One should keep in mind that every transaction has an additional hidden cost in labor and overheads, such as the time spent sourcing products, tracking deliveries, matching invoices, and overseeing suppliers.
The question arises: when to separate purchasing management tasks into an autonomous operational role and hire a designated professional?
There is no universal answer to this question, as purchasing process, procurement policies, goals, and volumes differ not only in the industries but even from company to company. In the article, we look critically at the role of the purchasing manager and discuss how to determine the value of hiring one.
Read to find out:
- Who is a purchasing manager
- Whether successful procurement is possible without a purchasing manager
- And what are the benefits of hiring one
Who is a Purchasing Manager
The purchasing manager is a supply chain professional who sources and acquires materials, products, and services for further use or resale by the company.
He ensures that whatever is needed for the company’s core business activity and day-to-day internal operations is available on time and under the best conditions.
This role is far more complex than just buying in the company’s name – purchasing manager's job is about creating a company procurement strategy based on the available budget and suggesting execution policies.
They meet with department heads and stakeholders to learn about their needs, confirm they are aligned with business objectives, and then search for the best contracted or potential suppliers to negotiate contracts.
With market knowledge, purchasing managers evaluate suppliers and vendors based on QCD (Quality, Cost, Delivery) ratio and ensure obtaining the best materials, products, and services for the lowest prices in the shortest time possible.
It’s a senior role that implies strong knowledge of finances, business administration and law, and industry trends. It also requires good interpersonal skills to convince prospective suppliers, negotiating skills to close the deal, and the ability to make informed and timely decisions.
In larger organizations, the purchasing managers oversee purchasing agents, while in smaller companies, their job would include both building a strategy and actual buying.
What are the Benefits of Hiring a Purchasing Manager?
There are several undeniable benefits of hiring purchasing managers, as they immediately affect various procurement KPIs.
Efficient procurement helps companies save money and lower production costs. By implementing best-in-class purchasing practices and utilizing negotiation skills, the purchasing managers can obtain significant financial savings and get improved contracts, price proposals, and payment terms.
In some cases, for example, in manufacturing businesses, optimized spending can impact the company’s bottom line more than successful sales or marketing. It lowers the cost of production and, subsequently – prices for the end customers. Reducing the price on the tag while maintaining the quality is often a crucial market advantage.
Optimization of Suppliers’ Database
By utilizing their knowledge, experience, and expertise, purchasing managers can analyze the market to find vendors and suppliers that comply with business requirements and strike the right balance between price, quality, and lead time. As a result, you get a diversified list of regular and alternative suppliers.
Information on foreign and domestic suppliers and vendors is well-researched and structured, and the list of approved items with the latest prices is available to the company at any given moment.
Improved Communication with Suppliers
Purchasing managers focus on thorough vendor and supplier management and building quality relationships.
Establishing effective and long-term communication channels with vendors helps identify and resolve any challenges quickly and therefore bring extra value for both parties. A professional approach with personal touch plays a significant role in keeping a vendor’s response time shorter and rejection rate lower.
Reduced Purchase Order Cycle Time and Lead Time
Purchasing managers work to implement efficient procurement operations and guarantee their timely execution. An efficient and systematic approach to procurement provides a solid foundation for the business to keep running without interruptions to the supply chain and delays.
The Budget Limits are Well Communicated and Met
Introducing transparent procurement workflows helps streamline the control function of the finance department.
With purchases carefully planned and tracked by the purchase manager, all relevant stakeholders have real-time access to credible procurement financials, control them against the budgets, and swiftly respond to any discrepancies.
Enhanced Compliance Through Better Policies
Purchasing managers could play a significant role in strengthening a company's brand and increasing its market presence. They are the ones who can help introduce new purchasing policies aimed at implementing sustainable business practices and corporate social responsibility.
When ethical is preferred over cheap, purchasing managers evaluate vendors’ and suppliers’ sourcing, manufacturing, and distribution practices to find the best fit and ensure it corresponds to the company's business strategy.
Better Positioning for Future Growth
With spending activities under control, a business can plan for sustainable and continuous growth. Applying procurement experience and detailed knowledge of the company’s needs, purchasing managers can also effectively forecast future spending to avoid unnecessary expenditures in the future.
