Our 2017 survey of manufacturing company C-suite executives reinforced that purchasing needs to add more value to the bottom line (repeating a key finding of the 2016 survey). New insights from our 2017 survey and conversations with executives point towards supporting new business pursuit as a C-suite priority for purchasing. Significant themes include:
- Purchasing needs to work better with other functional areas and the supply base
- Purchasing needs to support sales in winning new business by delivering best cost
- Purchasing needs to hit material cost targets so new product launches deliver expected margins
Manufacturers Looking to Win More Business Should:
Encourage and reward cross-functional collaboration. Effective business executives create the behaviors they want in their organizations by actively modeling them and asking questions. Ask the sales leader “is purchasing helping you reach your goals?” and “How well is engineering supporting you?” Ask similar questions to the leaders of purchasing, engineering, and operations – the groups that most commonly need to be in synch to excel at landing new business.
Ensure the highest level metrics aren’t in conflict. What gets measured gets done. Manufactures in the tiered supply chain win new business when they are providing innovation, reducing risk, and delivering best cost. Leading companies use a balanced scorecard approach that focuses the purchasing team on all key deliverables (not just cost) and drives actions to support all the goals that will make the organization successful.
Dismantle, don’t build, barriers to collaboration. Companies must find the right balance between restricting access to commercial terms and distributing information that enables professionals to successfully perform their jobs. Successful manufacturers are able to provide business leaders with access to commercial information while protecting sensitive data.
What Purchasing Organizations Should Do to Help Win More Business
Know the best available costs in the industry and strive to attain them. Should-be cost models are a critical tool for understanding best available costs and provide leverage for knowledge-based negotiations with suppliers. For many commodities, cost models that are based on supplier cost structures provide the most accurate should-be costs. For some commodities, attribute-based cost models are necessary.
Own material costs that are included in customer quotes. Leading purchasing organizations take responsibility for delivering realistic and attainable estimates, and have direct material costing processes that go beyond issuing RFQs to suppliers. Oftentimes, we find that companies have developed cost estimating functions in the sales organization because purchasing can’t get suppliers to respond to RFQs in a timely manner. An unintended consequence is often unrealistic cost targets set by sales that purchasing cannot achieve, driving margins down.
Bring key suppliers into the process earlier. To attain the most competitive cost structures, leading purchasing organizations leverage supplier insights and innovations during the design phase, when 70-80% of costs are determined. Far too often, purchasing organizations wait until prints are finalized before engaging suppliers to work on costs.
Provide timely support for new business pursuit efforts. Accurate cost estimates for purchased components are vital to hitting material cost targets and maintaining margins. Leading purchasing organizations provide estimates that are both timely and accurate.