Study on the Impact of Sales and Purchasing Processes on Corporate Performance and Profitability

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Southfield, June 6, 2011 – Management Development Corporation (MDC), a Michigan-based consulting firm specializing in business process improvement, announces the release of a research study, which examined the communication processes used by sales and purchasing personnel and their impact on corporate performance and profitability.

More than 200 companies participated in the research, which included a series of interviews, focus groups, observations of more than 1,000 customer/supplier meetings, and comprehensive survey data compiled by the University of Michigan-Dearborn, College of Business. The six-year study thoroughly examined the interaction of sales and purchasing practices. Results clearly indicate current Common Practices can in fact have a negative impact on product quality, organizational performance and the total cost of doing business.

“This MDC study assesses the true impact of the communication processes currently utilized between customers and suppliers,” says Michael Derry, president of MDC. “Studying the specific details of the processes utilized in the purchasing and sales functions and how they interacted allowed us to view and understand them as part of a complete system. The findings ultimately identified where changes can and should be made to the current system to improve corporate profits and shareholder value for both customer and supplier.”

The top two percent of sales representatives utilizing the exceptional practice processes, identified through the research, consistently outperformed their peers in both top-line sales and bottom-line profits. Tracking their results over the last six years, the study found that on average they were 15 percent to 32 percent higher than peers employing the Common Practice processes within the same industry.

The top two percent of purchasing personnel utilizing the exceptional practice processes were able to reduce their company’s total costs related to the products they purchased. Reducing costs such as those associated with lost production, scrap, maintenance, personnel time and warranty issues were common. Typical savings in these areas were three percent to 28 percent in comparison to competitors.

In addition, the study pin-pointed how traditional sales training programs are actually reducing supplier profits, while many purchasing practices are actually adding to the total cost of producing the customers’ products.

Study findings also identified the key skills necessary to produce successful sales and purchasing systems for the future. Skills that only the top two percent of sales and purchasing personnel are currently utilizing. Identifying these processes allows customers and suppliers to jointly manage, measure and continuously improve their respective processes.

The Sales and Purchasing Communication Processes and Their Impact on Corporate Performance and Profitability research study results are now available. For a copy of the study, visit MDC’s website at www.mgtdev.com.

About MDC:

MDC, an industry-leading management consulting firm based in Southfield, specializing in process improvement and performance management. They assist clients in reaching and exceeding their business objectives through an analysis and improvement of work processes and related training. Founded in 1972, MDC focuses on the improvement of business processes that enable executives and managers to effectively control and manage change, resulting in the continuous enhancement of organizational performance.

About University of Michigan, Dearborn College of Business:

The University of Michigan, Dearborn College of Business offers a variety of undergraduate and graduate degree programs, including the Web MBA, and coordinates industry research and continuing executive education programs through the Center for Emerging Business Issues.

EXAMPLE FROM STUDY:

Three Tier One suppliers were vying for the opportunity to produce a new product for their customer. Two of the suppliers had Team Leaders utilizing the Common Practices model. The third supplier’s Team Leader employed the processes identified with the Exceptional Practices model (only 2% of corporations currently utilize this approach). All three suppliers were noted for their product quality and had proven track records of performance.

During the process each Team Leader conducted an analysis of needs and made recommendations to the customer. In the end, the two suppliers implementing the Common Practices model submitted their responses to the RFP as written by the customer. The third supplier had involved their Tier 2, 3 and 4 suppliers throughout the process. As a result of this involvement they discovered that the material specified in the design, which was new to the product, would behave differently than the material currently used. It was determined that the specifications and cost of the die anticipated in the RFP, would need to be different or it would be subject to failure. The supplier called the customer to discuss these findings.

The customer’s purchasing agent, also utilizing the Exceptional Practice processes, gathered all parties together including the company’s engineers, the supplier and the supplier’s key vendors. During the meeting it became clear that the RFP specifications as written, would cause significant problems during production including; set-up problems, broken dies, production delays, scrap and ultimately reworking the specifications. As a result, the specs were revised to meet the necessary performance requirements eliminating the problems that could easily have run into the hundreds of thousands of dollars before they could negatively impact production.

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