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Purchasing concept and purchasing controllingCreate a shopping concept

Importance of the shopping concept

A purchasing concept is used to plan and document which goals and strategies the purchasing department is pursuing, which tasks the purchasing department takes on, how the purchasing processes run, how the specialist departments work together and which measures are to be carried out in purchasing. The purchasing concept is aimed at eliminating weak points and (better) achieving the goals of purchasing and the company.

Purchasing takes care of everything that is not manufactured or provided by the company itself, but has to be procured. These include: raw materials, raw materials, materials, parts, delivery products, operating supplies, auxiliary materials, trade products, additional products or services that are purchased from other companies, suppliers, subcontractors or service providers.

The functional area of ​​purchasing in the company must ensure that all processes are supplied with the required materials, goods, operating resources and services that the company does not manufacture or provide itself but purchases from external companies. It is important that the purchased goods are available in the required quality, at the right time and in the right quantity at the place of need and at the lowest possible or reasonable price.

To this end, purchasing conducts analyzes of the procurement market, searches for suitable suppliers, negotiates contracts, purchasing conditions and purchase prices, maintains relationships with suppliers and monitors the extent to which the purchasing department's goals are being achieved (purchasing controlling). To do this, he coordinates the company's materials management and logistics functions as well as all other departments.

In the purchasing concept, these goals, framework conditions, tasks and processes are described and defined as purchasing policy and purchasing strategy.

Purchasing must ensure that all services that the company needs but not provided by itself are available in the form

  • that the quality of the purchased services meets the requirements of the departments,
  • that the services are available in the required quantity and when required,
  • the costs for these services are as low as possible (minimum or reasonable purchase prices),
  • the purchasing and procurement processes run economically.

Some of these goals can conflict with one another. If you choose the cheapest supplier to reduce costs, you may get poor quality. Therefore, it must be weighed in each individual case which goal is more important and how the goals are balanced. With the purchasing policy and the purchasing strategy, the leeway that exists is determined and used. These are then described, explained and justified in the purchasing concept. The purchasing concept is the medium to long-term guide for all activities in the company's purchasing department.

Tasks in purchasing and coordination with departments

The requirements for purchasing services arise in the individual departments of the company. These specify which services you need in what quantity and at what time and at which location. They often suggest one or more suitable suppliers for this. In the case of important goods or services, the departments qualify the potential suppliers. This means that they check carefully whether a supplier is able to deliver the services required in the required quality.

To this end, the departments work closely with purchasing. Purchasing supports the departments in:

  • Price negotiations with the supplier in order to reduce purchasing costs,
  • contractual agreements on performance, delivery, payment, transfer of risk, warranty and their legally effective formulations,
  • Inquiries for supplier offers,
  • Orders from suppliers,
  • Handling of deliveries and the agreed services in terms of quantity, date and location,
  • Check the bills and payments.

Framework conditions in purchasing

Certain framework conditions must be observed with the purchasing concept. Specifications for the purchasing concept result from the overarching corporate goals and corporate strategies. These must then be checked to determine whether they are important for purchasing. If, for example, lowering costs is an important corporate goal, then purchasing must make its contribution by negotiating prices with suppliers accordingly.

The options available for this vary greatly from industry to industry. Ultimately, the balance of power between the company and its supplier is crucial. If the company has no choice, it cannot provide the services itself and there are no alternative providers, then the supplier can use its unique position and enforce high prices - at least in the short term. In order to sound out the scope that exists, purchasing must analyze and determine the procurement market:

  • what potential suppliers there are,
  • which purchase prices can be achieved for individual goods and services,
  • how the supply of these goods and services can be ensured so that the purchasing goals can be achieved,
  • what the economic, political, social, legal and technical framework conditions are in the respective procurement markets.

Not all supplier services are equally important to the company. The purchase of office supplies has a completely different status than that of a key component for one's own product. In addition, some services are only required once, others regularly and permanently. That is why purchasing divides all services to be procured into different classes; Usually there are three with the designations A, B and C. An ABC analysis is carried out for the suppliers and the delivery services. Purchasing has to define what makes up each class. For example:

  • A.: Suppliers for important and high-quality key components of their own products; long-term cooperation with suppliers is sought; only a few, specialized suppliers are possible partners.
  • B.: Suppliers of raw materials, raw materials, materials, parts, delivery products, special operating materials or auxiliary materials, commercial products, additional products or services that are important for the quality of their own products and processes and that are required over the long term
  • C.: Suppliers who offer standard services for which there are many other suppliers; Suppliers for low-value purchased goods that are used regularly or once and can easily be replaced.

