Many people talk about Strategic Purchasing but we find few able to deliver the sustainable benefits that this offers. After all, Strategic Purchasing is not easy to implement. It is in the zone of discomfort for most. It requires time, patience, perseverance and commitment, all of which are internal and natural barriers to success. This is a story about a successful Strategic Purchasing experience. It illustrates some of the barriers to success with promise of delivering "big time" in terms of bottom line contribution and in securing for the company a strong position  relative to their competitors.

The story starts with Andrew Chang (not his real name) expressing strong interest in Strategic Purchasing and feeling that his company needed to improve their competitive position in the market place. In fact, Andrew knew the CEO was pushing several business initiatives because there was clear evidence of future market constraints that would restrict growth and put profitability under pressure even though they were currently enjoying excellent profits. The CEO had lots of other issues to worry about and did not see Purchasing as playing a strategic role in the business. How to get the CEO's attention and more importantly have others across the company recognize the potential contribution that Strategic Purchasing could bring to the business?

The challenge was thrown down... "Why not demonstrate the power of Strategic Purchasing?" We asked. "Find a difficult Purchasing issue, one that indicates significant business exposure, in the Strategic Critical area of Supply Positioning and allow us to facilitate a multifunctional team through this with the goal of delivering very significant benefits." Would that provide a compelling story?" Andrew agreed that it would and came up with a current issue to work on. "We have just received tenders back from the supply market for a significant Purchasing issue (around HKD100 million) Technical and Commercial folks are evaluating these and will soon make their decision. I will put together a multifunctional team if you will tell me what type of people would we need but I must stress, the current contracts are about to run out and we cannot be left without supply assurance."

The challenge had been stated.

The team came together and included purchasing, technical, (including the most conservative engineer in the company who had clear instructions from his boss to defend the current specification to the end) sales, finance, and a couple of people from other parts of the company who were good lateral thinkers but did not know anything about the product in question. Two PMMS consultants facilitated the team. The process they used is called SASP (Structured Approach to Strategic Purchasing).

The SASP process has 7 clear steps which are triggered only when the previous step has been completed. Here is the outline of the PMMS SASP process. A key deliverable is clarity and conciseness rather than reams of paper and random thoughts.

The initial aim is to understand the current situation and gain a deep understanding of how the supply market works today. A variety of tools and techniques are used by the team to bottom out each issue and to separate assumptions from knowledge and fact. We normally find that no single person has all of the information, that assumptions are seldom tested, that the knowledge of the supply market is poor and that knowledge of real costs across the supply chain is even poorer. The outcome is s short statement that defines in simple "board level" language, the current market situation. In this project it took us nearly 2 days to identify this data and several anxious moments were experienced as the team struggled to work together and get beneath some key issues.

The next step requires fresh minds as we want to understand real business needs for now and the future. This can be difficult as often businesses have not developed future needs to ensure success. This is particularly true in service industries. Step two was difficult for Andrew's team as well and several iterations were needed before we had a clear picture. This allowed the team to visualize how the supply market needed to work in order for these business needs to be met. The team then broke up for about 7 weeks as several action plans were initiated to confirm data, test assumptions, and test the reality of the business needs with the objective of obtaining management  buy-in for the way ahead. In the case of this team, it took until day 4 before one of the "lateral" team members suddenly exclaimed that for the goal to be achieved, they would have to fundamentally rethink the whole process because they had been designing in cost rather than defining functional performance and value.
We now had a gap to be managed. The aim here is not to change the goal but to develop several alternative and completely independent strategies that could completely meet these objectives. Often the atmosphere in the room is one of hilarity at the apparent impossibility of the task ahead.

Step three tests each strategy and to develop implementation plans. Often in this stage, the team (which by now is beginning to really perform) will come up with a strategy which may be a combination of others and is seen as clearly superior. The team in this particular case was beginning to believe that the goal was perhaps achievable. A series of market visits were carried out involving 6 supplier manufacturing locations in 5 countries. This opened the eyes of the team. For Purchasing, this was the first time they had visited suppliers. It confirmed that an existing supplier had poor facilities and work practices, again a surprise given that someone was meant to have audited and approved this supplier in the past. For the suppliers, there was disbelief that this company could change a fact which was confirmed when a short list of suppliers provided new proposals which were minor alterations of earlier quotes. The visiting team in fact became sellers rather than buyers. Another iteration was needed with further persuasion techniques. One supplier decided to take a risk and proposed a new design idea. The result would be a 30% reduction in cost. The team was ecstatic and wanted to negotiate immediately to a 100% supplier agreement. Although this was consistent with the strategy, the deliverable offered did not meet the long term business need. More was required. This is where the going got tough as internal customers challenged the new specification and rejected the need for significant changes citing safety and risk. The team performed magnificently. The technical member was under extreme pressure from his more senior management to change the specification. He had become a convert inside the team and recognized the value of moving forward. The whole team supported him. In fact, the supplier was also involved in providing confirmation of the workability of the new solution. Another round with short listed suppliers resulted in them appreciating that if they did not change their thinking, they would not be able to participate in future business. New proposals were received and the team went through additional training and preparation for negotiations. This included practicing against an experienced negotiator with the sessions being taped and reviewed.

The team successfully concluded negotiations with one supplier which will deliver a 30% improvement over current costs (the new tender prices would have in fact increased costs by between 35 and 40% over five years), with deliveries direct to site. This against a 6-7 month lead time and the need to inventory holdings, sets a new standard in the industry. Both supplier and customer are taking a risk in achieving this and have developed an effective business relationship. Both sides are excited about the potential deliverables.

"Well Andrew, what has been the reaction from your CEO?"

"He is amazed! Not only is this a result clearly superior to anyone's imagination, but it has demonstrated the effectiveness of teamwork in a way never before seen in our company. He is keen to move forward, and by the way, I have four requests on my table from end-users identifying a key purchasing issue and wanting us to use SASP to tackle it. They don't know what it is but have caught the enthusiasm of the team and seen the success and the power of the process! Thanks for the help, this purchasing change process will be driven by the end-users now. It has helped me and our company immensely."

This is a true story and there are many others like it across the world. Success is not easy (if it was, every one would be doing it!) and few companies have an environment which allows this to be a sustainable competence. Can you imagine what impact would be brought to achieving your organizations' business objectives if you had this capability?