STRATEGIC EVOLUTION OF THE PROCESS OF PURCHASING OR SUPPLYING GOODS AND SERVICES IN COMPANIES

The acquisition of goods and services to be used in the production and resale of products can be considered the activity responsible for one of the largest components of the cost of production and goods sold. Some authors even measure the magnitude of this impact, noting that between 50% and 60% of the cost of production or resale are represented by the purchase of components, materials and services, which are acquired from external suppliers.

Despite the importance of the Purchasing function, or Supplies, portrayed in the responsibility for the execution of the expenses mentioned above, it was considered, for a long time, an activity of a tactical and administrative nature within organizations, always having a reactive profile to the decisions taken by the other functions (departments), mainly Production.

The appearance of the oil crisis of 1973-1974 was remarkable for the performance of Purchasing or Supplies, because the reduction of raw materials on the world stage, resulting from the crisis, demanded from this function a more active attitude towards the resupply of the internal needs of the companies . Its performance, during that period of scarcity, brought significant attention from the organization to the sector. Even so, the performance of Purchasing or Supplies was not enough for senior managers to see their contribution to the company's results.

However, the new forms of production management, with the introduction of concepts such as Just In Time (JIT), Total Quality Management, reduction of the production cycle of new products, among other practices that sought to reduce costs and improve quality for greater competitiveness on the international scene, led the Purchasing function to also have to adopt new management practices for the sector, thus emerging as a participant in the construction of competitive advantages for the business.

The development of Purchasing or Supplies will be addressed in this article, through the different stages of its evolution – from its submission to other functions to its position as a participant in the formulation of the organization's strategy. Figure 1 consolidates the four stages of development mentioned, classifying them according to the tactical or strategic nature assumed by Procurement throughout its improvement. The next segment will address each of these phases individually.

The purchasing or supply development stages

The first stage is characterized by little value added by the sector responsible for purchasing goods and services in organizations. In this phase, the departments requesting goods or services carry out almost all the activities associated with the procurement negotiation, leaving the Purchasing or Supplies sector only to carry out the transaction, which consists of issuing the purchase order, monitoring the delivery and bookkeeping of contracts whose clauses are previously agreed between the requesting internal sector and the supplier.

Purchasing or Supplies professionals are mere executors of agreements entered into by third parties, including their own co-workers from other departments. At this stage, the concern is to respond to stimuli from other functions within the organization.

Due to lack of planning, a significant portion of Purchasing or Supply personnel time is spent “putting out fires”. The rest of the time is devoted to dealing with routine operations. Department and individual performance measures are related to efficiency rather than effectiveness.

There is little communication between the Purchasing or Supply personnel and the other departments of the organization, which provides low visibility of this department before other sectors.

In the second stage, the acquisitions are conducted within the Purchasing or Supplies department and by the competent sector within this department for the type of merchandise to be obtained, that is, the one that has the necessary skills for the type of planned acquisition. Communications with other departments and users are encouraged in order to improve understanding of internal customer needs.

At this stage, concerns about cost reduction begin to emerge, leading to initiatives such as streamlining the quotation process, optimizing the logistical flow, compromising orders placed with the supplier and providing advance information to suppliers about forecasts of needs for goods and services.

It is observed, even in this phase, an evolution in techniques and practices in relation to the previous phase in search of modernization, although it is still not possible to verify a strategic direction. In other words, Purchasing or Supplies still operates mechanically and independently of the company's competitive strategies. At this stage, some additional characteristics are identified, namely:

1. a) The performance measure used is primarily based on cost reduction and the efficiency of practices used in the department's day-to-day activities;
2. b) Top managers recognize the importance of the professional development of industry members, but still do not see the potential of what such professionals can provide to the organization;
3. c) Top managers recognize existing opportunities in the development of the Purchasing or Supplies function to contribute to the profitability of the business; however, they still suffer a lot from the insecurity provided by the Purchasing sector itself, which does not show itself proactively, both in solving problems and in participating in strategic matters.

The concern for Purchasing or Supplies, in the two stages presented, is focused on day-to-day issues, of an operational nature and in a short-term time horizon. In this way, it is possible to classify the two initial stages as of tactical profile. The practices listed below illustrate possible routines observed in stages one and two and have tactical characteristics regarding the effects provided in their execution:

1. a) Analysis of the goods/services – research of the requirements and characteristics of the products and services to be acquired.
2. b) Market research – identification of market characteristics for the acquisition of goods/services.
3. c) Conciliation of market information with the requirements of the internal consumer, in order to facilitate the acquisition of their requests.
4. d) Placing orders (purchase order) with the supplier.
5. e) Order follow-up – management of the procurement process in order to follow the progress of the order and, therefore, reveal its status with the supplier.
6. f) Forecasting future needs and transmitting this information to suppliers.
7. g) Verification of supplier performance based on cost, delivery and quality requirements.

From the next stage on, the focus of Purchasing or Supplies activities ceases to be essentially tactical and there begins to be a tendency to deal with broader issues with longer-term repercussions. In the third stage, therefore, the central theme becomes life cycle cost optimization, concern for adding greater value to the consumer through value analysis and value engineering of materials, complexity reduction and supplier involvement in the process. Development of new products.

In the third phase, the internal customer is invited to participate in the acquisitions made, ensuring that all technical aspects and the total cost of ownership are properly considered. Purchasing or Supplies initiates the practice of supporting the company's competitive strategy through the adoption of techniques, methods and activities that strengthen the company's competitive position.

In this phase, teams with representatives from different sectors of the organization (multifunctional teams) are used to select suppliers and purchase goods and services. From that point on, suppliers are considered a scarce resource and therefore carefully selected. The function's professional is also considered a valuable resource, due to the experience that begins to accumulate in dealing with strategic issues.

