Basics answer to strategy equation

3 January 2002
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03 January 2002

This could be a very good year for purchasers, but their longer-term position depends on balancing procurement itself and strategy. David Arminas reports

Procurement professionals can breathe a sigh of relief as 2002 starts off amid the general gloom of what is a recession in all but name. They won't have to wait long for an improvement.

There are indications that within the first six months, the UK economy will pick up on the back of better times in the US. The positive signs are already emerging over there. The newly renamed Institute for Supply Management's November non-manufacturing index shows the situation is stabilising.

In the UK, purchasing activity is likely to pick up quickly in the construction and services sectors. Manufacturing, the hardest hit of all sectors by the economic downturn, will probably be the last to pull out of the slump.

Indeed, Britain is the most optimistic country in Europe about economic improvements in 2002, according to the latest annual UPS Europe Business Monitor survey. Around 56 per cent of UK businesses predict growth, compared with 44 per cent across Europe. Half of British companies predict an upturn in the world economy in the third and fourth quarters.

But until then, domestic purchasers will have to work in an environment where "downsizing" companies are a daily feature in business news. Fortunately for buyers, their jobs are traditionally among the last positions to suffer when the axe is swung.

Procurement heads have an opportunity to show their worth in 2002, just as happened during the recession in the early 1990s. Just how far purchasing's importance has risen in the past decade is indicated by a continuing demand for staff at a time when departing employees in other functions are not being replaced. There were plenty of vacancies last month, even though December is normally a slow period, although buyers should not expect to get pay rises this year as high as last year's average hike of 8 per cent.

The payoff should come in 2003 when economies are improving. The biggest winners will be those purchasers who have demonstrated their strategic thinking.

The first step now is for purchasers to sell themselves to their chief executives, even if they are already knocking on the procurement department's door in the belief the answer to financial woes lies within. In this respect, the publication of the CIPS policy paper, Promoting Purchasing and Supply Management, cannot come too soon.

Sale and return

A major selling point is a purchaser's knowledge of the return on investment that e-procurement can realistically provide. Last year saw a wider understanding by software suppliers and purchasers of the time needed to recoup investment, and that e-procurement is not a shortcut to cutting supplier costs.

Another major plus is the purchaser's knowledge of the business environment. Trends in their company's market are vitally important, but so are trends in their suppliers' markets. Knowledge of suppliers' financial viability will ensure long-term relationships don't fail through insolvencies.

The ability of a purchaser to understand their company's business objectives and marry procurement tactics and strategies to them will also raise the department's worth.

But there are pitfalls for purchasers seeking to raise their profile through strategic thinking. Failure to understand business objectives and how to develop purchasing to achieve them is a grave danger when moving procurement on to a more strategic plane. This danger increases during economic downturns as objectives can change more rapidly than in good economic times.

To avoid surprises and abrasive supplier relations during 2002, buyers must be proactive and "in the loop" to ensure effective communication with senior board members about changes to business objectives.

Another danger is that strategically minded purchasers ignore the tactical buying side of the department. Successful strategic thinkers will be able to devolve tactical buying to competent managers.

While purchasing heads can't get bogged down in the minutiae of the department, they must not forget they lead it. They also have to ensure they are seen in the trenches with those that do the buying.

While the year holds promises of an economic turnaround, it also promises to challenge purchasers' ability to develop a balance between boardroom strategies and departmental tactics.

SMjan2002

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