Buyers are involved "cradle to grave"

By By William Atkinson -- Purchasing, 10/19/2000

Purchasing influence within corporations continues to grow.

Increasingly, buyers are being asked to broaden their scope of responsibility by becoming involved in non-traditional services procurement. Results of a recent PurchasingMagazine survey of 1,000 corporate buyers nationwide show respondents are taking on many of the activities for services procurement that were once left to the using departments. Seventy percent are involved in contract negotiations and 58% are involved in contract management. Sixty-three percent are involved in supplier selection. Five percent are involved in setting specifications for service procurement.

"Purchasing involvement runs 'cradle to grave' here, from working with using departments to develop specs, to negotiations, supplier selection and contract administration," reports a director of purchasing in Illinois. "We attempt to establish long-term contracts and relationships with suppliers whenever possible, which makes more sense than going out every year for new contracts, which is how users often handle it."

"We serve as a facilitator in the entire process, from forming cross-functional teams to final contract/agreement, as well as ongoing contract monitoring," adds Kenneth F. Shackleton, purchasing manager, Pep Boys, Philadelphia, Pa.

What are the benefits of having procurement become involved in work that users once handled on their own? Respondents identify cost savings, service improvement and legal protection as the three major benefits. Nineteen percent specifically note that their experience in contract negotiations and understanding of the legal implications of contracts are useful. Another 19% highlight the fact that their work in the supplier-selection and consolidation process is valuable in saving money and improving service.

"Purchasing professionals have the skills to ensure our company receives the best value," explains Patrick Molenda, purchasing manager for Bosch Braking Systems, South Bend, Ind. "Often, non-purchasing personnel will make a purchase from the first supplier contacted, without analyzing all the options."

Shackleton of Pep Boys agrees: "A professional purchasing staff can add value to the final 'deal/agreement' that lay people would not attain."

"There is a lot of low-hanging fruit ripe for cost reduction," adds Merle D. Brendeland, manager, purchasing, for Sauer Danfoss, Ames, Iowa.

"As my boss says, 'Leave it to the professional'-basically me!" adds Brian D. Skopp, director of purchasing, Park Central Hotel, New York, N.Y.

Howard Weiner, purchasing manager, Haas Automation Inc., Oxnard, Calif., underscores the benefits of procurement's involvement in the area of negotiations. "Users tend to start the negotiation process by giving things away that they don't need to give away," he explains. "In purchasing, we start with the idea that everything is going to be free, then work backward from there."

When it comes to non-traditional-services procurement, there are numerous opportunities for procurement executives. According to survey respondents, the five most popular are copier management (with 70% of respondents involved in this activity); janitorial, housekeeping and groundskeeping (65%); temporary employment (56%); consultants (51%); and environmental services (49%). Other popular areas include corporate travel, catering/foodservice, security, and PC maintenance (all at 44%) and mail room services (37%). Least popular are advertising/marketing (28%), PC help desk (23%) and employee benefits (14%).

Probably the most interesting point to note here is the limited level of procurement expertise being used by employers in the area of employee benefits. Given that this tends to be one of the largest expenses employers have, it would seem that this is an area ripe for purchasing department involvement. However, most purchasing people admit that it is a complicated area, better left, at least for the time being they believe, to the human resources department. "Purchasing benefits takes a lot of time and involves a lot of paperwork," explains David C. DeGraff, vice president, worldwide procurement, for Kenneth Crosby-New York Inc., Rochester, N.Y. "I think that will be a long time coming for purchasing."

However, there are a few executives already making their presence felt in the area. "It is a challenge, because it does involve a lot of research," admits the purchasing director in Illinois. "However, we work closely with human resources as a team. They provide us with the technical information we need so we can create intelligent RFPs (request for proposals)."

"We expect to begin getting involved in benefits procurement in the near future," adds Brendeland of Sauer Danfoss. "However, I realize it will be a challenge to learn the key issues and become familiar with the specific jargon."

Getting a foot in the door

There seem to be two major challenges for procurement professionals in getting started and succeeding in this area.

One is getting their foot in the door in the first place, that is, gaining the acceptance, confidence, and ultimately the cooperation of the using departments whose needs they want to help meet. One-third of survey respondents identify this as a significant challenge. "It can be difficult selling your own expertise to using departments," admits a Santa Clara, Calif., procurement executive.

