The purchasing organization; personalities II) the optimizer

Recently I issued a set of articles about important personalities inside the purchasing organization. To share it more globally I finally decided to translate those into English. This is now the second translation tackling the optimizer purchaser. The German version you find here.

This type of purchaser acts in markets that drive most of the transactional efforts within a purchasing organization. Commonly the numbers of offerings and the number of active and potential suppliers within each category is high. Suppliers in these markets sense a high grade of competition and try to conceal the real total cost of transaction by applying lots of creativity. So there surges the task to develop methodologies to reduce the efforts on ordering transaction coming along with the creation of a high transparency of the cost.

Usually the responsibility for the realization of such transactions between supplier and the own organization is placed within the purchasing departments. Many of those departments are suffering from the pure reduction of their work towards transactional performance. The common problem behind this is that ressources are both used to run transactions and realize savings. With these concurring tasks the goal of an optimized process during times of limited resource availability will always suffer and immediately lose effect.

By the means of digitalization available today the purchasing performance might be increased tremendously. But this only works when the organization finds enough resources for the steady improvement of processes.

Since decades the philosophy of Kaizen or lean management is trained and applied in our industries. A philosophical approach in which I like that the system can be endlessly optimized. It seems a paradox but it is really thinkable. An applied improvement makes a follow-up improvement possible. This second improvement was only possible because of the initial action. The means that are available today like computers, robots or algorithms are steadily optimized and there are infinite options to include these innovations. The processes offer consequently great improvements. I think it is a good and necessary investment once competent purchasers are tackling this potential.

In this paragraph I want to focus the personality of the optimizer purchaser.

In most of the many companies I i had the honor to work for, the accumulated amount of data within the purchasing departments shows a significantly higher volume and higher complexity than sales data. In contrary the analytical exploitation of the data and the development of modern relation management software is usually more enhanced than in the purchasing systems. In fact, it is structurally much easier to read sales data than procurement data. However, the purchasing data bears also tremendous potential. The purchasing data is more complex and in most environments less maintained. Inside the purchasing data system anything is processed. Starting from stationary articles up to a several million-dollar investment. The degree of abstraction forced by standardization efforts reduces the information content inside the system in addition significantly.

To avoid interruptions of defined transactions further compromising is applied. Classification systems that could not stand actual requirements are worked around, category assignments are not correctly maintained.

Here now comes the field of operation for the optimizer purchaser. He went thru a comprehensive training and holds enough experience in the field of lean transformation. The inertia point of his competences is Lean Administration. In contrary to standard lean applications as we know them well from the shop floor (as i.e. optimization of material movements inside the production) the transactions inside administrative areas are paper-driven or invisibly hidden inside IT-systems. To analyse the structure of those processes much more preparation will be necessary than with transparent shop floor transactions.

A further important competency of our purchaser is analytical work. Because of the high level of complexity in the database it makes only sense to crunch the data in partitioned portions. A lot of special statistical knowledge is necessary to find the hidden savings. Many tools as for example regression analytics or optimization of nonlinear systems should be mastered. In addition, today the purchaser can also use algorithm based analytics that are being implemented jointly with business intelligence systems.

He focuses all his means efficiently. Its advantageous that in most business environments a broad base of analytical targets is available. Of course he will not detect potentials everywhere he sniffs into. But with the right intuition and trained senses he will be presenting many options.  

He is a team player who implements new processes inside purchasing and in the interfaces to neighbouring processes. He exactly knows the requirements within the systems and designs the transactions in a way that a smooth process comes up as a result. He automates the necessary processes so that the valuable resources of the purchasing employees are only used to produce value for the company.

He as a single person is not able to pursue all his findings. So he maintains a catalogue of qualified project suggestions that are being realized once the resources are available within the department. Alternatively, when the benefit appears to be high he might also outsource the project work.

Besides a routine of kaizen activities with participation of the purchasing department, suppliers or internal departments he performs based on his potential analyses regular RFI’s, auctions, competitions or supply chain financing campaigns. With that he provides continuous challenge to his supplybase.

The KPI of the optimizer purchaser might be the following:

-         Average cost of on boarding a supplier

-         Average personnel resource consumption per transaction

-         Savings

-         Cost avoidance

-         E-sourcing rate

-         Qualified savings potential

-         Number of training events realized

Bernhard Rau, Altenlotheim 27.1.2017 / Shanghai 11.2.64