Discuss about the Buying Behavior of Organizations.
Procurement is one of the most important functions of any organization. Traditionally, Procurement involves a lot of manual activity and use of paper however with time, the buying behaviors of the organizations is going under a drastic change and constantly reshaping itself in response to the needs of the Industry. There are lot of trends and buzzwords like Globalization, Total cost of ownership, Collaboration, Digitalization, e-procurement that helped organizations to reinvent their buying department to meet the current challenges (Hoyt, & Huq, 2000). With increasing competition due to Globalization and margins under all-time low, high volatility in prices of raw materials and huge lead time as organizations are buying products from different corners of the world, there is huge pressures on management to cut the cost at every front and purchasing department is also not untouched by it. Buying behavior in the organizations are influenced by both internal and external factors. Internal factors like organizations goals, strategy, inventory policy, technology maturity and hedging strategy affect the buying behavior. At the same time, external factors like import and export policy, political environment, social environment, competition, availability of material, lead-time of buying the material, bargaining power over the supplier also affects the buying behavior of the organizations.
Some of the latest trends are as follows in analyzing the buying behavior of the organizations:
Supplier Collaboration and Early Supplier Involvement (ESI)
Supplier collaboration is a new trend in buying industry especially in those cases when purchases are required for particular raw materials at a fixed time on a continuous basis. In such cases, buying team prefers to establish a strategic alliance with the suppliers and share its forecasts with suppliers also. Collaboration reduces transactional costs of placing the orders and inspecting the receipts. Organizations are also saving costs to inspect the incoming raw material by entering the accepted level of quality in agreements (Schoenherr, et. al., 2012). Once alliance is formed, it is win-win situation for both buyer as well as supplier. Both can share their best practices to arrive at a consensus demand. This also helps organizations in reducing the costs and tacking the volatility in a better way. Also, one of the benefits of entering into alliance is that suppliers can be involved in design activities also (Monczka, Handfield, Guinipero, & Patterson, 2015).
Increased use of Advanced Software like Spend Analysis and Analytics
There is an increased use of analytics and advanced software to analyses the trends and thus make appropriate decisions. Spend management software have built in intelligence and can provide Supplier based categorization of spend, detailed analysis like fast moving, slow moving items, inventory turnover ratio for various items and suggests actions after analysis (Bowersox, Closs, & Stank, 2000). ABB has implemented Spend management software with the help of SAS Institute (https://www.unspsc.org/) and achieve tremendous benefits. This software is taking input from 5 ERPs, legacy systems and excels files to provide the recommendation.
More Focus on Automating the Entire Procure to Pay (P2P) Cycle
With the increased use of software and focus on reducing the costs and manual effort, organizations are focusing on making the entire Procure to pay process automated at least for the items that enterprises buys on a regular basis. This happens that daily MRP engine runs which calculates which material is required by when to make the final customer order. For every raw material, there is list of approved supplier list. Appropriate supplier will be picked depending on the other factors, which are controlled by the systems like lead-time etc. and Purchase order will be created. After this, Buyer will have appropriate limits for items that are procured regularly. Once Purchase order is approved, it will be emailed to supplier directly who in turn will send the acknowledgement. Many ERPs like Oracle and SAP are supporting this automated process (Rich, & Dibbhem, 2013) and many organizations like Agilent are using it. All this helps enterprises not only in achieving real costs saving in placing (https://eprocurement.agilent.com/ ) the order but also in saving the lead time of placing the order. This process manually could have taken 3-4 days can be executed in a moment with automation.
Aggressive Key Performance Metrics for Purchasing Department
Senior management are closely tracking the procurement dashboard that will report how much money is saved due to change in buying strategy, how much reduction in inventory is achieved without any stock outs, lead time reduction. Purchasing analysts are also measured based on their strategy to save the cost in buying the items having high volatility in prices, hedging strategy, number of times stock out occurs and its impact.
More Involvement of End Users
Presently, buying team coordinate with end users also so that right product is purchase first time and there will no wastage. For instance, Now Purchasing function plans to buy particular raw material after taking exact specifications and any special requirements of end users in account. All this is possible due to increased communication between purchasing team with end users (Kauppo, JOnes, Ronchi, & Raaji, 2013). Earlier, sometimes organizations buys software that claims numerous benefits but end users find it very difficult to use and thus reject it and continue to use legacy and excel systems. All this happens because of communication gap between user and purchasing team but now there is effective coordination to prevent wastage and improve the efficiency.
These are the latest trends in procurement. Procurement, which was once seen as a more transactional function is, now became a strategic function in any organization with full support of management as management began to understand the importance of these functions in influencing the supply chain management as a whole.
Bowersox, D. J., Closs, D. J., & Stank, T. P. (2000). Ten mega-trends that will revolutionize supply chain logistics. Journal of business logistics, 21(2), 1.
Hoyt, J., & Huq, F. (2000). From arms-length to collaborative relationships in the supply chain: An evolutionary process. International Journal of Physical Distribution & Logistics Management, 30(9), 750-764.
Kauppi, K., Brandon-Jones, A., Ronchi, S., & van Raaij, E. M. (2013). Tools without skills: Exploring the moderating effect of absorptive capacity on the relationship between e-purchasing tools and category performance.International Journal of Operations & Production Management, 33(7), 828-857.
Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing and supply chain management. Cengage Learning.
Rich, D., & Dibbern, J. (2013). A team-oriented investigation of ERP post-implementation integration projects: how cross-functional collaboration influences ERP benefits. In Innovation and Future of Enterprise Information Systems (pp. 115-127). Springer Berlin Heidelberg.
Schoenherr, T., Modi, S. B., Benton, W. C., Carter, C. R., Choi, T. Y., Larson, P. D., ... & Wagner, S. M. (2012). Research opportunities in purchasing and supply management. International Journal of Production Research, 50(16), 4556-4579.