One reason: "You can easily underestimate the emotional issues that certain people have in terms of being comfortable with doing things in a certain way," explains Sauer Danfoss' Brendeland.

"There can be a resistance to change among users, especially when it comes to using different suppliers," adds D. Michelle Cooper, purchasing manager, Unilever Home & Personal Care-USA, Baltimore, Md. "They often don't immediately realize what can be gained by working together."

"Everyone likes to buy, because it's fun," adds David Latzke, purchasing manager, Madison-Kipp Corp., Madison, Wis. "When it's too hard and people get in trouble, though, they come to purchasing. Shouldn't be, but that's the way our company operates."

Despite the challenges, though, 86% of respondents involved in service procurement report that they currently work with the using departments. The three most popular partnerships are with human resources (33%), maintenance/facilities (28%), and information technology/information services (28%). Partnerships exist less frequently (all less than 15%) with engineering, manufacturing, marketing and advertising, safety and environment, finance/controller, accounting, traffic and real estate. "We work with user departments primarily for specification clarification and volumes anticipated," explains Larrell Austin, purchasing manager, L.A. Darling Co., Paragould, Ariz.

What's the best way to go about gaining the cooperation of using departments? Respondents identify two popular strategies: First, show them how they will benefit. "Most using departments are tied to budgets," explains DeGraff of Kenneth Crosby. "Show them how you can help them save money against that budget."

Second, involve them. "We allow some users to become part of the supplier-selection team," reports Sauer Danfoss' Brendeland. "This gives them a sense of ownership and sponsorship."

In some companies, though, cooperation is not a problem. "Users come to us and ask for our help," reports Weiner of Haas Automation.

The other major challenge, identified by 42% of respondents, is "getting up to speed" on the information required to intelligently purchase services. The three most frequently mentioned concerns here were learning about specifications, learning about the supply base, and gaining experience in the details (such as licensing agreements, unique contract language, etc.). "It can be difficult to get your hands on good data regarding total spend and all the items purchased," notes Tim A. Kohler, Ph.D., director of corporate purchasing, US Marine, a Brunswick Co., Everett, Wash.

"It is important to be able to perform due diligence in the selection process to assure you are awarding a contract that represents the best overall value possible," adds the purchasing director in Illinois.

While such challenges are legitimate, Hass Automation's Weiner looks at it philosophically: "It is no more difficult to gain expertise in an area of non-traditional purchasing than it is to gain expertise when you need to start purchasing parts for a new product line."

Over the years, Weiner has identified some strategies to help him become familiar with new "territory." First, gather as much information as you can from the users themselves. "When I ask one question, they will raise six additional issues I hadn't even thought to ask," he explains. "I learn a lot this way."

Second, milk a number of suppliers for information. "A supplier won't tell you areas where they are weak or expensive," continues Weiner. "For example, I am just now becoming involved in procuring radio advertising. The first salesperson I talked with sounded great. However, the second one told me all kinds of things the first guy wasn't telling me."

Cooper of Unilever finds fellow procurement executives to be an excellent source of information, too. "By networking with purchasing people in other companies, I learn a lot about the procurement process as well as the names of some great suppliers."

The purchasing director adds a fourth source: "There is a lot of information on the Internet to help you get started in areas with which you are not yet familiar."

Savings add up

When asked to report on the results of their involvement in services procurement, 63% identify cost savings and 40% service and quality improvement. Five percent note "company protection" (addressing legal issues, etc.). "We have been able to leverage our needs with some of our related businesses," reports Mary E. Hutchings, manager, procurement, for Bechtel Bettis Inc., West Mifflin, Pa. "We hope to be able to combine like benefits and other services between four related divisions to get better pricing and services."

"We saw double-digit price reduction our first year, simply by consolidating our supply base," reports Kenneth Crosby's DeGraff. "We expect even more savings this year."

"We have been able to protect our company's interests and avoid some costly and unwise business situations," reports Sauer Danfoss' Brendeland.

The future of procurement's involvement in non-traditional purchasing? Very bright. When asked if they expect their involvement in this area to grow over the next five years, 79% respond "Yes" (with one respondent adding "Hopefully"), while only 12% respond "No," and 9% provide no response.