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This article discusses the growing attention devoted to cutting costs from supply chain activities, especially for purchasing. The degree of cutting cost from procurement makes a considerable contribution to the profitability of the company. A small amount reduction in total cost of purchasing goods may improve company’s earning greatly. However, senior executives conservatively regard purchasing as part of supply chain instead of value adding “market activity” and underweight the key role that purchasing could play in contributing profitability.
The purchasing challenge: a self-test is a performance measurement practice that is designed to scrutiny the extent of opportunities that a company may have to improve its purchasing practices; besides, it is also designed to draw the eyeball of senior executives to devote more attention to those opportunities. “Executive focus” and “market testing” are the two key elements, but not limited to, to assist companies seize those opportunities so as to boost their profitability. A powerful CPO is needed to assemble an action-oriented purchase team and point out the priority areas of focus. In addition, a “buy price/available volume” test may be applied to all products and services. By achieving so, the company may optimize the potential contribution to its profitability.
I agree on the point that most companies are putting too much attention on the marketing and sales to increasing profitability and underestimating the role that purchase may play in making incremental contribution to enhancing profitability at the first place. For them, conducting a performance measurement test on purchasing may be necessary to decide the extent of opportunities that they have.