Olivier Audino
Webinar :
Matinale Achats de Lyon
Vendredi 14 Février de 9h à 12h30
As soon as the buyer or purchasing manager takes office, one of the first missions he must take on is the analysis of his purchasing portfolio. This step is essential in defining a purchasing strategy. Before considering setting up a purchasing process that is practical and efficient, you must first know who you are spending with, how much are you spending, what are you spending on and how are you spending? It is the answers to these questions, which constitute your purchasing portfolio, that allow you to properly design a relevant and powerful purchasing strategy.
Determining procurement portfolio priorities is an essential process for buyers and procurement managers in an organization. It is thanks to this crucial step that procurement is aligned with the company's overall strategy and contributes to the optimization of procurement, sourcing and negotiation processes. To determine the priorities of the purchasing portfolio, it is important to consider several strategic and operational factors. First, it is essential to understand the needs of internal customers and to ensure that purchases meet their expectations. Then, it is necessary to consider the objectives of the purchasing department and to pilot the purchasing strategy accordingly.
Can you reasonably treat all the items in your shopping wallet the same way? No matter how organized and how strong you are, you will never be able to do everything.
You will have to make choices! You will have to adapt your behavior, your tools, your methods, your time to get the most by consuming the least. In this sheet you will find tools to help you.
Before going any further, it is important to define what a procurement portfolio is.
The purchasing portfolio is a visible representation of all purchasing families and suppliers under the responsibility of the buyer as well as the volume of associated purchases. Purchasing portfolio management makes it possible to identify the company's various suppliers, the costs and types of purchases associated with each of them and their behavior. The aim of such an action is to define the best purchasing policy.
Just like the customer portfolio, the shopping wallet is necessary to segment suppliers and optimize their management. How will this be beneficial for procurement management?
Segmenting the purchasing portfolio offers numerous advantages:
- it makes it possible to better address suppliers by clearly identifying their problems and their behavior.
- It makes it possible to design a purchasing strategy targeted by type of purchase.
- it allows you to get to know suppliers better
- it allows the purchasing team to better organize themselves and make the best decisions
Every manager wants to devote the right resources to the issues that most contribute to the result. Sorting, classifying, categorizing are the basics of purchasing portfolio management.
First of all, knowing your purchasing portfolio is the first mandatory step in order to be able to optimize procurement management. To do this, it is necessary to have a complete, up-to-date and accurate database. Developers of computerized business management systems have made a lot of progress in recent years and that is a good thing.
There are still a good number of jobs where purchases are only taken into account when... they are recorded. However, we can see that global awareness of the strategic dimension of the function is under way.
Now, having a database is therefore the first necessary condition. But it is not enough. This database must be configured in accordance with the needs of your purchasing department.
Thus, you should not give free rein to management controllers or other development or method engineers.
The sooner you can get involved in a company computerization project, the more likely you are to have a database that meets your specifications:
All software packages sold on the market require specific settings. Be active in this area.
Of course, rigor is required when it comes to maintaining your database. Indeed, each zone must be the subject of a clear instruction describing who is responsible for it.
The procurement department has a common interest with the purchasing department in the proper maintenance of files. Also, management control may want to take control of standard prices. Attention, standard prices are the reference on which you will build your indicators.
Be vigilant! In any case, there should be no ambiguity about “who does what”. Even with clearly established responsibilities, you will always be surprised at the number of opportunities for incorrect entries or errors.
consultancy
It is best to entrust the management of the database to a very limited number of people. Then, give them the authority to strictly enforce the established rules.
The first step in determining priorities is the mapping of purchases, that is, analyzing and identifying the different families of purchases, direct and indirect purchases, as well as the general purchases of the company. This mapping makes it possible to visualize all the expenses related to purchases and to identify strategic and non-strategic purchases. Once the mapping has been carried out, it is necessary to measure the performance of procurement in each category using indicators such as cost reduction, value creation, supplier competitiveness, service provider performance, etc. These indicators make it possible to assess the effectiveness of the purchasing strategies put in place and to determine priorities.
It does not matter if you choose the standard prices or the real prices for this exercise. You don't do accounting. You are looking to give relative weight to items or suppliers. It is therefore a question of estimating the “costs” of each type of purchase or supplier.
Again, you are reasoning in relative terms. If you are in a mature market, the quantities of the last twelve months will be ideal for properly categorizing your purchasing portfolio.
If you are on projects that will revolutionize your purchases, work on budget quantities or on sales forecasts based on product schedules in preparation for purchases/sales.
Subsequently, depending on the volume of the products purchased, you will not treat purchasing priorities in the same way.
A very large and inexpensive product, such as polystyrene wedges, will not require the same attention as a very expensive and very compact component, such as an electronic chip at 80 euros/piece!
In the first case, you will negotiate daily deliveries, in the second you will prefer consignment stock.
