With the credit squeeze biting and economies softening, almost every organisation is searching for ways to reduce fixed costs that will still support strategic business initiatives and sustainable growth. Purchasing functions are not immune to the request to do more with less.
There are a number of initiatives that purchasing departments can take to reduce fixed costs, while maintaining strategic work and delivering value. In some cases, purchasing can attack these areas without affecting other departments. Others require a cross-functional engagement and the shifting – or elimination – of tasks to create a leaner workflow and greater efficiency for the whole organisation.
The following are key steps designed to increase organisational efficiency:
1. Review processes
Review all of purchasing’s business processes, including workflow. The application of “lean” relates just as much to purchasing as it does on the manufacturing floor. If a buyer negotiates a contract and then communicates it in different formats for entry into an ERP system, for example, there’s an opportunity to eliminate the “transference” step and do it directly with access to the required system.
2. Reassess tasks
Find and eliminate unnecessary or outdated tasks from the workflow based on an assessment of the value it brings to the organisation. In some cases, positions may have been created to accomplish a task that seemed important at the time but no longer adds value. Organisations need to reflect periodically on the actual tasks being performed and address whether these are still the right priorities.
3. Remove unnecessary layers
De-layer the organisation. Over time, businesses create mid-level management positions with few direct reports, often to promote a deserving employee or to create a developmental role. It is important to review the wider organisation for “layer creep” with the aim of limiting the number of layers and having a reasonable management span of control. A span-and-layer study often reveals positions in the organisation that can be redeployed. This has the added benefit of increasing most employees’ feeling of engagement or “connectedness” and reducing communication gaps.
4. Collaborate cross-functionally
Incorporate key internal constituents in the process of looking at the entire purchase-to-pay cycle to identify areas of efficiency. In particular, payables represent a key functional interface. At my company, when we looked at the business process in purchase-to-pay, we identified several opportunities to enhance efficiency.
In one case, purchasing led an initiative to convert suppliers from manual invoicing to electronic. The organisational efficiency was primarily obtained in the payables area, but was enabled by the purchasing process and enforcement of key standards for suppliers.
In another, several departments engaged a number of people to focus on vendor/master file maintenance and resolution of payables issues. The process review drove consolidation of some tasks that were carried out in different departments with efficiency gains and improved role clarity for the organisation as a whole.
5. Drive extra savings
With business processes streamlined, layers removed and greater role consolidation and clarity, purchasing’s fixed costs can be reduced or freed-up staff redeployed to areas where spend was either underserved or not addressed previously at all. A key area where purchasing can help is benefits, supporting the initiatives of reducing cost and improving payment terms while continuing to provide appropriate benefits to employees. Other areas include consulting engagements and fleet activity.
There are many opportunities for purchasing to contribute to the strategic objectives of both reducing costs and supporting growth. This can be done efficiently with a structure that is streamlined and focuses on high-value activity, and with an organisation that is flexible enough to periodically revisit key activities to ensure ongoing value and alignment.
Carolyn Woznicki (carolyn.a.woznicki@jci.com) is vice-president of global procurement at Johnson Controls, based in Milwaukee, Wisconsin