By introducing efficient procurement operations and negotiating better deals with suppliers, the company can reach substantial savings. These funds can then be allocated to stimulate business development.
Purchasing managers can further improve the process if they have the right tools for doing their job. For example, Implementing a robust procurement-to-pay solution like Precoro to manage the entire purchasing cycle, onboard suppliers, track contracts, and run reports. Sign up for a demo here.
Is Successful Procurement Possible Without a Purchasing Manager?
Up to a certain point, it is.
The company can meet business goals effectively without a dedicated purchasing manager. It depends significantly on the company type and on purchasing volumes.
Typically, there is no need to hire a purchasing manager if they would only have to work several hours per week. In this case, purchasing functions can be performed by the finance manager or office/admin manager. In a small business, even CFO, COO, or CEO takes on the role.
However, it’s essential to conduct a cost-benefit analysis regularly and recognize the breaking point when not having a purchasing manager causes financial loss.
When the procurement workload (volume of processed requests, number of vendors, and hours spent on planning and tracking) starts taking a toll on the key responsibilities, it’s time to hire a dedicated professional.
This could happen sooner or later along with the company growing, depending on the industry, specialization, and business operations. Companies’ procurement needs differ significantly across industries and drive decisions about hiring purchasing managers.
Let’s take a look at a couple of examples.
For instance, a construction company. Due to the large volumes of diverse materials and products such businesses must buy for their daily operations, it becomes essential to ensure you are getting the best offer for every purchase you make, and right on time.
Therefore, it might be a good idea to hire a purchasing manager right from the start, as not having a professional overseeing procurement and inventory control can cause critical mishaps leading to delays in delivering the project.
Another example is a software company. Such organizations can operate successfully without a purchasing manager for much longer as the nature of purchasing is very different and mostly consists of services and subscriptions.
As the company goes through its early stages, department heads are usually the ones to manage procurement. Some basic processes might be in place to review and onboard vendors, sign contracts, and manage renewals.
However, as the company grows, so does the complexity of purchasing and the number of stakeholders involved in the process, and conversations with security, legal, and finance teams become a part of the routine of buying a new subscription.
As a result, communicating the needs across departments and coordinating their approval can become overwhelming for the department heads. In such cases, a purchasing manager can take over this role to improve the process.
Potential risks of not having a dedicated procurement function for your business
It’s worth keeping in mind that lack of control over procurement function could have several risks:
- Procurement becomes a tactical activity rather than a strategic one.It is addressed as an immediate issue that must be dealt with rather than as a long-term plan.
- Vendor management tends to get out of hand. When several people share the same responsibility, information integrity suffers.
- The quality of vendors' and suppliers' relationships suffers.
- It simply can’t always be done on time. When procurement management is done as an extra responsibility beyond the immediate job, there is a chance of not prioritizing supply chain issues.
Anyone who isn’t specialized in procurement might not have the needed knowledge, time, and resources to ensure that the company is getting the best deal on the market.
With information about purchases and deals distributed among different stakeholders or departments and saved in different systems and folders, there is a risk of not everyone having a complete overview of vendors and suppliers the company is working with.
When there is a need to make a new purchase, responsible people often initiate a new supplier search and onboarding instead of working with those the company has already contracted.
While a non-procurement person could take care of processing purchase orders and invoices, it’s less likely they could invest time in building long-lasting partnership relationships with vendors and suppliers – simply because it’s out of the scope of what they typically do.
Evaluating, developing, onboarding, and managing suppliers and vendors is especially important today when many organizations run on lean schedules and use just-in-time inventories. Any misunderstandings and delays in the supply chain can be critical and cost the company money and customers.
For example, when the finance manager is preparing annual financial reports, they will have no capacity to scrutinize the list of suppliers to select the best fit.
To Sum Up
Having firm control over your spending and supply management are some of the key criteria for building a successful business.
Unfortunately, there is no universal answer to when a company should hire a purchasing manager. And while supply chain management and procurement operations can be performed by the admin managers, COO, or CFO, there is always a breaking point when it stops being sustainable and efficient from a strategic standpoint.
And even though hiring a purchasing manager increases the immediate salary costs, it can prevent losses due to flaws or a complete lack of procurement policies. Businesses can see the ROI of this decision in getting the most suitable deals, introducing transparent and traceable buying, and developing relationships with suppliers.