When it comes to the word "strategy", what comes to your mind?
In the procurement industry, there is a term called "Strategy Sourcing" (Strategy Sourcing). Many purchasers should be familiar with this term, but it has received greater criticism.
I have encountered such a thing in my past work.
When I was a purchasing director in a group, there was a position of "strategic purchasing" and a position of "strategic purchasing manager" within the group. One day, the editor of the group published an article in the newspaper, generally not understanding the position of "strategic procurement". The editor believes that it is clearly a purchasing position, but it is called "strategic purchasing". Isn't this just a mystery?
In my subsequent work, I often heard the question: "Purchasing is purchasing, why add the word'strategy'?" "Purchasing and strategy, don't these two industries go hand in hand?"
Based on the above doubts, I I had an in-depth exchange and discussion with Chuang Baohong, vice president of procurement in the Asia-Pacific region of Fresenius, a Fortune 500 foreign medical device company.
Chuang Baohong is responsible for the procurement of many factories in Fresenius’ Asia Pacific region. After years of accumulation, he has rich experience and insights in strategic procurement.
1. What is "strategic procurement"?
Before talking about the connotation of strategic procurement, let us first take a look at the definition of conventional procurement in a general sense.
Conventional procurement in the traditional sense, the core of concern is called QCD, namely Quality (quality), Cost (cost) and Delivery (delivery). For example, the work of regular procurement mainly involves specific matters such as how to manage suppliers, how to determine delivery dates with suppliers, and how to manage inventory.
The fundamental starting point of conventional procurement is to buy products that are cheap, of better quality, meet delivery time and good service. Its core goal is to meet customer needs (Fulfill customer needs).
In fact, the core focus of strategic procurement is fundamentally the same as that of conventional procurement. However, the fundamental starting point of strategic procurement is very different from conventional procurement.
The starting point of strategic procurement mainly includes the following three aspects.
First, long-term planning, considering the total cost.
Strategic procurement is a long-term planning behavior, and the object of consideration is total cost of ownership, rather than a single price.
For the total cost, one kind of understanding is that it includes the sum of various expenses incurred from the purchase price at the front end to the price at the operation, and finally to the later delivery to the customer.
Another kind of understanding is that from the perspective of the group, there will be a big difference between the price for a certain product to be purchased by the factory and the price for the product to be purchased by the group. If you purchase from a factory, the price will increase; if you purchase from a group, the price will decrease, which leads to the concept of total cost.
Second, long-term optimization of benefits.
The relationship between strategic procurement and suppliers is based on the principle of optimizing long-term benefits. Balancing the competitive advantages between internal and external enterprises is also one of the tasks of strategic procurement.
Third, sustainable competitive advantage.
The most important starting point for strategic procurement is to consider sustainable competitive advantages.
The strategy or activities of strategic procurement are all aimed at enhancing the sustainable competitiveness of the enterprise.
2. What are the differences between conventional procurement and strategic procurement?
Procurement activities are like "fighting". Any war must be planned and deployed before the war begins. For example, when we stand on the top of a hill, whether we attack from the front or the back, how many troops need to be deployed at the front and back of the battlefield, and how to plan to encircle the enemy, these all require in-depth consideration.
Only based on the preliminary planning and deployment, can the procurement tasks in the traditional sense be truly performed at the execution level.
Conventional procurement is like the sales department, and strategic procurement is more like the marketing department
Within a company, the purchasing department is responsible for doing business, and the other two departments are also doing business. One is the marketing department and the other is the sales department. At work, the marketing department and the sales department are faced with customers, while the purchasing department is the supplier. The former and the latter stand at both ends of the balance.
The marketing department does not sell products, but based on a large number of market research and analysis reports to explain to the company which products should be sold, how to sell, how to locate the product market and customers, and how to expand the market to make the brand bigger. Of course, the end result of the marketing department's work is also to sell products, but it does not directly generate value, but generates long-term common value. The core indicator of the sales department points to how many products are sold.
Chuang Baohong believes that regular procurement is like a sales department, while strategic procurement is more like a marketing department.
I also agree with this point of view: the sales department actually sells things, focusing on quantity and price; while the marketing department is working on "what the company should sell" to bring back market information.