Tip: evaluate and classify suppliers and services with the ABC analysis

The manual chapter on ABC analysis explains in detail how an ABC analysis is carried out and the conclusions that can be drawn from it.

Define purchasing policy and strategically plan purchasing

The purchasing department determines the purchasing policy against the background of the purchasing goals and framework conditions. There the most important characteristics, influencing factors and guidelines are defined, which should determine the actions in purchasing. Purchasing is also developing its own strategy concept. This is closely linked to the corporate strategy and corporate goals. The purchasing strategy defines the value that purchasing wants to add to the development of the company. This can be, for example: lowering costs, reducing risks or promoting sustainable procurement.

The basis for the purchasing strategy is the analysis of weak points and deficits in relation to purchasing processes, purchasing prices, relationships with suppliers, dependencies on suppliers and supplier performance in terms of quantity and deadline compliance, quality, and cooperation. With this analysis, the purchasing department is supposed to recognize which special risks exist if the company is dependent on individual suppliers.

Central questions about risk assessment are, for example:

  • How interchangeable are the supplier and the supplier product?
  • What is the value of the delivered material in the end product?
  • Are there delivery bottlenecks at the upstream suppliers?
  • How important is security of supply?
  • How important is the delivered product for the functionality of your own end product?

Likewise, potential for improvement in cooperation with suppliers should be determined. To this end, local and global procurement markets are identified and analyzed; for example with regard to legal regulations, customs duties, environmental protection and working conditions, delivery processes or technology standards. The aim is to improve cooperation with suppliers and reduce procurement costs.

Note: Create a service yourself or buy it?

The question of in-house or third-party production is also a strategic decision in the company. Mostly it is made on the basis of make or buy analyzes. Purchasing can provide information for this; For example, determine suitable suppliers or current purchase prices. The analysis and the decision about in-house or third-party production are made by product development, product management or management.

Examples of important purchasing strategies

The focus of the purchasing strategy is derived from the value contribution of individual suppliers and from the results of the analysis of the procurement markets and weak points. You define the scope for action in purchasing for the next one to three years. A study by the Federal Association of Materials Management, Purchasing and Logistics with entero AG showed for 2019 that companies are pursuing the following purchasing strategies in particular:

  • Framework contracts: We work with a supplier on a permanent basis and a framework contract is agreed so that agreements do not have to be negotiated and stipulated anew with each order.
  • Call-off contract: In a contract, the company and the supplier stipulate bindingly what quantity the supplier must deliver and the company must purchase within a defined period of time; this increases planning security on both sides.
  • Purchasing according to product groups: Similar delivery products and services are bundled in groups in order to standardize processes, draft contracts or develop special purchasing strategies; the bundling according to product groups is also the basis for the lead buyer concept.
  • Lead Buyer or Category Manager: The purchase of similar and high-quality services is bundled company-wide with one person or a team; this can then develop special expertise for the respective procurement markets and suppliers.
  • Avoid maverick buying: Decentralized and uncoordinated purchasing by individual departments without central checking and coordination by a central purchasing department should be prevented.
  • Dual or preferential sourcing: The large number of suppliers is reduced - in the best case so that there is only one main supplier and one alternative supplier for a delivery product.
  • Supplier qualification: The performance of suppliers in terms of quality, delivery processes and cooperation are checked intensively; only those suppliers who pass this test are approved as possible sources of supply.
  • Global and Local Sourcing: Global or local procurement markets are considered for purchasing - depending on whether the focus is on cost targets or close cooperation with suppliers.

Tip: plan your shopping strategy with Hoshin Kanri

A suitable method for strategic planning is Hoshin Kanri. This allows you to link the goals of the company and in purchasing with strategies and measures for strategy implementation and put them together. Detailed explanations of the method as well as planning templates can be found in the manual chapter for Hoshin Kanri.

Identify and evaluate suppliers

Many purchasing strategies can only be implemented together with suitable suppliers. It is therefore crucial that purchasing identifies such suppliers and evaluates what they can do. This takes place within the framework of supplier management and supplier evaluation.

