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Strategic Sourcing for Strengthening Stocks (Part 1)

22 October 2007 - Features - Editor

Professionals from the purchasing function rarely get public credit for their invaluable contributions to the performance of the best stocks. Senior executives and celebrities from marketing and finance steal the limelight when stocks outperform their peers, but behind most of these success stories lie systematic and diligent efforts of the purchase function.

Amateur owners of stocks and those who inherit controlling stakes tend to look down upon purchase executives. After all, these guys spend money rather than earn it! Who knows if they accept some material perquisites on the sly from supplier organizations? Purchase is also a convenient punching bag when supply chains break down, whether or not they are responsible.

Professional managers appreciate the strategic values of effective purchase teams (Wincel, 2004). They keep projects on schedule, operating margins on budgets, and competitors at bay as well. Operations Research has the potential to automate many routine aspects of purchase operations, but it calls for top-level and rare inter-personal skills to build professional relationships with key suppliers, to monitor market conditions, and to meet exacting customer specifications. Long term values of the best stocks on any Exchange are influenced strongly if subtly, by the sophistication of purchase processes and the state of the function in individually listed companies. It is not common for investors to seek out professionals from this function to assess the business health of a company, which is unfortunate because the function is such a rich repository of information relevant for the enduring values of stocks.

Trade-Offs for Stocks in Procurement Alternatives

The future values of stocks are deeply affected by present actions of the purchase function (Ukalkar, 2000). The principal route for such strategic inroads is through inter-functional coordination. Changes in specifications for outsourced products and services are fundamental constructs around which business performance is built. External marketing claims can even be counter-productive if internal processes do not work to make the claims come alive in the realms of actual customer experience. Management theory postulates that external customers should dictate product or service attributes, but ground realities stipulate that manufacturing efficiencies, cash flow constraints experienced by finance, and supplier development competencies of purchase executives.

Successes and failures to garner and to protect market shares invariably influence investors in search of stocks with the most profitable growth potentials. However, operating margins can challenge volume objectives, especially in enterprises which face nearly perfect competition. The purchase function has a vital role in classic trade-offs between top-line growth and productivity improvements. The best professionals in this function will also help their employers participate in a number of price points of a product or service category, by broadening the supplier base concerned. Overall, much of business life involves trade-offs, and purchase is the most common department of a company where such tough decisions have to be implemented.

How Executive Procurement Decisions Can Affect Stocks

The organization of the purchase function inevitably affects trends in the business performances of stocks. It is not uncommon to place the function under manufacturing, especially if a company is engaged in producing tangible products. Manufacturing domination of purchasing tends to drive production costs down because shop-floor managers love to standardize processes, and like to cut out extras and specials (Using Spend Analysis to Help Agencies Take a More Strategic Approach to Management, 2004). However, manufacturing control of purchases may also drive working capital levels up because a stock-out is the bane of production, and specialist engineers may not always be adept at negotiating favorable terms of trade.

Strategic Sources for Strengthening Stocks (Part 2)

 


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