The purchasing area in business was once seen merely as support for final activities in the negotiation process. Today, its strategic relevance is clearly understood, along with everything that involves the activity of procurement.
The purchasing department is directly linked to an organization's balance between expenses and revenue, as it is estimated that, on average, 50% of a company's costs are generated in the procurement department; sometimes even more. Therefore, strategically managing procurement and logistics reduces costs and reflects positively on revenue. The immediate impact is seen in competitiveness and market gains.
Managers' continuous drive to improve processes has helped bolder supply chain projects achieve goals, including financial ones. By leveraging technology in procurement, the strategy of "creating value" has proven effective and driven results.
Purchasing & Procurement
The terms are related. Purchasing is the older term, historically associated with business support. With the continuous improvement of processes, it became evident that another function existed—one focused on business strategy; this is how the procurement area emerged.
Purchasing is more closely tied to the direct contract management process for the acquisition of goods and services.
Procurement incorporated a strategic nature within purchasing and participates in strategic planning by forecasting stages for the purchasing department. From this perspective, procurement operates in project management and commercial planning.
For example, inventory management takes place within procurement planning. To achieve this, involvement across the entire production process and throughout the supply chain is essential. Logistics, distribution, and relationship management with both suppliers and customers also fall within procurement's scope.
Integrating the procurement sector establishes a more efficient purchasing strategy from a management perspective. By utilizing sales tactics and techniques, research, and business intelligence to better structure processes, it becomes possible to design a management model that translates into financial results.
One way to integrate the supply chain and monitor actions to increase productivity and profit is to segment the management focus.
Strategic Business Planning
Analyzing the supply chain provides data that will intelligently guide decisions and better direct actions. For strategic business planning within the purchasing department, the procurement manager looks primarily at three pillars:
- Risk analysis;
- Process innovation;
- Project execution (acquisition of materials or services).
Observing the external environment without boundaries holds extreme tactical relevance. After all, what happens outside has an impact. In some cases, it can even lead to internalizing ideas and innovations that boost business competitiveness.
Procurement also participates in corporate sourcing activities, given its role in the acquisition process and the operational complexity in certain segments.
With its deep expertise in costs, expenses, and revenues, the procurement department can also contribute to pricing policies by proposing initiatives to improve processes and optimize resources.
Regarding procurement and sourcing, it is also important to understand that:
- High dependency on specific channels and suppliers can pose a significant risk;
- Inventory control is essential to avoid jeopardizing financial health;
- Bureaucracy and procurement complexity must, in turn, be streamlined;
- Categorizing products and services is an effective strategy to optimize time;
- Setting improvement targets and tracking market technology trends will sustain the business;
- Strict quality requirements for inputs and raw materials are critical to mitigating risks and negative issues.
Purchasing Process
The purchasing process is tied to macro-level sourcing planning. Therefore, managing purchasing processes entails:
1 – Understanding short-, medium-, and long-term demands to plan acquisitions effectively;
2 – Knowing the technical specifications of goods and services to better evaluate quotes, while also considering purchasing and distribution channels, lead times, costs, storage policies, and other factors;
3 – Negotiating and analyzing proposals;
4 – Effectively procuring the good or service;
5 – Managing contracts within established relationship parameters.
To improve process dynamics, assess the following:
- Automation level;
- Internal requisition channels;
- Categorization of goods and services;
- Risk classification and distribution;
- Technology criteria and process optimization;
- Evaluating negotiation strategies by segmenting the nature of the operation;
- Using relationship criteria and parameters in contract management.
Costs & Investments
A fine line separates the two. Corporate financial management distinguishes between spending and investment in a very practical and objective manner. However, caution is required to avoid overlooking the importance of minor budget cuts.
When it comes to management, the perspective is broader. It goes far beyond a control spreadsheet! The procurement department plans well beyond merely meeting the budget. It analyzes gaps that can unlock cost reductions and resource optimization.
Consequently, the primary focus of the spend budget features improvement targets that drive results. This balanced oversight provided by procurement tends to boost organizational efficiency regarding corporate spending. Involving the spenders, purchasers, and demand generators ensures systematic monitoring, control, and implementation of necessary adjustments. This balance can also foster sustainability and budgetary trade-offs.
Spend Management
Start by answering a few questions to simplify the process—whether in an organizational chart or a spreadsheet, whichever works best for you!
- Where are the highest expenditures generated?
- What are the consumption patterns and parameters? What defines them?
- Is there an expenditure policy regarding the value each one generates for the company?
- Are there goals and policies in place to reduce these expenditures? Are they direct or indirect gaps?
- Is there an external perspective on actions that could create opportunities for cost reduction?
- Are employees engaged in this expense control policy to achieve targets?
- Are best practice educational initiatives promoted to reduce unnecessary consumption?
- Is there internal and external market monitoring in search of cost-optimizing alternatives?
Some aspects are internal, while others involve external factors. Both are extremely relevant!
Supply Chain
The main pillars guiding corporate procurement planning are: production, inventory, distribution, and logistics. One of the major supply chain challenges is precisely monitoring some of these indicators. Related to them is improving:
- Optimizing the consumption of resources, raw materials, and inputs;
- Ways to significantly reduce inventory and losses;
- Decreasing expenditures through model restructuring and effective route optimization;
- The OTIF logistics performance indicator.
Supply chain management from a procurement perspective
Participating in studies that set goals, as well as in annual planning, can engage employees and the procurement team so that management becomes more efficient.
- Knowing the real needs and quantitative levels of each inventory item directly impacts purchasing guidelines;
- The department must understand current and future customer demand to enhance bargaining power and leverage regarding inventory, for example;
- Identifying opportunities that integrate the industry's value chain delivers cost reduction and productivity gains. The procurement department must always stay aligned with this;
- Structuring processes is fundamental to supporting the execution of Procurement.
Technological Solutions
You have certainly already thought about digital transformation. Yes, this is a decisive factor for every company, organization, and industry. To achieve success, technological tools must be included in strategic planning, and resisting them will only lead to losses.
Artificial intelligence performs market analyses that no traditional system can match. The use of applications, PaaS or SaaS systems depending on your needs, among others, is essential to optimize processes—both in purchasing and across all activities involving the procurement sector.
More than 20 years ago, people were already talking about blockchain. Now it is a reality! Studies and research have moved into practical, real-world application. Utilizing all this technology to validate processes and gain better control over contracts drives speed, fosters reliability, and ensures greater accuracy in deliveries.
Disruptive solutions should be viewed as allies. Therefore, rather than resisting, the ideal approach is to learn and incorporate them as quickly as possible to stay ahead of the market.