Which suppliers are fundamentally possible can be determined using supplier catalogs or visits to trade fairs. The company contacts these suppliers and explains the goals of the cooperation, important framework conditions and the requirements for deliveries and services. For this purpose, the supplier receives a corresponding questionnaire, which he answers in the form of a supplier self-assessment.

If the supplier has proven to be suitable in this initial analysis, it can be checked on site at important suppliers to determine to what extent the company's requirements are being met in detail and reliably. Supplier audits can be carried out for this purpose.

The suppliers with whom the company already works are also repeatedly put to the test. For this purpose, the previous deliveries and services are checked to determine to what extent they have complied with the agreements. In addition, it is checked whether the supplier can also cover future requirements.

The results of the supplier analysis and the check lead to approval as a possible supplier and to classification in a supplier class A, B or C. The future cooperation can then be designed according to the importance of the supplier.

Tip: evaluate and select suppliers

The manual chapter on supplier evaluation and selection explains how to proceed with the qualification of your suppliers. There you will also find templates for the selection criteria and performance evaluation.

In the purchasing concept, important features or basics for operational purchasing can also be described. This can include that operational purchasing processes and their standards as well as the associated tasks, resources and areas of responsibility are represented and documented. In addition, individual key areas of action can be named and explained. Examples are:

  • Procedure for tenders and bid controlling
  • Optimization of ordering processes
  • Standardization of deliveries in terms of quantities, transport methods or delivery times and delivery locations
  • Optimization of order or call-off quantities

The basis for planning in purchasing is the amount of the total purchasing volume: How many purchases and orders have to be dealt with in terms of value and quantity? This depends on various influencing factors. For example:

  • Sales development
  • Proportion of in-house production to external procurement (outsourcing)
  • Reduction in material consumption
  • Price development on the procurement market for necessary purchasing services
  • Price negotiations with suppliers
  • Process improvements in purchasing

The development of sales, the proportion of in-house production and the necessary use of materials are not influenced by purchasing itself, but by sales, marketing, product management, product development or production. For the planning of the purchasing budget, these parameters are specified by the departments or empirical values ​​from the past are used as a basis. These developments must be taken into account in the purchasing concept. The information on this comes from the departments.

The price development parameter on the procurement market cannot be influenced by purchasing, but it must be monitored regularly. In the event of high price increases, purchasing must check what alternatives are available - possibly together with product development and production.

Clarify for your company:

  • How is the purchasing function anchored in your company?
  • What are the goals and tasks of purchasing?
  • How does the cooperation with the departments work?
  • To what extent are the goals in purchasing achieved in terms of quality of deliveries, quantities, adherence to deadlines, delivery processing and purchase prices?

Check the purchasing processes and possible weak points with regard to the analysis of procurement markets, the selection of suitable suppliers, contract negotiations, negotiations on purchase prices, supplier management and purchasing controlling. Record the analysis results in the following templates.

For risk analysis and planning the purchasing strategy, you need comprehensive information on the procurement markets and suppliers. You can find out how to do this in the manual chapter on market analysis. You can also use the following template to track price developments.

You can find additional sources of information on procurement and suppliers in the following template.

Which purchasing policy and which purchasing strategy do you pursue? Derive your answer from the corporate goals and corporate strategies as well as from the results of the analysis of the procurement markets that are important for your company as well as the weak points and risks. Use the following template to develop an appropriate purchasing strategy.

Estimate the future development of your purchasing budget. How high will the purchasing volume be in the next few years? To do this, determine how high the purchasing volume should be in view of the company's development and purchasing goals. Record this as your planned purchasing volume or purchasing budget. Then compare over the course of the year to what extent you can actually implement this plan. You can see that the budget is being adhered to with the aid of the budget compliance indicator. Use the following template for this.

You can also use the explanations, methods and templates from the following manual chapters to find a good purchasing strategy and to explain it in the form of a purchasing concept:

Finally, create a purchasing concept and explain your purchasing policy, purchasing goals and purchasing strategy in it. You can use the following template as a guide for possible content and structure for a purchasing concept.

Once the purchasing concept has been drawn up, it should be implemented. Above all, it is important that the purchasing goals are achieved. The following section of this manual chapter explains how to set purchasing goals and define key figures for measuring target achievement. So it's about the central tasks of purchasing controlling.