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Since December 2019, all the world’s economies have been affected by the confinements decreed by the various governments and, in some cases, experienced a complete shutdown of their activities. Some industries, such as aerospace and automotive, have suffered severe disruptions due to a drop in supplies: due to breakdowns in logistics chains and production stoppages, their suppliers were no longer able to meet their commitments. The crisis highlighted a function that has become strategic in companies, the purchasing function. At the height of the crisis, purchasing departments had to fulfil their mission as best they could, relying on internal reorganization for increased flexibility, sourcing on the European continent, or the intensive use of digital tools to maintain their ties with their suppliers.
Short presentation of the purchasing function
We cannot talk about the purchasing policy of companies without mentioning the purchasing function, which has considerably grown in stature in recent years.
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A little history of the purchasing function
Without going far back in history, the purchasing function has gone through several stages:
- First appearing in manufacturing at the beginning of the 20th century, it took an administrative approach to purchase, simply placing orders for the production function. It was not until the end of the Second World War, with the rise of management in the United States, that this function was fully recognized. In a rapidly growing economy (the “Glorious Thirty “), dominated by a demand that outstripped supply, the purchasing function was mobilized to ensure regular supply at the best price-quality ratio.
- With the crisis of the 1970s and the increase in competition, the purchasing function became essential to the cost competitiveness of companies.
- The 1990s will propel the function to the rank of strategic function with the globalization of logistics chains (due to the weight of low-cost countries in purchases) and the complexification of production processes to manufacture ever more sophisticated products.
- Today, purchasing has acquired an actual power status in the company (60% of the turnover) to the point where all purchases, whatever their nature, must go through internal purchasing procedures. Even intangible assets are concerned, such as the use of consultants or the launch of a communication campaign. Cost reduction is no longer the only objective. Instead, little effort is spared for the evolution of relationships with suppliers towards more partnership and the development of function-specific risk management. All in all, purchasing now drives the company’s overall performance and value creation.
Place in the organization
The purchasing position in the organization naturally depends on the company’s size. For a VSE, the head of the company is solely responsible for procurement. In SMEs, there is a structured purchasing department headed by a professional trained in this field. Finally, in large companies or groups, there is a central department supported, if necessary, by purchasing departments at the business unit level for internationalized companies. For example, the SUEZ group manages 7.3 billion euros in purchasing expenses and has 126,000 suppliers spread over five continents.
How to define the purchasing policy?
Various authors often quote the following definition for purchasing policy: “Purchasing policy consists of establishing general directions and intentions relating to the purchasing and supply of an organization as formulated by the management of the purchasing organization.” It can be seen that the purchasing policy is located far upstream of the purchasing process at the strategic level (general directions and intentions formulated by the management of the purchasing organization), where the general objectives are set. If global objectives are set by purchasing managers, it is so they can better manage them, provided that the objectives are translated into concrete actions on the ground. This is why, in the remainder of this article, we will place the purchasing policy under the general purchasing management process framework to understand its scope better.
The purchasing policy in the general framework of purchasing management
To understand the concept of purchasing policy, it is helpful to place it in the context of general purchasing management as follows:
- What are the general objectives of the company? à Company policy
- What are the objectives of the purchasing policy? à Purchasing policy
- How to reach them? à Purchasing strategy
- Through what actions and with what means? à Action plan
- Measurement of results
The objectives of the purchasing policy
In this framework, the objectives of the purchasing policy are set for a given period, taking into account the company’s general objectives. They must effectively meet all the company’s purchasing needs and thus contribute in turn to the implementation of the company’s policy.
The objectives of the purchasing policy are then broken down into strategies (by purchasing category), courses of action, resources to be mobilized (human and financial, etc.), organization, and procedures.
Example of a purchasing policy
For illustrative purposes, let’s take the example of a Notilus client who testified on our website: Aéroports de Paris Group, who defined the objective of its general strategy as follows: “To become the world’s leading group in airport design, construction, and management, and a European reference in Corporate Social Responsibility (CSR).“
In terms of their purchasing policy, the “2015 purchasing policy” was built following three axes:
- Quality at the best price in the shortest time.
Objective: Contribute to the improvement of the group’s profitability, performance, and customer satisfaction
- The supplier relationship.
Objective: Turn suppliers into long-term partners in their success.
- Responsible purchasing.
Objective: Implement all means to ensure the respect of ethical, environmental, and social considerations throughout the purchasing and supply processes.
Finally, for each of these objectives, actions are precisely defined.
How to formalize the purchasing policy?
Various documents are drafted for internal distribution to employees and external distribution to suppliers (supplier code of conduct, code of ethics, CSR charter, etc.). We must also consider monitoring tools such as performance indicators.
A purchasing policy’s maturity depends, of course, on the size of the company and the importance of its purchasing function. In very small companies, the focus is on ensuring that the current purchasing process is viable and that certain rules are respected. For large companies or dynamic SME, the purchasing policy and its implementation are undoubtedly more structured.
Public purchasing policies
Finally, a word on public purchasing policies. These are, of course, very much regulated by the French public procurement code. However, we note the use of purchasing techniques shared with the private sector, in particular for small orders.
Purchasing policies in the light of new developments
To conclude this article, we can mention the evolutions of the last few years that have directly impacted the purchasing policies in companies, namely Corporate Social Responsibility (CSR) and the digitalization of the purchasing function.
Corporate Social Responsibility (CSR) and responsible purchasing policy
By definition, CSR “includes practices implemented by companies in order to respect the principles of sustainable development, i.e., to be economically viable, have a positive impact on society, and better respect the environment.”
Applying these rules is not a legal obligation but is strongly encouraged by public authorities, with recognized quality assurance standards (ISO 26000) and significant pressure from consumers. This is why many companies have integrated CSR into their strategic and operational management, although probably not to a satisfying extent considering future environmental threats.
Consequently, purchasing policies were also affected by this trend: they have integrated a CSR standard to their objectives and applied it to the entire purchasing process. For example, compliance with a code of good conduct or a charter containing CSR elements is required regarding the selection and the ensuing relationship with suppliers.
Digitalization of the purchasing function
Digitalization is gaining ground in companies and will accelerate in our emerging post-COVID world. Many companies are already equipped with purchasing management software that facilitates daily management. Others are going much further with e-procurement, which allows the dematerialization of purchasing transactions via electronic platforms (from product selection to payment). Regarding purchasing policies and their implementation, as outlined earlier, digitalization facilitates the execution by making it less bureaucratic and more participative for all the employees involved.
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