1.10 Discussion and Practice

Think about the four areas where you need to become a domain expert in order to be a successful purchasing professional: Resources, Suppliers, Processes, and Technologies. How knowledgeable are you about each of these knowledge domains? Remember, the two questions your imaginary CEO asked; that is, about graphene and additive manufacturing. Do a Google search to find the answers to the questions in the chapter.

Active scanning is a valuable skill regardless of your chosen career path—Google has commoditized facts. Spotting trends and knowing how they will influence your industry, your company, and your job is an indispensable skill. What can you do now to improve your scanning skills?

Imagine that you are given five minutes to "pitch" the importance of purchasing to the CEO of the company where you dream of working when you graduate. These five minutes are not about you, but about purchasing. Using the material from the chapter, what message would you try to communicate to the CEO, and what real or hypothetical examples could you give that relate to the CEO's industry?

Throughout the chapter, we argued that all organizations in every industry should invest in a highly professional purchasing team. Unfortunately, not everyone has bought into this vision. Are there companies in more desperate need of PSM professionalism than others? Why? How would you convince people where you work that the company should take a more strategic approach to purchasing and supply management?

Consider an organization you belong to or work for. Identify two or three of the most important goods or services your company buys on a regular basis. Now, draw a basic supply chain diagram for one of these items. How far did you get? Did you break the part down to identify all of the components that it is made from? Do you know what suppliers made these parts? Do you know what other supply options are available? You need to know answers to all of these questions in order to do a great cost analysis—and thus make great buys. How complex would your map get if you did this type of breakdown for every component? What does this imply about your job as a purchasing professional?

Go to a financial website that has information on industry or company financial performance, such as finance.yahoo.com, msnmoney.com, money.usatoday.com or whatever your favorite might be. Pick two different publicly held companies from two different industries, and find their income statements.

1. Look up each company's operating profit before taxes (also referred to as EBIT) as a percentage of net sales. If this is not available, calculate each company's operating profit as a percentage of net sales by dividing operating profit/net sales. For example, this figure is 12,510/50,982 for Unilever at the end of 2018, or 24.5%. A company's operating profit is its profit before fixed costs, investments, and so on. Thus, it is a better reflection of the contribution of sales to profit. What is the profit-leverage effect for each of these companies? For Unilever, it is 1/.245 or 4.08. Explain what this means.

2. Do the companies you selected have big differences in their operating profit percentages? In which organization do you think purchasing savings would be more important based on profit leverage alone?

3. For which company do you think purchasing is more important based on the nature of its operations, and why?

Looking ahead, consider how you spend your own money. Do you spend every penny strategically? Do you always conduct careful market analyses, and choose among different suppliers after carefully considering the options? Of course not. Now, answer the question, "Why not?" What does your answer imply for the proactive, strategic purchasing professional?