Purchasing levers

Lever Brothers, since it had to decide how to obtain the sodium citrate, had another host of alternatives to consider. It could produce or buy the product. If it chose to produce the builder, it could purchase the process from another firm or it could develop its own process. It could make the product from basic raw materials or from intermediate compounds. If it decided to let some other firm be the producer, it could buy the material on the open market or enter into a long-term agreement with another company. It might even do both by forming a joint company, such as Dow Coming, that would manufacture the builder. It could even buy a company that was currently producing it. All these possibilities must be economically evaluated to determine the best course of action to take. 

Improving purchasing performance remains one of the most important levers for chemical companies to boost profitability according to the German Chemical Industry Association (VCI), in 2002, chemical companies in Germany spent more than 50 percent of their gross production value at third party suppliers 31 percent went to purchase raw materials, 13 percent was spent on re-sale items, three percent on energy, and another three percent on maintenance services. 

Above all, the value creation process has to focus on the Total Cost of Ownership (TCO), not just the purchase price. The principal levers in optimizing TCO... 

Changing the qualifications of input materials to make them simpler, more effective, and cheaper is another important lever. Major savings can be achieved by partnering with the R D, manufacturing, maintenance, and marketing functions to define dear customer spedfications and to determine the requirements on fitness for purpose or quality that will prevent over-engineering and enable purchasing to source the most cost-effective raw material for the application. 

A center-led purchasing organization leveraging a cross-functional approach is superior to a de-centralized business-led approach, to maximize the benefits of all levers. 

Reinforcing purchasing strengths. Substantial purchasing savings can usually be achieved soon after a merger. The main levers are ... 

When companies shape demand (the combination of price, promotion, marketing, sales incentives, and new product launch), dollars are spent to stimulate purchase behavior and increase sales lift. Most often, these demand levers are not pulled singly or separately instead, they are used together. As a result, data analysis is difficult. 

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