Newsletter

Do you look upon your Purchasing Department as an Asset or Liability to the firm? From your point of view, does the Purchasing Department spend the company's money or do they invest the corporate assets? Be careful how you answer this question, as your answer may say a lot more about your management philosophy than you think.

Allow me to illustrate my point by telling you a story.

A few years ago, I was asked by the management of a large firm to help them locate a new Director of Purchasing. When I asked them "How much salary are you willing to pay your new Director of Purchasing?", they replied "Low to mid-forties." When I told them that I could not recommend any of my colleagues for their opening, they asked "Why not?" I explained to them that they are actually looking for an Investment Manager, someone to manage their raw materials and subassemblies needs to support their annual sales $600 million. They should not be looking for someone to manage pushing paper around. What they should be looking for is the best Investment Manager in town.

Their reply: "Purchasing is different, they just place orders." And I said, whose fault is that?

At the risk of repeating myself, I again asked them "If you had to hire a person to reinvest 50 cents out every dollar taken in (in their case, an investment of $300 million per year), and the quality of this investment would greatly affect the profit of the firm, wouldn't you get the very best talent and skill available?" Once again they agreed, but stated that it's not like that in Purchasing.

Well, if it's not like that in Purchasing, why isn't it and who is responsible for it not being like that? Is it because the Purchasing Manager reports to the Material Manager, who reports to a Director of Manufacturing, who reports to the Vice President of Plant Operations, who in turn reports to a Senior Vice President who is responsible for the profit center, who in turn reports to the President?

Or is it simply because the purchasing budget is so tight that management will not allow salaries high enough to attract skilled and talented people into their purchasing department, i.e., smart people will not work for dumb wages.

Or is it both? Usually one situation goes hand in hand with the other. When salaries are low, skilled people are not attracted. Those less than skilled buyers who are attracted, require all the energy that management can muster to make decisions for them. Purchasing becomes nothing but paper pushers. On the other hand, there are enough skilled and talented people who make wise decisions and investments every hour for their firms and recognize that they have the greatest opportunity to contribute to profit. And they are smart enough not to work in an environment which has up to four layers of management between Purchasing and the Profit Center.

Some management is smart enough to realize that it requires a good salary to attract good talent, but they end up tying purchasing's hands with an over controlling requirements of meetings, reports and tight budgets. Is your Purchasing Department paid to invest the company's money or go to pointless meetings, write weekly reports that no one reads, have demands on their time so tight, that at best, all they can manage to do is get orders pushed off their desk. Or are bound so tightly with operating budget restraints that no one in the department is permitted to attend trade conferences and training seminars?

Yes, some training seminars expensive, but consider the cost of ignorance.

I have seen a large number of Purchasing Department around the U.S., and every one of them worth their salt, saves their firms more money than it costs to run the department. In other words, a good Purchasing Department will never cost a company a dime to operate it will save more money than it consumes in operating expenses.

A good friend, and a C.E.O. of a manufacturing firm, once said to me "You might as well get the very best purchasing talent available, because you are going to pay for it anyway, one way or the other." Now that is something to think about.

Sincerely

Robert J. Nahabit, C.P.M.
President,
Nahabit & Associates, Inc.
e-mail: bob@nahabit.com

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Contacting Nahabit & Associates, Inc.

Phone (512) 349-7977	Facsimile 512 349 7998
Email: info@nahabit.com	Mailing Address: 9415 Burnet Road Austin, Texas 78758-5245 United States of America