Category: Supply Chain Management Training

The Opportunity Cost of Purchasing’s Time

My passion is making this profession better.  One person, one department, one company, and one industry at a time.

Asking the right questions always points me in the right direction.  However, I’m going to give you a warning: I frequently ask questions knowing full well what the answer is going to be.

In such cases, the goal is not for me to get the answer.  More frequently, it’s for YOU to get the answer.

So riddle me this:  do you have enough time on your schedule to prepare for your big deal negotiations the way you really want to, and the way you think you should be?

We both know the answer to that question.  For my part, I’ve been asking that question to thousands of purchasing professionals for 20 years in 15 different countries.  That’s a big enough sample size, right?

Now start thinking about monetizing your time.  I’m serious.  Your time as a purchasing professional has tremendous value.  If you had a Ferrari, would you use it to deliver newspapers or shuttle people to the airport for a fee?  Why do you think your time as a purchasing professional is any less valuable?

You are trained to negotiate hundreds of thousands and chances are millions of dollars for your company.  And you’re not getting the time to focus on doing that the way you want because you are stuck spending your time on _____________.

So fill in the blank.  What is it?  What could be more important than preparing right to spend the company’s hard earned money properly?  You tell me what is more important than this fiduciary obligation you have to your company as a purchasing professional.  What is it that is so important that you’re willing to stifle your career for?

You see, more than in any other business profession, everything you do with your time has a purchasing professional has an opportunity cost.  If you’re sitting in a weekly waste of time meeting with whomever in your company, you could have been planning for, preparing for, and engaging in high stakes, high value negotiations instead.  That’s the opportunity cost.

On top of the opportunity cost that spending your time on the wrong things brings about for your company, it’s also impacting you directly.

Spending your time on the wrong activities results in negotiation outcomes that aren’t as good as they could or should be, which then ultimately impacts your performance reviews.

Your performance reviews are then tied directly to your career and income growth, right?

And guess what, it’s deceiving focusing on the wrong things. Why?  Because your customers and partners are really happy because you’re dropping everything to focus on them.  Making sure no feathers are ruffled.  Making sure everyone’s happy.

But happy customers and business partners don’t equate to improved purchasing results.  They just equate to happy customers and business partners.  Don’t over analyze it and don’t be mistaken.

And it’s also frustrating working on the wrong things.  Why?   Because these things don’t end up on your status reports or your performance reviews, and even if they do, nobody cares.  Just because you shoe-horned it into your status report doesn’t make it valuable.

Sorry to be so blunt, but if I don’t communicate directly, then change doesn’t happen, and my job is not to write or speak or teach or consult. Anybody can do that.  My job is to create change.  That’s what companies pay me a lot of money to do.

So go ahead, take a look at your calendar and see where you are spending your time.  Then take a look at all the unscheduled activities you are spending your time on.  Then you tell me if you are controlling your schedule, or if your schedule is controlling you.

So make the change.  Monetize your time and view every single thing you spend your time on while working as an opportunity cost.

Ask yourself: “Will spending my time on this activity make my status report and performance review read better? Will this look good on my resume? Will it help me perform better in negotiations and in delivering breakthrough TCO for my department?”

If the answer to either of those questions is “no”, then we have a problem.  Don’t feel bad.  Every single purchasing professional is facing this problem.

But the issue is not that there is a lack of awareness of the solution.  The real issue is that there is a lack of awareness that there is a problem!  Yikes.

So now you know.  But don’t go back to business as usual.  Now you need to make the change.  Take control of your schedule.  Don’t be afraid to say no to people.  Even if it’s your boss. Manage your manager.

Guard your time like you are guarding Fort Knox.  This is your one and only chance to take control of your career and spend it in the right areas.

We are in the best profession in the world.  Don’t blow this opportunity. Having great skills is a waste if you don’t allocate time to use them smartly.   Now go off and do something wonderful in your purchasing career.

Talk with you next week!

Omid G

I’m going to keep this week’s blog short due to my very hectic travel and training schedule.

Why is it?  Why is it that Sales is recognized by every CEO as the money maker inside the corporation, but Purchasing is a back office function?

Why is it that Sales is recognized for generating revenue, but purchasing is not recognized as generating profit?

Why is it that Sales is given a huge budget for elaborate training and fancy tools while purchasing has to train each other and create inadequate home-grown tools?

This is not a whine session.  I just keep hearing these things over and over and it merits discussion.

This change is not going to happen overnight, folks.

But what cannot happen is you giving up. And that’s what I’m seeing a lot of these days, especially in certain sectors.

The minute you say “I’ve stopped trying, this is never going to change”, then you suddenly become dead weight.  And not just to your organization, but to yourself as well.

