Los Angeles-based business development specialist Ori Amrami has helped food and supplement companies optimize the supply and operations end of their businesses. But in so doing he came to a realization: Purchasing officers have a lot more to offer companies than mere cost avoidance.
“Purchasing department employes have always been conditioned to deal on price,” Amrami told NutraIngredients-USA.
“But in so doing they get stuck in what I call the purchasing paradox,” said Amrami, who formed his firm Sourcing Alternatives after stints with Herbalife and Nestle. “The expectation is that they have to continually deliver cost savings and cost avoidance. But as they cut more costs, their ability to deliver diminishes and their pool of opportunity gets smaller and smaller.”
Add in the sustainability burden and the plight of the buyer becomes more dire. Sustainability and sustainable sourcing can mean a lot of things, among them having a stable supply of the ingredients in question and a solid business relationship with the entities providing that supply. But the meanings of this admittedly amorphorous concept that earn a company points in the wider marketplace and among consumers have to do with environmental concerns, sensitivity to local cultures where the ingredients are sourced and in general an aura of doing well while doing good.
Achieving those goals often means that the price part of the purchasing equation suffers. While not always the case, it’s often true that the ‘greener’ alternative is more expensive than a more run-of-the-mill choice. So the purchasing agent is caught between a rock and a hard place. Get me the stuff cheap, but make sure you do it in such a way that the marketing department can put a nice spin on it.
“Purchasing is dealing with responsible sourcing, that means added pressure to the issue of the purchasing paradox. It costs more money, and you’ve got to put more resoruces around it to achieve that goal,” Amrami said.
Not just stuff, but knowledge
One way out of that paradox is to tap into the trove of knowledge that many buyers acquire as a consequence of their jobs to help not only to corral costs but to drive innovation, Amrami said. Because of where they sit in the organization, at the intersection of a given company and the wider world, purchasing agents are exposed to new ideas, new materials and new strategies all the time, he said. So their potential value to a company can go far beyond just shaving 3% off the cost of the next 100 kilos of whatever it is they’re sourcing.
“Responsible sourcing costs more. If you were able to offset that with some new revenues, you’d be better off,” Amrami said.
“Purchasing already has a huge network of suppliers and service providers. They are much more connected to the outside world than R&D and marketing. They can be more effective than those guys in figuring out what’s going on and what’s working in the marketplace,” he said.
And keeping the innovation engine revved up is of critical importance. Product cycles can be very short in some cases, and consumers are becoming sophisticated enough that just slapping “new and improved” on the box no longer suffices.
“The other point I’m making is that with innovation in general, if companies don’t do well in that area they are in danger of losing relevance in the marketplace. Take Blackberry phones as an example,” Amrami said.
In order to be effective innovators, purchasing departments will have to acquire some new skills to help turn their insights into effective products, Amrami said. It has to go beyond “Hey, I know a guy who can do x,” to a set of skills around inter- and intracompany communication, expertise in facilitating collaboration and an ability to execute on projects. But the rewards can be far out of proportion to the effort put in in building up that set of tools, he said. From the purchasing department can flow not only vital raw materials but a river of new ideas, too.
“I’m not necessarily reinventing the wheel here, but I’ve done some research and I don’t see people talking about purchasing this way,” Amrami said. “If you do it right the results are pretty cool. I would much rather have someone bring me another $100 million in revenue than to hit them up side the head to get me another $10 million in cost savings.”
Amrami will be speaking on the subject of purchasing in relation to responsible sourcing at the Next Innovation Summit next week that is being held in Anaheim, CA in conjunction with the Natural Products Expo West trade show. For more information, click here.