Purchasing masters outsourcing
By Staff -- Purchasing, 4/9/1998
Five years ago, it was a struggle to find buyers who specialized in custom chemical purchasing, but this is changing quickly. "Some companies now have very well-defined processes for purchasing outsourcing services," says Michael Reardon, commercial development manager for Dow Chemical's Contract Manufacturing Services.The level of purchasing's expertise really depends on the end-use market and company. For instance, as the largest market for outsourcing services, many pharmaceutical companies have well-established purchasing systems in place for outsourcing. Others who only use outsourcing services occasionally, have less defined purchasing systems.
The reason for the vast difference in how companies approach the outsourcing buy is the newness of this purchasing tool, and the learning experience that both buyers and their companies must go through to truly have a strong grasp of this new tool. When developing a new tool, buyers need to learn about and put in place different kinds of processes and establish new relationships.
Buying outsourcing services requires a high level of technical expertise, because buyers need to determine the technical competency of potential suppliers. As a result, many buyers who handle outsourcing activities have technical or engineering degrees. Some--like John Symonds, chemical procurement director at Pharmacia & Upjohn--had years of research experience before they moved into purchasing. Others use teams of internal consultants from various functions, such as research and development and engineering, that they go to for help when checking out suppliers.
In many cases, buyers and suppliers of outsourcing services form strategic relationships. The reason, says Dow's Reardon, is total cost management--comparing the cost of doing business with a strategic partner versus one or two other producers. "It's expensive to start and stop a project or transfer technology," explains Reardon. And he points out that the costs go deeper than the time lost when technology is transferred from one supplier to another. "You also lose know-how," he adds. "Having an ongoing understanding between customer and supplier makes communication easier. Things like understanding technology and how you handle intellectual property between companies speeds and simplifies the process, thereby reducing total cost."
Because of the complexity of the outsourcing buy, purchasers must spend a lot of time scrutinizing suppliers to find the best possible fit at the outset of a project. "We are not just buying a chemical, we are purchasing a whole set of services," says a buyer for a pharmaceutical company on the East Coast.
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