In the fourth and last stage, there is the total integration of Purchasing or Supplies and the company's competitive strategy with the real characterization of its strategic role in the organization. It becomes part of a joint effort with the other related functions to formulate and implement a strategic plan at the departmental level arising from the company's strategy, in addition to, also together with the other functions, influencing the formulation of the company's strategy in a reciprocal relationship . In other words, the activities and strategies defined for the Purchasing or Supplies function seek to support the company's competitive strategy and, at the same time, be derived from it. Figure 2 shows how these relationships look from the perspective of the strategic hierarchy.

Figure 2 - Connection of the purchasing or supply strategy with the company's strategy Source: Adapted from Watts, Kim and Hahn

Figure 2 represents the influence that competitors and customers exert in the formulation of the company's strategy and, equally important, it reflects the interference that functional strategies, logically including Purchasing or Supplies, play in the construction of the company's strategic planning. Additionally, the framework in the figure represents the dependence of the functional strategies on the organization's strategy, and also the suggestion of alignment between the strategies at the company's departmental level, thus configuring the aforementioned integration.

The consolidation of this integration is facilitated by the observation of factors such as the configuration of the organizational structure, perception of other sectors regarding Purchasing or Supplies and availability of information technology and decision amplitude, which support the strategic positioning of Purchasing and Supplies.

The organizational structure concerns the department's access to the top of the organization. This access conditions the speed and integrity of the exchange of information between the two sectors and in both directions. Purchasing or Supplies needs to have broad and total access to any type of information coming from the upper echelon so that it can effectively act strategically.

A hierarchical structure in which the Purchasing or Procurement function is not directly linked to top management prevents strategic information about the supplier market from being quickly worked on by top management. If, for example, Purchasing is not able to transmit, with speed, information about a possible lack of critical material for the manufacture of a certain item in the supplier market, it could impact the company's production and, therefore, harm its competitive situation.

The organizational perception concerns how the other functions and the top management consider the activities that are developed in the Purchasing sector. Such perception can assume a negative or positive connotation. The perception of an antagonistic relationship with suppliers, for example, brings a negative connotation and, therefore, a lower status of Purchasing or Supplies in the organization, since strategic behavior, and therefore at a higher level, is oriented towards seeking of partnership relationships with suppliers.

The positive perception, on the other hand, can be observed through the participation of Purchasing in activities of significant importance for the business, such as, for example, its involvement in decision-making processes, in which its opinion and also its influence on the long-term planning of the organization.

Information technology, in turn, provides its support, offering speed in communication between the various sectors of the company.

Finally, decision breadth concerns the quantity and quality of the set of decisions in which Purchasing professionals will participate, such as their involvement in forecasting decisions, identification of international suppliers (global sourcing), reduction of the supplier base , projects for the acquisition of capital goods, value analysis, quality and strategic planning.

strategic sourcing

The strategic orientation of the Purchasing or Supplies function outlined here led to the emergence of strategic sourcing as a mechanism for the practical implementation of strategic concepts. It is intended for the management, development and integration of suppliers' competences and capabilities in order to obtain competitive advantages for the purchasing company. These advantages may be related to cost reduction, technology development, quality improvement, reduction of the cycle time for fulfilling orders placed by customers or, also, reduction of the time required to make new products available to consumers, in addition to improvement in delivery service.

In order for the strategic sourcing process to achieve the aforementioned results, it is recommended that its implementation not be restricted to the Purchasing sector and, therefore, rely on representatives from other segments of the company, enabling the formation of working groups, with marketing participants , accounting, production, quality control, engineering, strategic planning and others. These specialists bring diverse experiences, breadth of technical knowledge and provide more consistent and realistic analyzes of the company's needs. In short, they make a significant contribution to ensuring that issues of obtaining goods and services are addressed jointly, guaranteeing the aforementioned integration.

The selection of suppliers, for example, is a practice that, in the strategic scenario, takes on quite different proportions from those observed in traditional selection, where the analysis of candidates was restricted to the Purchasing sector, considering only price, quality and delivery. In the new environment, and with the participation of other sectors, possible criteria for analysis – in addition to those mentioned – are considered as items such as the supplier's management capacity; process capability and technology; adherence to environmental regulations; financial health; production program and control systems; capacity of information systems; purchasing strategies, policies, and techniques for the supplier up the candidate supplier chain; and long-term relationship potential.

Other examples within the same line are: optimization of the supplier base; supplier development; their involvement in the development of new products; certification; evaluation of suppliers considering criteria other than those traditionally practiced, such as, for example, the impact, in terms of cost for the buyer, provided by a late delivery, that is, the cost of a non-conformity; supplier quality management; long-term relationship management with suppliers; and global acquisitions (global sourcing).

CONCLUSION

This article summarizes the trajectory experienced by the Purchasing or Supplies function from its position as a bureaucratic component within the organization to its level of strategic contribution. The evolution of this function is linked to the process of aligning its strategy with that of the company and, consequently, the use of managerial practices that contribute directly to the increase of competitive advantages.

This new posture strengthens the importance of the Purchasing or Supplies sector and demands new skills from the personnel involved to correspond to the high responsibilities of the current contours of this Department. Analytical skills (in particular financial analyses), relationship building, contracting skills, project management and strategy development and negotiation are some examples of qualifications to be required of modern Purchasing or Procurement Managers.

Figure 3 presents a practical reference to help companies classify their Purchasing or Supplies sector according to the profile of the activities carried out therein and to undertake modifications according to their needs.

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