Spend Matters welcomes this guest post by Becky Partida, a supply chain management research specialist at APQC.
Many organizations recognize that the procurement function can provide the business with much more than simply getting the lowest cost for purchased materials and services. These organizations understand the potential for having procurement align its efforts with the strategies and goals of other business units as well as the enterprise as a whole.
In practice, this can take the form of involving other business groups and even external partners in the selection and appraisal of suppliers. According to APQC’s Open Standards Benchmarking in procurement, organizations involve a variety of groups in this activity, from marketing and sales groups to other suppliers, depending on the needs of the organization. However, the R&D/engineering group and manufacturing group are most often involved in this process. About 60 percent of organizations involve the R&D group in supplier selection and appraisal, and just over 56 percent of organizations involve the manufacturing group.
APQC’s data indicates that organizations involving each of these groups in the selection and appraisal of suppliers have distinct advantages over organizations that do not. The first is that they need fewer full-time equivalent employees (FTEs) to appraise and develop suppliers than their counterparts. As shown in the table below, organizations that involve R&D when selecting and appraising suppliers need about two fewer FTEs to appraise and develop suppliers than organizations that do not involve this group. There is a larger difference when considering the involvement of the manufacturing unit of the enterprise: organizations involving this group need nearly six fewer FTEs to appraise and develop suppliers than organizations that do not involve the manufacturing group.
In addition to benefits within the enterprise, organizations involving the R&D or manufacturing functions in supplier selection and appraisal also obtain better performance from their suppliers. As the table below shows, these organizations receive more of their purchase orders complete from suppliers. For organizations involving the R&D function, suppliers deliver 6 percent more purchase orders complete than suppliers for organizations that do not involve R&D. Organizations that involve the manufacturing group receive over 4 percent more of their purchase orders complete compared with their counterparts that do not involve this group.The organizations involving the R&D or manufacturing groups may need fewer employees to appraise and develop suppliers because these groups provide valuable input during the supplier selection process. They can alert the procurement function to any supplier criteria that would ensure purchased materials meet the organization’s product development and production needs. By establishing such criteria up front, organizations involving these groups may be more efficient during the supplier appraisal stage.
Percentage of Supplier Orders Received On TimeThese organizations also receive more of their supplier orders on time. As shown in the table below, organizations involving the R&D group in supplier selection and assessment receive 1 percent more of their supplier orders on time than their counterparts that do not involve this group. The organizations that involve the manufacturing function receive 3 percent more of their orders on time than their counterparts that do not involve this group.
APQC’s data shows that organizations involving the R&D or manufacturing groups when they select and appraise suppliers clearly have better procurement performance both with regard to the number of FTEs needed to evaluate suppliers as well as with supplier delivery. Yet the benefits of involving groups outside of the procurement function in supplier selection goes beyond benefits to procurement performance. By involving the stakeholders that are designing and producing products, organizations can ensure that their suppliers meet the broader needs of the organization. This helps keep the activities of the procurement function aligned with organizational goals and strategies, as well as those of other business units within the enterprise.