That is a good question for which there is not a precise answer. A Google search does not offer much help because there is no accepted definition of what is really a buzz word. You’ll find equivalent expressions such as “World Class” and references to cost savings, cost avoidance, and the like. As is always the case in this profession, cost management is at the core.
Demands foisted upon business from all quarters are increasing – Sustainability, Corporate Social Responsibility, ISO registration in the quality and environmental worlds, compliance with government financial regulations, Lean, Agile, Six Sigma, etc are some of the most well known.
It is not surprising that the purchasing function has become the focus of many of these initiatives because of costs. It is obvious that if an organization nets 2% on its revenue, the other 98% of the sales dollar was spent of some fashion. Spend takes the familiar form of material and labor but also accounts for equipment, services, rent, utilities, energy, capital construction, IT, health care, insurance, marketing and advertising, travel, etc. The amounts of individual category spend vary by company and industry but all businesses experience these purchases.
This fact has been recognized by leading organizations for a long time. These savvy businesses know full well that mining the supply chain for cost savings makes purchasing the most efficient generator of profitability in all of business.
In the consulting sector of my business, over the past 18 months as the business cycle scraped bottom, calls for evaluation of supply chain operations and assistance with becoming a “Best in Class” organization or to become more engaged with “Best Practices” have grown in frequency. In all cases, there are savings to harvest as the client sheds obsolete practices that add no value.
Customers are driving this train. They are demanding that their suppliers become more sustainable, or more agile, or even to reduce prices by taking extraneous costs out of the system. Given the current economy, we can expect the pressure to keep building.
In general, the purchasing function lags the rest of the business operation in terms of sophistication. It follows, therefore, that there is always a bounty of low hanging fruit. While most clients are mostly aware of this problem, they continue to do things as usual. That road never leads to Best in Class unless that class is mediocrity.
If your company or organization bumps up against the need to be “Best in Class” or to adopt “Best Practices”, send me an email to RobertMenard@RobertMenard.com or call me at 214.513.8484.