Manufacturing

Why OEM Buyers Have the Most Difficult Job in Purchasing

Paul Ericksen / April 2, 2018

The Buyer role varies significantly depending on a company’s organizational structure. In smaller companies, a Buyer likely wears most — if not all — hats. This adds to the workload of the position but also allows a single individual to orchestrate actions such that all procurement activities are tied in concert together. This is generally the role that Buyers filled a generation ago. But that is not the kind of Buyer role that I’ll be talking about in this article.

Buyers Working at Large OEMs

Buyers at today’s large Original Equipment Manufacturers (OEMs) are the tail of the dog — which is to say, they get wagged a lot but have little to say on strategies or direction.  What I mean by this is that today’s Buyers are not involved in selecting sources but instead are expected to focus solely on procurement transactions. Sourcing decisions are made by what is usually called a Strategic Sourcing function. In theory, this function focuses on the whole range of sourcing considerations, including supplier prospecting, assessment of their financial well-being, assessing their capability, risk assessment of their order fulfillment and having them parallel quote on jobs against current sources to determine  price competitiveness. My experience is that in many organizations the Strategic Sourcing function gives lip-service to the supplier health, capability and order fulfillment factors, and instead primarily focuses on getting a lower piece-price.

Buying vs. Strategic Sourcing

When I was working in the industry, we had a term for jobs that gave people positive visibility without them having to do much in the way of heavy lifting.  We called such jobs “creamers,” and people who work in Strategic Sourcing — as practiced by some OEMs today, anyway — definitely have hit the creamer jackpot.  In essence, their sole performance evaluation is based on finding lower prices. Why should this function be considered light lifting? First, as I explained in an earlier column, you can always find someone who is willing to give you a lower price, even if, overall, sourcing with them will cost more over time.  Second, since the Buyer is responsible for all day-to-day transactions (translate: setting up orders and overseeing order fulfillment) the people in Strategic Sourcing can, in effect, wash their hands of ongoing performance once they have delivered the lower piece-price.

The Dictionary Definition of Sidelining

If the people determining who can quote on jobs are considered strategic, what are Buyers considered?  Unfortunately, the answer is usually tactical.  Even though this may be true per the dictionary definition of the word, using it as a label gives the impression that the people conducting them are “the B-Team,” and that the functions they perform are not as important — at least compared to what strategic people do.  Nothing could be more from the truth, especially when Strategic Sourcing short-circuits the source selection function, as described above.

In essence, when a source is selected primarily on price there is usually plenty of heavy lifting required to ensure that parts received are to-spec and on-time.  And, you guessed it, this purchasing dirty work falls to the Buyer. And if, regardless of effort, parts arrive late and/or are not usable due to quality defects, it is the Buyer who typically receives the criticism for interrupting the factory’s schedule.  Naturally, no-one wants to hear from Buyers that the supplier performance shortfalls were because Strategic Sourcing didn’t do proper due diligence on the source they selected.

After all, Strategic Sourcing is the A-Team and a Buyer is only tactical.

What is a Buyer to do?  It’s almost impossible to change an organization’s structure/processes once they are in place.  Why? Because that usually requires a change in performance metrics — both departmental and personal — and it is my experience that organizations that believe Purchasing’s primary function is to deliver lower price-prices only reluctantly transition to a more holistic perspective.  This is because material variance (year-to-year pricing) is Purchasing’s primary executive level metric, and the Chief Financial Officers that made it so are hesitant to change what they were taught in MBA school.

It probably sounds like I carry a grudge against the Strategic Sourcing function.

Purchasing is Shooting Itself in the Foot

If you think this is the case, you would be correct. Over my years in purchasing and consulting with purchasing organizations I tried to make clients aware of and to take into account the other financial impacts that a Purchasing group can bring to the table. But many times (more often than not, actually) all I really received for my effort was push-back from the financial people, citing standard accounting practices.  I strongly feel that purchasing organizations that stay focused on piece-price, are, and will remain, tactical, i.e., they won’t have a seat at the table when enterprise goals and metrics are being set. And here, I do mean the dictionary definition of tactical.

A better sourcing approach is to look for suppliers that can offer lower overall cost in ways other than piece price,  and to be willing to pay what others pay for similar parts.  If you want lower pricing than other competitive OEMs are getting, you’ll need to collaborate with individual suppliers to design for manufacturing — a level of support that most low bidders seldom are able to support.

My next article will focus on some behind the scenes examples of what happens when the Strategic Sourcing becomes the primary focus of the purchasing function.

Learn more about Paul Ericksen and his over 40-years in the manufacturing industry here.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of MakeTime.