My advice to you?  If your management doesn’t accept certain types of savings, such as indirect/soft and avoidance savings, report them anyways. Keep reporting them until you push the tides in your favor.

When the tides finally are in your favor, look at how much trend data you will have on your value add!

Constantly coach your manager on how you’ve added value.  Don’t let your manager manage you.  You have to manage him or her.

Get into your customer’s staff meetings and give quick updates on what’s going on and how purchasing has added value.  Make purchasing a household name.

Put posters up in the hallways about purchasing’s value add.  I’m serious.  You really think only other service provide departments should be allowed to do this, such as HR? Says who?

Post graphics in the purchasing department showing cost savings and completion of other deliverables.

Put articles in your company’s intranet news page about the purchasing department’s accomplishments.

Don’t give up the fight.

It won’t happen overnight, but if you keep pushing, purchasing will get out of this “back office” function that it’s being perceived as and it will be recognized as the value added center of profit that it is.

Now go out and make it happen.

Be your best, and talk with you next week,

Omid G

P.S. APOLOGIES!

My marketing manager informed me that there was a glitch in the system and not everyone was able to pick up a copy of my highly acclaimed ebook “Purchasing Advantage – Running a World Class Purchasing Organization” at the huge, one time, special offer discount here.

To make this up to you, we’re extending this offer for a very limited time. Go here right now to take advantage of this one time Special Offer.

Expenditure Analysis – Are You Doing It?

I remember so clearly going to a client facility once in Puerto Rico. They had decided they were going to do a massive purchasing process overhaul, with the express focus of getting more savings on the table.

They were convinced the approach they adopted was the right one. What was it? All purchase orders over $10,000 had to go out to bid to at least 3 suppliers.

Sounds aggressive, right? No stone gets left unturned. No money gets left on the table with each order.

There’s only one problem: It’s also a colossal waste of time.

Why? Because it reads great on paper, but they were focusing on little transactions instead of on the big picture. All sorts of things could go wrong, such as:

• Many $10K+ individual orders negotiated with different suppliers over time for the same types of things, thereby resulting in missed supplier consolidation opportunities and increased discount opportunities
• Many $10K+ orders negotiated with the same supplier over time, thereby generating purchase order level discounts instead of total volume of business level discounts
• Many less than $10K orders that go under the radar, when in fact the cumulative spends for any particular area may be in the hundreds of thousands, but it goes unnoticed because the money goes out in small but regular chunks.
• Purchasing personnel time is spent putting multitudes of purchase orders out to bid instead of saving their energies, aggregating spends, and putting mega-business volume deals out to bid instead.

And all of the above was happening, and I gave them the data to prove it. Data speaks volumes. What sounded like a great purchasing idea was in fact a self-imposed “death by a thousand cuts” purchasing methodology.

You need to be aggregating like spends in the broadest content possible for your company or agency. If you can, look at your global corporate requirements.

If your systems are too hard to query, talk to your suppliers. Suppliers have better accounting systems than us because they can’t afford to not be able to track revenue. Have them tell you what you are spending. Don’t be embarrassed; their job is to help make you successful.

You can also talk to your customers. Customers with big budgets got it justified for particular purposes. Ask target customers with the biggest budgets where they plan to spend the money.

Spends should be forecasted at least one year forward looking, so that you can put together as much spending as possible, in order to reap maximum TCO benefit.

Suppliers will give you more discounts for greater spends – it’s called economies of scale.

If you want to know the mechanics of how economies of scale works, it’s because sunk costs are already paid for, fixed costs are already paid for (until capacity levels are reached and more plant/property/equipment is needed), and all there is left is variable costs – or what economists call marginal costs.

Think about a plane with 3 empty seats getting ready to take off. Well, that plane is going to fly no matter what.

The marginal cost of adding 3 more passengers is quite literally peanuts, because the fixed and sunk costs are already covered. Now all they need to do is to feed you a soft drink and some peanuts.

Therefore, the airlines will make the greatest profit on their customers that come through after their fixed costs are covered. Not to mention they jack up the rates for those last few seats available, creating even more profitability.

So start planning ahead and aggregating expenditures into like buckets and put those out to bid. It’s just as hard to put a $10K deal out to bid as it is to put a $300K deal out to bid.

Given that, why would you want to keep engaging in unproductive, repetitive, and time consuming activities? Why not do something right, just once, and look much more competent in the process?

So push back on management or anyone else that tries to tell you to put purchase orders out to bid. That’s a losing model. Demonstrate that you can leverage the full volume of business and get a better deal for the company or agency.

Don’t let yourself get caught up in being reactive. Be proactive and be forward looking. The next time you get a PO, don’t think about how you can negotiate the best deal; instead, step back and ask yourself what the big picture is on this line of purchases. Aggregate spends and do things once, and do it better than anyone else around you.

Talk with you next week,

Omid G.