In many companies, purchasing is relegated to the routine function of an organization and not much attention is paid by the top management to understand the strategic aspects of this function. Threats of resource depletion and raw materials scarcity, political turbulence and government intervention in supply markets, intensified competition and accelerating technological change have changed the stable way of business life and the complexion of supply market. As dozens of companies have already learned, supply and demand patterns can be upset virtually overnight.
To ensure long-term availability of critical materials and components at competitive cost, a host of manufacturers will have to come to grips with the risks and complexities of global sourcing. Others that already source on a global basis must learn to cope with uncertainties and supply or price disruptions on an unprecedented scale. Instead of simply monitoring current developments, management must learn to make things happen to its own advantage.
This calls for a total change of perspective: from purchasing (an operating function) to supply management (a strategic one).
Historically, the performance of purchasing managers and their organizations was measured and evaluated on changes in the purchase price of materials, their ability to keep the production line running and the cost of their department's operation. Today, world-class organizations expect their supply management functions to focus on the five value adding outputs of supply management.
Quality: The quality of purchased materials and services should be virtually defect-free.
Cost: The supply management function must focus on strategic cost management.
Time: The supply management function and its outside suppliers must play active role in reducing the time required to bring new products to market.
Technology: The supply management function has two key responsibilities in the area of technology: (1) It must ensure that the firm's supply...