"Taj Mahal" The purchase function in an organization

Couple of days back I came across a seemingly interesting article with a pic of "Taj-Mahal" and a caption "Taj (Taj-Mahal, India) would have not been so beautiful had Shahjahan (Emperor who built Taj-Mahal) asked for three quotations and decided for the lowest". It triggered a thought process in me regarding quality, cost and sourcing (purchase).

Off course "Quality" (represented by Taj-Mahal in this case), comes at a cost but does that mean the lowest-quote supplier is any shade inferior in terms of quality than its higher-quote competitor for a purchase situation at hand. Not really!

So, to set things in perspective (for people new to the purchase function of an Organization), let's understand how a traditional purchase function works across industries and geographies.

• Purchase team has 1 to 2 suppliers for an item in the system,
• Suppliers get approval from the Vendor Quality team (SQA) with periodic audits happening as per the calendar dates for the sake of assurance.
• Purchase team generally might not be open to enrich/rejig/ review the need for adding new suppliers for direct as well as indirect items.
• When a new purchase requirement arises, the purchase team creates a PO (purchase order), checks with 1-2 suppliers if they can honor the PO and if yes, the PO gets transmitted with the expected item description and a timeline to supply.
• The material gets delivered at the customer's gate, goes for a quality check and GRIN (goods receipt inward note-stock accounting), further it's pulled inside.
• The Supplier, in exchange of the goods delivered, gets the payment wired from the accounts team from the customer.
• In most purchase organizations it is mandatory to get at least 3 quotes in case of any new purchase requirement.

The idea of the Purchase team soliciting 3 or multiple quotes is to remove any bias and discover the best source of supply with a judicious view across the technical, commercial, general, financial and administrational capabilities. And what determines an efficient comparison between multiple quotes/ proposals from suppliers is the ability of the purchase function to articulate and define the purchase good/ service through an RFP (Request for Proposal) process. When the Request for Proposal (RFP) is strong and sturdy, you will never get to see situations where the lowest cost supplier comes up with an inferior quality of deliverables. That brings us to the most important need of a Purchase function to create a system, such that the specifications of the goods/ service of purchase gets defined comprehensively. Also, the right qualifier questions get fielded with appropriate mechanisms of filtering so that only the best or the most deserving suppliers get into the final round of discussion towards the purchase contracting. So, if an organization gets apprehensive thinking that a fresh supplier with a lowest cost might be risky for the business or might not be the right quality one, it puts a big question mark on the Purchase team's efficiency itself.

Apart from defining the correct specifications, its also important to question the current specifications wherever possible (check for gold-plated specifications if any), relook into the way costing is done, apply first principles etc. The cost competency of a supplier could also be a function of its continuous benchmarking efforts and learning curve over a period of time that cannot be pushed aside. The genuine suppliers could be discovered if the purchase function is open to explore the new suppliers from the market place.

Taj-Mahal would have been even more beautiful & economical (time & cost), had Shahjahan -

1. Got the rough sketch of the structure (Taj-Mahal) from the architect,
2. further signed NDA with potential builders,
3. defined the specifications clearly at an optimum level
4. invited suppliers all across the world (offline or on eCommerce system with Consulting guidance) as part of Supplier market intelligence
5. created a sturdy RFP to support the supplier (builder) qualification-screening process across -technology, Proof of concept & commercial proposal and other delighter elements. & finalized the order with the lowest yet competitive & deserving supplier (builder)

Open up..Rejig the system, improve spend (purchase) performance..moving towards optimum..Count on Exxoptimus Partners.