowboy spending.  An immediate need may compel employees to purchase for reimbursement, taking the purchases they’re making “off road”.

It’s the nature of the indirect spend that marginalizes it.  While principals are clear on the value of direct spend, the enormity of indirect spend is rarely scrutinized to arrive at strategies to make it a Center of Excellence.  Without control of the supply chain or the quality of goods being purchased, indirect spend is not as transparent in most operations as it should be.

The strategies

Without the executive tier’s buy-in, it’s unlikely you’ll be able to reform your indirect spend.  So, getting that first is the foundation of wrangling it.

Data is your friend, as you point out the largest areas of indirect spend to executives.  Analyzing that data and finding ways to rein in costs by knowing about the areas you’re presenting to them as targets for potential reform, demonstrates the need for change.  When you’re able to clearly show that you can do better, they’ll be on board

The largest areas of your indirect spend are where preferred suppliers should be established.  This change will rein in cowboy spending.  By consolidating suppliers in the bigger ticket categories, you get the leverage you need to cut costs, improve the supply chain and ensure quality.

Reduce manual input and create a sharper focus by using collaboration tools that manage indirect spend for you.  Data tells you what you need to know and automation cuts out manual processes.

While the numbers and types of vendors are many in indirect spend, there are four key KPIs which can make a difference.  These are compliance, competitiveness, continuous improvement and customer satisfaction.  Applying these as a test of your indirect spend’s effectiveness creates a framework for reform.

Wrangle it, with CenterPoint Group

Indirect spend is a challenge for many companies, but with CenterPoint Group GPO it’s met with focused expertise from a trusted procurement advisor, leveraging $850 million in collective indirect spend.

Contact us.  Let’s wrangle.

The post Key Strategies for Wrangling your Indirect Spend appeared first on Centerpoint.

source http://centerpointgroup.com/key-strategies-for-wrangling-your-indirect-spend/

Dealing with Outsourcing Supplier Instability

There’s no question that a certain amount of risk is to be expected when discussing suppliers.  Instability happens. But there’s no reason you can’t manage the potential for supplier instability effectively.  

While you may not be able to eliminate all the risk inherent with respect to suppliers, you’ll certainly be able to mitigate it by approaching it mindfully and with a strong plan to insulate yourself at least partially.

Let’s discuss dealing with outsourcing supplier instability and how to reduce the risk this really represents.

Doing the due diligence

Outsourcing agreements demand due diligence.  You need to have the highest level of confidence in the supplier you’re dealing with and to know that they’re as stable as possible.

Take the extra step of establishing the financial status of the supplier.  If they’re a subsidiary of a publicly-traded parent company, that information should be forthcoming.  You shouldn’t need to source information from the internet. In fact, a failure to provide you with that information when you ask for it is an obvious red flag.

In the case of a subsidiary, it’s not excessive to request a guarantee from the parent company as a schedule to your contract.

But establishing the stability of a supplier isn’t a one-time deal.  It’s an ongoing effort to ensure the integrity of the supply chain. This practice supports seeing potential problems before they become big uglies.

This is another part of your contractual agreement.  Putting it in writing establishes the fact that you intend to continue due diligence with respect to stability moving forward – something suppliers should readily comply with.

Other contractual concerns

We’ve discussed due diligence above and the imperative to include mechanisms to allow this in your contract.  But for due diligence to be effective, the remedies available and the rights of the customer when issues arise should be clearly stated.

When due diligence unearths a potential problem, your contract should include triggers for the right of termination, transition assistance (ideally with no extra financial obligation on your part), access to and training in the source code for the supplier and removal of restrictive covenants.

Prepare to negotiate for these and any other contractual protections.  Most suppliers want to limit triggers to bankruptcy, force majeure (natural disasters, for example) and other huge impediments like injunctions related to intellectual property.

Your purpose is to enshrine in your agreement the ability to act on what your ongoing due diligence reveals about potential risks, so be tough and get what you need to protect your company against potential instability.

Termination triggers should also be clearly stated and broadly defined.  While suppliers will litigate against these, you’ll be protected against events like sudden bankruptcy or supplier intransigence, like threatening to cease carrying on business.

Your company’s legal department is the key to dealing with outsourcing supplier instability.  Clear contractual definitions which protect you from the outfall of supplier instability are your best defense.

CenterPoint Group

CenterPoint is a trusted procurement advisor.  Let us revolutionize your procurement processes and strengthen your supply chain with the power of numbers.  Contact us.

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source http://centerpointgroup.com/dealing-with-outsourcing-supplier-instability/

Procurement Consulting: Tips for Getting the Most Out of Your Experience

If you’ve retained or are thinking about retaining the services of a procurement consultant, then you’re probably aware that your purchasing practices need a steadier hand.

And that’s exactly what procurement consulting can do for you.  Especially in the complex world of indirect spend, a procurement consultant can provide the insights, leverage and supply chain stability your company needs to get the most out of purchasing.

Let’s look at procurement consulting:  tips for getting the most out of your experience and get you ready to exploit your new relationship to optimal benefit.

Exchange knowledge

You know your strength and weaknesses.  That’s important information for a procurement consultant.  But you need reciprocation for the relationship to work.

What you’ll discover as you’re getting to know your consultant is that expertise you need is coming through the door.  But what your new team needs from you is total transparency – and your existing team needs that too. Everyone needs to be on the same page to derive everything you can from this relationship.

A procurement consultant worth its salt is going to work with the knowledge you share and provide solutions and focused expertise that get your purchasing solutions working for your company.

Share strategy

Hiring a procurement consultant doesn’t mean the process is completely out of your hands.  It’s a collaborative effort which involves devoting yourself to sharing strategy and the processes in place.  This gives your consultant a connection to what you do and to the people who do it for you – your employees.

Talking about your supply chain is important.  This provides your consultant with important insight and clarity, creating a window into what’s going right and what’s going wrong.

Communicate openly

Is there any obscure corner of life which wouldn’t benefit from a little clear, open communication?  No. Working with a procurement consultant is no different. Some people in your organization are going to be nervous about handing this function off to an outside influence.  But clear communication will serve to dispel any doubts. It will also get you the best results. How is a consultant of any kind to deliver the kind of benefit they’re capable of without keeping the lines of communication open and clear?

It’s that kind of forthright communication that can build a mutually beneficial relationship.

Be open-minded

All mutually beneficial relationships are built on trust.  Your procurement consultant is there to pull all the strands of your purchasing operation into a nice, tight bunch, bringing you fresh approaches and new ideas.  You may even find they bring you plum clients and reliable vendors.

Your consultant can also connect you to technology that takes human error out of the equation, opening the door to automation and data analysis that lets you see the big picture.

But you need to keep an open mind to let your consultant get all that done.

CenterPoint Group

CenterPoint is a Group Purchasing Organization that brings your company the power of numbers.  Contact us to revolutionize your procurement process.

The post Procurement Consulting: Tips for Getting the Most Out of Your Experience appeared first on Centerpoint.

source http://centerpointgroup.com/procurement-consulting-tips-for-getting-the-most-out-of-your-experience/