"Outbuying" Your Internal Customers, Part II

PurchTips edition #265


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What Do Procurement Departments Do Better?

In PurchTips Edition #264, I discussed how internal customers often ignore procurement directives because they feel that they do a better job of procurement than the procurement department. To combat this perception, a procurement department needs to do a better job of procurement than – or "outbuy" – their internal customers. I listed three activities that represent "outbuying" in that edition. Here are four more:

  1. Complying with ethical standards. An internal customer may promise business to a relative or share a supplier's price with a competitor without even realizing how ethically wrong those actions are. Good procurement departments know how to comply with ethical standards and keep their organizations out of ethical trouble.
  2. Complying with policies and laws. Because procurement departments buy goods and services daily, they are well aware of the many internal policies and even external laws that restrict how purchasing is to be done. Internal customers were likely never trained on these policies or laws, so they are poorly positioned to ensure compliance.
  3. Quantifying total cost and value. Understanding how costs of acquisition, transportation, storage, usage, maintenance and disposal factor into a cost comparison between products, services or suppliers isn't easy even for procurement professionals who calculate such things routinely. However, good procurement departments should be much better at performing total cost calculations than their internal customers who rarely do this type of analysis.
  4. Leveraging spend, volume and supplier relationships. If each department had the right to purchase independently of one another, the organization would spread its purchases among a much wider pool of suppliers. This has disadvantages such as: too little volume with individual suppliers to get larger discounts, too many suppliers to manage effectively, and too little importance with suppliers in order to get above-and-beyond-the-call-of-duty service in times of crisis.

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