Strategic sourcing and procurement needs separate routine
often purchaser me to discuss this question: If the company has been purchasing, strategic sourcing Why must take away out of the conventional procurement section? What's the problem with putting them together? Is it okay for the same person to do both strategic purchases and regular purchases?
In fact, we generally discourage companies from doing this. Regarding this issue, most chief procurement officers hold the same view: if the strategic procurement department is not separated from the regular procurement department, then all the personnel who do strategic procurement will most of the time be forced to fall into trivial daily tasks, such as To chase materials and reduce costs, you may be forced to participate in various meetings of various departments every day, and you can't concentrate on strategic research at all.
In fact, the Strategic Purchasing Department is more like a research institute. It looks like a retreat, but it needs to collect accurate data to provide a basis for some major decisions of the company.
The biggest beneficiary of the "digital procurement" we are talking about now is strategic procurement. Because they need to combine all the data with a large number of facts, continue to conduct research and analysis and make judgments, and formulate more accurate strategies.
Based on this, the company needs to leave the strategic purchasing department and the daily purchasing part, which also responds to the theme of our dialogue: "Is strategic purchasing a mystery, or is it necessary for the company?"
3. What are the practical sharing of strategic purchasing?
In this interview, Chuang Baohong shared with me many valuable strategic procurement cases, three of which impressed me deeply.
Centralized purchasing
Chuang Po-hong where Fresenius is a medical device company, its production of each machine is equipped with a monitoring device.
Through an in-depth analysis of the supplier’s market data and facts, Fresenius found that my country’s Taiwanese monitoring device suppliers have a strong global competitive advantage, especially in terms of technology and business development. Based on market research, Fresenius’ strategic procurement department made a deployment: all of its monitoring devices in dozens of factories around the world were purchased from Taiwanese suppliers.
Fresenius’ Strategic Purchasing Department first selected about 20 suppliers and listed a long list of suppliers in the early stage; then, screened out a shorter list; finally, developed standards, conducted cross-departmental evaluations and on-site audits. And complete the regular procedures such as invitation to quotation (RFQ)/invitation to proposal (RFP).
"We have gathered all the monitors that the company sells in the global market to this supplier, and thus obtained huge benefits. In addition, we have also established a partnership with this company." Chuang Baohong said, today, Fei Senyus not only went to that company to purchase, but also applied the company's internal core technology, including early-stage R&D technology, to Fresenius' products in advance.
This is an example of strategic procurement-not only from a single factory, but from the entire group to make strategic procurement decisions.
Process Outsourcing
Fresenius original factory, not just only product assembly, also do some other process. At that time, the company had an entire workshop dedicated to the painting process. After each machine was completed, it was sprayed and dried in an oven to make the paint stay on the surface of the machine.
The low technical content of painting process is of little significance to high-tech companies like Fresenius. In this regard, the Strategic Purchasing Department conducted an investigation and asked: Since the technical content is not high, why should such a process be retained in the medical device factory?
Chuang Baohong conducted investigations and discussions with the Strategic Purchasing Department, and gave feedback and reports to the superior department. After obtaining the approval of the board of directors, he finally made the decision to outsource the entire painting process to the supplier.
Outsourcing the process in the factory is not part of the routine procurement work, but a part of strategic procurement.
Technology and patent procurement
Chuang Po-hong told me, there are many domestic top universities doctoral students will carry out some research projects, many of which produce a lot of high-tech patents and intellectual property (IP). However, it is regrettable that these scientific research results have not been efficiently promoted to the market and converted into commercial results.
"At this time, procurement will have a role to play." Chuang Baohong added. Fresenius’ strategic procurement will select some technologies that have not yet been applied to the market and bring them back to the company’s R&D department for research and development, so that the company’s products will be innovated and bring new value to the company. This is exactly a kind of strategic purchasing behavior.
Therefore, strategic sourcing is not just about purchasing services and products. When you see that there are good IPs on the market, you must also include them to create new value for the company.
4. What is the key to strategic procurement?
The essence of strategic procurement is not to be told by the partner department what to purchase, but to inform the partner department that everyone is a cooperative relationship, not a superior-subordinate relationship.
Although in the entire value chain, procurement is downstream of the production department or the R&D department, the company is actually like a big car, and the procurement and partner departments are the same horses, pulling the company’s big car forward together. .
Based on the above concepts, strategic procurement must have a sense of initiative and boldly "go out", not just buying products, parts and services, but also "innovating."
