»Most important value creator«
Mr. Kerkhoff, as a buyer at a DAX company, you have to choose between an office chair for EUR 80 and one for EUR 120 and you are on a tight budget. Which chair will you select?
Let me just think about it...
But there's nothing to think about...
Not at first glance maybe. Of course, EUR 80 is a lot less than EUR 120. Yet, a good buyer simply will not just look at the absolute price of a product.
It used to be that purchasing actually was just a matter of optimizing terms or conditions: If the price of a Leitz file folder had been pushed down from EUR 2.96 to EUR 2.66, the job was done. Today, demands are higher: For instance, you will calculate the effect of the two chairs respectively on the fatigue of employees and generally on their health in the long run. So if your colleagues are less productive because of the wrong chair or if illness rates are increasing, the short-term financial advantage will quickly turn into a disadvantage with high follow-up costs, which would have to be added on to the lower purchase price.
But how is a buyer supposed to calculate such complex relationships? He doesn't even know the chair's production costs.
Good buyers certainly do know them. Whether office chair or car axle – software is available today that will allow you to completely simulate the manufacture of a product, identify every component and calculate the true value of the end product in combination with the correspondingly local labor costs. The buyer will thus know his supplier's cost structures and can negotiate in an entirely different manner than years ago. He'll change from procurement handler to the strategist who will influence product development and crucially contribute to the value added. He really has no other choice in the matter.
Because the turtle and hare game about rebates and price increases between him and his supplier is a finite race. But if a buyer knows that, for instance, labor costs account for ten percent of the product price, he only has to accept a wage increase of three percent just for the explicit labor part. Also, it's no longer enough to have good negotiations on one day.
Why is that?
Because even the most ingenious tactical approach is useless if the timing is wrong:
For example, if I'm able to get two percent on day X – instead of closing the deal two days later when there is an eight percent slump in the entire market. Or whether I am able to detect how crisis-resistant my supplier really is; i.e. whether I can even weigh the supply alternatives against the terms and conditions. Last but not least, transparency also fosters competition among buyers.
It used to be that buyers were largely uncontrolled in using their domination in knowledge, whereas today, I am able to gauge precisely the value each of the buyers will supply. And also who among them still clings to the old job profile.
An occupation which might even become entirely obsolete due to further computerization and the IT industry.
Buyers will not become extinct. Much rather, they will become more important yet because orders obtained by sales personnel only become profitable due to the buyer. Transparency increases the competition about costs. However, that can only be won by closely linking purchasing with production, research and development. Buyers today no longer purchase products in isolation – instead, a buyer must bear in mind the complex requirements of the complete supply chain in order to be able to optimally implement the specifications by the supply chain manager in communications with the supplier.
Please be a little more specific...
The buyer is already sitting at the table together with researchers and designers when the question comes up as to whether a component should be of wood or metal. All the way to distribution whose requirements planning the buyer must know.
Now that's really nothing new.
But it's getting ever more complex in view of our extremely volatile environment – from exchange rate risks to geopolitical upheavals – rendering the procurement of goods ever more difficult. In the final analysis, that will even affect the innovative capabilities of a company.
In the future, buyers will no longer be looking only for favorable prices but also for partners who will collaborate in the development of new products without becoming dependent on them. Buyers will thus take the place of sales representatives as the most important value creators in the company.