Skip to main content

The Problems of Purchasing and Supply Chain

Written by: Ian Marshall
Published on: 20 Dec 2014

The problems, if there are any, with the Supply Chain of a business depends largely on the size of the business involved, the sector the company operates in and who is in charge of the function. Typically in a small to medium size business the function will be headed by the accountant if in the service sector or maybe the works manager in a manufacturing company. It is unlikely that either of the people in these functions will have any serious experience in negotiating deals with suppliers for long term contracts, nor will they understand the level of experience needed to achieve satisfactory terms of supply through negotiations. In service organisations different skills are needed than those in manufacturing businesses. This will often lead to appointing people in the purchasing function who do not have the necessary skills to achieve the best results.

In a manufacturing business it is not unusual for the person heading the function (often the works manager) to set the priority of the purchasing team to ensure parts and materials are supplied on time rather than ensure the best price is achieved. In a service business it is not unusual for the finance director to have a large say in who should have the business for example on supplying the services for computers, stationery, telecoms, advertising etc. In both these cases the level of price and the satisfaction of the service may again become a secondary priority. This does not achieve the best results for your pricing or service levels.

In the case of a larger business with a substantial turnover – perhaps in the tens or hundreds of millions - then professionals should be appointed who understand the business of the company they are employed by, know and understand the products they are making and the supply chain involved in the materials for making them. Often one of the issues is whether to have a single source i.e. to put your eggs in one basket, and find the best possible supplier to deal with.

In this latter case what is needed are technically qualified people who understand the markets in which they are operating in, and are therefore able to forge long term contracts with appropriate terms to satisfy both parties. This will ensure that the company gets priority service levels with some assurance on future pricing and service levels in return for supplying sufficient levels of business to the supplier (i.e. both parties are signing up to a long-term mutually satisfactory contract and terms of supply).

In a larger company the person in charge of purchasing will typically be a director of the business or reporting to a senior director who supports the function. In large businesses it is not unusual to have a senior purchasing person for services and another senior person for production materials. These people will be in charge of these functions and need to know the needs of their business inside out and the supply markets for the products and service they will be procuring.

The Purchasing and Supply Chain profession (also known sometimes as Procurement) has come a long way since the 60’s and 70’s when there was little in the way of organised professional people outside of the big businesses such as automotive, computers and electronics which was largely started in the USA with companies like IBM, Xerox, aerospace and the automotive companies leading the way. These days it is a very worthwhile and satisfactory career option for people who want to operate on the opposite side to sales, in a career which is just as demanding.