Successful purchasing: What does science recommend?

In practice, the perception of what constitutes good or successful purchasing is based heavily on assessments by the relevant media, consultants or “opinion leaders” among buyers. In the day-to-day business of companies, there is often a lack of proven cornerstones or immovable standards, passionate discussions are held, many things are tried out, but also many setbacks occur. In other core processes of corporate management, such as product development, logistics or HR management, companies have been relying on the findings of modern natural sciences, formal sciences and the humanities for a long time. This is much less the case in purchasing, although there is an interesting and growing research landscape (see for ex.  Journal of Purchasing and Supply Management, International Journal of Procurement Management or Journal of Public Procurement). Many of the insights gained are not only interesting, but can be applied in a very concrete way – with ultimately hard measurable success.

Pursue maturity levels instead of Euros

Relevant studies on purchasing performance (e.g. Testing the procurement–performance link, Key strategic tools, Cost savings and strategic performance) suggest that a sustainable increase in measurable purchasing performance is achieved through a higher level of maturity of the purchasing organization (and thus of the acting employees and their instruments). According to classical understanding, price and cost reduction are the “gold standard” for purchasing performance. In certain industries and at higher levels of maturity, other values such as additional sales (through orders won thanks to competitive conditions), ecologically and socially sustainable supply chains, or usable supplier innovations are added as important contributions.

In this context, sustainable does not mean the implementation of individual specific measures to reduce costs – these are usually regarded as tactical and short-term tasks – but rather the creation of an environment in which these measures become easier, more self-evident, even “automatic” to implement.

It is not only research that is familiar with many different models and definitions of maturity levels (also referred to as “purchasing maturity”) – what all these models have in common is a differentiation into mostly five performance categories along different assessment dimensions. The essential contribution of the scientific work in this regard are the relevant assessment dimensions and indications of how these can contribute to sustainable success. Accordingly, three dimensions in particular are demonstrably critical to success:

• Appropriate organizational structure
• Effective internal knowledge exchange
• Relationships with external partners

Strategic purchasing delivers measurable value

While a direct relationship between maturity and purchasing performance has been discussed and studied for some time, the introduction of strategic purchasing (e.g. Study of key strategic tools)) provided an essential causal link. In this context, the term “strategic” purchasing refers to all activities and processes related to purchasing whose immediate goal is to increase purchasing performance. A general and sufficient definition of strategic activities (thus, among other things, of strategic purchasing) includes all those mostly medium- and long-term efforts that question existing structures and systems, think them through further and ultimately change them in a value-creating manner. They are therefore in direct contrast to operational activities that merely use existing structures and systems.

The more mature purchasing organizations are, the more time they can spend on strategic activities, the better they can execute them because they have a higher level of knowledge on hand, and ultimately the higher the purchasing performance achieved will be.

With this knowledge, a cycle of positive feedback for fundamental change can be created: by increasing efficiency in operational purchasing activities (as a possible result of strategic measures), for example through automation, streamlining or bundling, more time is left for strategic activities, which in turn lead to further improvements. In this way, a momentum develops which enables ever higher purchasing performance by means of ever more strategic activities, using ever more sophisticated knowledge and ever more effective methods.

Finally, applied research gives us an important constraint on the mechanisms described. The successful implementation of strategic activities requires that they be adapted to the current maturity level of the organization. For example, at the lower end of the maturity spectrum, a certain “minimum maturity” must be achieved in order to derive any benefit at all from the use of strategic tools and methods. Purchasing must have a minimum of methodological and technical knowledge and skills, and at least initial organizational leeway must have been created in order to be able to initiate the positive cycle described.

Let’s get down to practical implementation!

In summary, it is worthwhile to follow scientific research in the field of purchasing and to benefit from various findings. If applied correctly, it is possible to derive a “scientifically proven recipe” for measurably improved purchasing performance:

• The basis for sustainable improvement lies in establishing three prerequisites that help to acquire, retain and develop valuable knowledge, namely
  1. Appropriate organizational structure
  2. Effective internal knowledge exchange
  3. Relationships with external partners
• More knowledge enables a higher level of maturity and essentially more time, higher competence and more comprehensive methods for strategic purchasing.
• The umbrella term strategic purchasing unites activities in purchasing that directly result in a measurable increase in purchasing performance by changing existing structures.
• Purchasing performance refers to those measurable results that a company wants to achieve through “good purchasing”: price and cost reduction, sales increase, sustainability, usable innovations, etc.

Do these findings stand up to practical examination? The correlations actually coincide for the most part with our practical experience at companies of various sizes, industries and maturity levels: Companies that have achieved sustainable measurable success in purchasing have been able – knowingly or by chance – to set the mechanisms described above in motion to a greater or lesser extent. Conversely, large optimization efforts without a view to the essential interrelationships may have made a lot of difference in the short term, yet not led to sustainable improvements. The devil is in the details. The secret lies in those details and in a tailored sequence of measures in the dimensions of people, process and technology – this has been our passion and the mission of Supply Chain Partners for almost two decades.