External Ressource Management

Purchasing and the management of external resources

Resource Management is key

The Purchasing volume of global Fortune 500 Companies today represents over 70% of their revenue, a trend which is further increasing. It has become by far the biggest leverage factor in an average company’s P&L. Professional methods and techniques must therefore be rigorously applied to manage this function.

Purchasing, or more correctly, "Supplier Management" or “External Resource Management” has become a science in itself. The term "Purchasing" is sometimes misleading as most equal it with the action of buying and managing the associated transactions, while Supplier Management and External Resource Management are covering a broad range of activities, from scouting the markets for innovative solutions to supporting technical teams in optimizing the specifications and the administrative process by introducing the right electronic systems supporting purchasing, sourcing, project management across extended enterprises.

Instead of buying materials, products and services, Resource Managers of tomorrow will buy Expertise, meaning their core focus will be on identifying relevant know how in Supplier markets and on trying to link said know how to their company. Their role will evolve from reactive agents sourcing clearly defined elements to fulfill the need for a given specification to proactive competence hunters who will try to identify a variety of knowhow which, connected to their own resources, will allow their company to develop a competitive advantage via a higher degree of innovation, improved time to market, increased productivity and flexibility.

Supplier Management has Evolved

Therefore managing suppliers has become a demanding profession, with basic and advanced techniques and methods. Supplier Management brings, by nature, Change to organizations and therefore disturbs. It has evolved in just two decades from an execution function at the end of the process (just fill out the paperwork, Joe and see whether you can shave a few extra points out of the price…) to the role of Super-negotiator (we need to drive cost down by 15%, and now…). Today, the role is evolving towards a global business responsibility of managing between two thirds and nine tenths of a company’s resources and innovation capacities (Supplier Relationship management…) to deliver stakeholder value rather than mere cost reduction.

Indeed, the challenge is to "perform better than the competition" rather than "better than last year". This evolution is illustrated by the "Supplier Management Contribution Matrix" (see above).

Strategic Purchasing or “Resource Management” means making adequate make or buy decisions, sourcing and selecting internal and external resources, and continuously working with these resources to reach the company’s objectives. Through effective collaboration with suppliers you can either increase your capacity to bring innovative products and services faster to market than your competition, or you can drive down the cost thereby allowing you to sell more aggressively.