What is a Buyer, and what is Procurement?

Everyone will get an idea in their head about what a buyer is when you ask them – usual answers range from “it’s someone who spends money on behalf of the business”, to “someone who raises purchase orders”.  At its basic level, these presumptions would be correct, but proper strategic procurement goes so much further than simple order placing.

To explain it properly, we need to look at how businesses spend their income. If we look at a manufacturing business, the vast majority of the company’s spend is on wages of employees.  The second largest spend behind this is the money it spends to actually manufacture the item(s) it sells.  Items in this spend level can make up between 20% – 40% of a company’s overall business costs and, as such, if it is not controlled and looked at strategically, can end up wasting money at best and causing severe disruption at worst.

A company can directly affect, control and manage this spend by employing a team of procurement specialists to take care of it.  Procurement is normally split into two main areas – direct and indirect.  Direct procurement teams normally deal with items that go directly onto the product that is being manufactured.  If we take the example of cars, this would include steel and aluminium buyers, fuels, oils and lubricants buyers, paint buyers, and buyers for glass, instrumentation panel parts, engine buyers etc. For Indirect procurement, the team look after things such as capital equipment procurement, spare parts, consumables, energy procurement and also services procurement such as cleaning, catering, security etc.

Buyers will be responsible for mapping their particular spend in terms of knowing the supply market and the suppliers that they deal with but also the internal customers they serve need to be understood.  They will look after the relationship between the company and the supplier and are responsible for encouraging innovation and cost reduction wherever possible.  They are also responsible for managing risk for the business by looking at whether parts are single sourced (only have one supplier to supply them) or whether they have a dual or multi-sourcing policy (more than one supplier).  This was highlighted for VW when the Tsunami hit Japan a number of years ago.  VW had parts supplied to them from a single-sourced manufacturer in Japan, whose facility was wiped out overnight by the tsunami.  That company were not able to switch production to another facility quickly or easily and the VW plant in Germany had to stop the production line for a number of days until an alternative source could be found for these critical parts.  It prompted a review by the procurement team of all parts on their vehicles to look at what contingency plans exist and to prevent the situation from happening again.

The best manufacturing companies will have realised a long time ago, that a strategic procurement team can add value to the business not by just simply controlling costs, but by also being able to add value by managing risk, reputation and also supporting long-term buying relationships with suppliers and thus supporting the wider economy.  Good buyers will encourage profit to be made by suppliers and will look at ways in which suppliers and the buyer’s organisation can share profit with each other.  They will also keep an eye on the financial health of suppliers and contractors, and manage exposure and risk of insolvency.  In the recent case of Carillion, many buyers were caught out by the speed of the financial change, but some had spotted it and were able to mitigate before collapse.

The world of procurement can be complicated, but it is always interesting, fast-paced and aligned with the strategic goals of the organisation if it is done properly.  All the apprentices taking our Commercial Procurement and Supply Level 4 course are learning this and will be able to add this value to their organisations going forward.