When you categorize your items by decreasing rates or by decreasing quantities in your Purchasing portfolio analysis, you may not pay attention to certain items that are vital to the life of your business.
We call these “critical” articles. The best way to find them is to start a query by the number of nomenclature links.
You will regularly have these inexpensive items in your shopping wallet, which have dramatic repercussions if you can no longer buy them for one reason or another. In general, they have fairly detailed technical specifications.
They are not found under a horse's hooves, as they used to say.
Other criteria can be taken into account in the analysis of the purchasing portfolio such as:
Theorized by the economist Vilfredo Pareto in the 19th century, Pareto's law is a statistical principle that states that 20% of causes produce 80% of effects. This again means that 80% of the results are attributable to 20% of the actions.
Although the Pareto law is not a method exclusive to the field of purchases, it is an effective and powerful tool that allows the buyer to make the best decisions and develop the best strategies.
This law was popularized in corporate life by Dr. Juran, who developed the quality techniques that the Japanese were such good students of.
The use of this law in your purchasing portfolio is almost daily:
Of the 20% of items, which ones take up 80% of the space in inventory?
Which 20% of suppliers represent 80% of turnover?
... It's up to you to invent other phrases that will make you much more effective!
It is also a very effective tool for analysing your purchasing portfolio. It derives from the Pareto principle. After sorting your items in descending order, you can sort them into three parts. For example, let's take decreasing turnover:
The ABC method is essential for sorting your items. Its main advantage comes from the fact that it takes into account objective numerical elements, which will allow you to give more importance to each one than the other.
The limits of the ABC method
Although effective, the ABC method still has some limitations. It is monocritous and does not take other factors into account.
It was designed by people who are primarily concerned with the optimal management of stocks. However, the supplier and the buyer do not necessarily have the same vision of priorities in the work.
The supplier does a reflexive job. It must mobilize a minimum of capital to provide the best service to its customers.
You, as a buyer, have a job to think about. The security of supply is of course important to you, but with a longer-term perspective. You don't have your eyes on the corner to watch for the truck from the supplier Tartempion, which risks disrupting two production lines.
You are concerned about the sustainability of your suppliers throughout the life of your finished products as well as cost improvement plans, which you can carry out in collaboration with development people.
The Kraljic matrix is a buyer's tool, we will develop it in sheet 14 of the book “The Purchasing Tool Sheets”, published by Eyrolles.
For more information, you can go see another article: https://www.buymadeeasy.com/pistes-mieux-affiner-cartographie-achat-grace-a-matrice-de-kraljic/
The Kraljic matrix is an analysis method invented by the economist Peter Kraljic in 1983. It makes it possible to classify the procurement portfolio according to two essential criteria: their strategic weight and the complexity of the supplier market. The Kraljic matrix makes it possible to classify purchases into 4 families according to these criteria:
The statistical analysis of your purchasing portfolio is the basis for building the Kraljic matrix and thus being able to write your purchasing policy.
The digitalization of the purchasing process is also a major challenge for determining the priorities of the purchasing portfolio. The dematerialization of tenders, the management of disputes, the management of disputes, the supplier relationship, the centralization of purchases, etc. are all aspects of digitalization that can have a significant impact on the optimization of costs and the performance of purchases. In addition, it is important to consider public procurement and the specificities of international procurement, especially in the context of supply chain management and logistics.
Managing strategic suppliers and supplier relationships is also an essential aspect in determining procurement portfolio priorities. The specialization of purchasing teams and the organization of the purchasing function are also elements to be taken into account in determining priorities. It is essential to have specialized skills in each area of procurement, such as industrial procurement, IT procurement, non-production procurement, etc. In addition, value creation and cost optimization must be at the heart of procurement practices, using purchasing methods adapted to each purchasing category. Finally, it is important to involve the various actors in the organization in the process of determining the priorities of the purchasing portfolio, in particular directors, prescribers, purchasing departments, purchasing managers, internal customers, etc. This collaborative approach makes it possible to obtain a global and shared vision of the challenges and objectives of the purchasing function, in this way promoting the adoption of defined purchasing strategies.
Determining the priorities of the purchasing portfolio requires an in-depth analysis of the company's needs, strategic challenges and operational objectives. This involves using levers such as purchasing mapping, performance measurement, digitalization, digitalization, team specialization, procurement centralization, etc. It is thanks to this strategic and methodological approach that organizations can optimize their purchases, reduce costs, improve performance and competitiveness, while creating sustainable value for the entire value chain.
Conclusion
In short, these are the three tools that procurement teams have at their disposal to analyze and categorize their purchasing portfolio in the best possible way. Their choice depends on each organization and each procurement function. In all cases, the objective is to spend or use the right amount of resources on the most contributing actions. Classifying the purchasing portfolio is the only way to do this. Indeed, there is no single purchasing strategy that can adapt to all types of purchases. Each purchasing category must be the subject of a strategy that is adapted to it and that makes it possible to obtain optimal results in terms of procurement management.
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