Costs continue to challenge

Staff -- Purchasing, 12/8/2005

That old bugaboo "cost control" continues to be uppermost on the minds of many purchasing professionals. Results of the latest P URCHASING magazine compensation survey reveal that rising prices and controlling costs are the predominant challenges faced by all segments of purchasing professionals.

Thirty-eight percent of survey respondents said price/cost challenges were their top concerns. Those challenges include trying to control costs in the face of rising prices and/or year after year dealing with volatile prices, not being able to pass rising costs on to customers and specific increased costs (energy and metals, in particular). Note that the impact of Hurricane Katrina, specifically on energy costs, was felt during the last stages of data collection for this survey.

A fourth of respondents name management and supply chain management issues as a big challenge. Subcategories of comments in this area are issues of internal compliance and rogue purchasing, the credibility of purchasing departments by other areas of management, production planning and forecasting demand, accurate forecasting and spend data, standardization between divisions, dealing with new procedures and products, communication and cash flow management.

Availability of materials is another big concern among purchasing professionals. Eighteen percent mention problems with on-time deliveries, leadtime and rush orders, inventory control and obsolescence of inventory and general availability/shortages of raw materials.

Problems related to managing supplies and suppliers account for another segment of responses (14%). Finding suppliers with the right balance of cost, quality and speed of delivery, negotiating, dealing with suppliers that don't have competition and for low-volume orders and general supplier management issues are among respondents' comments. Machinery buyers mention general supplier management issues more than any other specific commodity buyers, but are less bothered by cost control issues.

Ten percent of respondents mention an issue related to staffing, whether it was workload and human resources, getting good, qualified purchasing staff or career advancement challenges.

Issues related to global sourcing are another bone of contention among purchasing staffers. Seven percent of respondents mention general issues related to offshore buying (i.e., exports, communication, currency). Other global sourcing issues consist of problems with leadtime for offshore exporters and quality of imported materials. Global sourcing issues are bigger problems for components, metals and electronics buyers than for other commodities.

Price/cost issues are most pronounced in the transportation/automotive and equipment/machinery industry sectors. Senior and supervisory staff also air this grievance more than junior colleagues. Midsize company staffers mention price control (and specifically energy costs) more than smaller or larger companies. Professionals at small and midsize companies mention problems with the price of metals more than those at larger companies. Metal costs and problems due to low volume and specialty product orders (i.e., lack of price leveraging ability) are more prevalent at smaller companies however.

Rogue or maverick spending is more of a problem at larger companies than the smaller ones. Purchasing professionals have difficulty getting other departments to obey the decrees of the purchasing department and recognize the value and cost savings they generate. This is more of a problem for those who buy office equipment and supplies, information technology and machinery than for those in charge of other commodities. Comments such as "backdoor purchasing by others not in purchasing department," "maverick purchases," "purchasing policy compliance," "gaining support of cost saving measures from management," and "senior management understanding the value of supply chain to the organization" are common.

Other challenges for larger companies are the ability to make changes easily, standardize procedures and get accurate data. Respondents comment about the "lack of accurate data and appropriate decision support tools," "large scale company business process changes," "centralization and supporting multiple plant sites globally," and "working with engineering to achieve design changes so we can achieve cost savings".

For smaller companies, salary survey respondents cite problems in terms of material availability and getting on-time deliveries, impacting their own on-time delivery schedules. Comments such as these are typical: "finding product available and getting it fast enough," "securing specialty material that was readily available last year," "mills will not roll many of the special grades they have produced in the past," and "trying to purchase JIT when everything is needed right now".

There's not a lot of difference between men and women, but compensation and career advancement is one of those areas. Junior level staff cite compensation as an issue more than their more senior peers.

There are a couple of significant differences regionally. The Great Lakes area is more concerned about costs, metal costs and transportation costs than other areas. And in the Southwest, material availability is an issue.