In the past, procurement had a relatively simple mandate of keeping costs low. These days, however, procurement has become much more nuanced. And to match that more involved existence, a set of procurement practices have been established. Procurement helps to deliver competitive advantage by eliminating wastage in the cycle of demand, source and supply when purchasing goods and services.
Set up a committee for purchasing matters:
The first best practice in procurement should be to establish a committee for purchasing matters. This committee membership should include the leader of the supply chain organization as well as corporate executives, business unit managers and other influential corporate leaders. Meetings should be conducted at regular intervals with key involvement of relevant stakeholders. The committees should actively strive towards removing those barriers to success which exist within the organization. By addressing these limiting barriers, members of the committee should ensure that the supply chain organization is given the opportunity to live up to its full potential. If the executive leadership embraces the supply chain, it is likely that key business stakeholders will be willing to support the supply chain initiatives.
Harnessing technology effectively:
In order to make technology work to its full potential and ensure it serves its required purpose, it is fundamental for companies to review processes which need improvement and choose specific technology which can best satisfy those process needs. Companies should always strive to look for new ways to harness and exploit technology effectively. A given practice in many companies is that the supply chain organization enters data on its own in the system. The enterprise resource planning system (ERPS) is a prime example of this.
Initiate alliances with key suppliers:
Communication which is a two-way street is considered to be an effective way of establishing alliances with key suppliers. Representatives from both parties, should work closely with each other to enhance the supplier/buyer relationship. Communication provides an effective and efficient platform for problem resolution while ensuring the relationship between suppliers remains healthy, vibrant and can be maintained over a long period. Best in-class companies work closely with their suppliers often even after a deal has been signed. This is done with the intention to ensure the supplier relationship management is maintained over a long period of time. With a sound alliance management system program in place, value which can be sustained over a long period of time is created.
Engage in collaborative strategic sourcing:
It is important to get different, diverse viewpoints on board before arriving at a decision regarding strategic sourcing. Diversity helps to improve the quality of decision making. Best in-class organizations seek feedback and information regarding objectives and strategies from their customers on different functional areas of business such as finance, accounting, operations, engineering, quality assurance etc. They solicit feedback and information regarding their objectives and strategies from customers. This approach leads to lower costs, streamlined processes and a heightened plus quickened response to the changing needs of the consumer.
Keep your focus on the total cost of ownership (TCO), not exclusively on price:
Establishing a “total cost of ownership” mindset is a goal that supply chain management needs to embrace and perpetuate throughout the entire organization. TCO is a financial estimate which is intended to help buyers and owners determine the direct and indirect costs of a product or system. It represents the purchase price of an asset plus the costs of operation. Since the global financial collapse in 2009, most top CEOs have focused exclusively on cost reductions, which, according to them lead to highly reduced prices. It is important to keep the focus on TCO in the big picture and not just on price.
Align and staff the supply chain organization:
It can be a formidable task to organize the supply chain function in a way that can maximize effectiveness while also bringing tangible benefits to the company. Many large companies have adopted a hybrid approach which combines centralized strategy to gain consensus. Ensuring the correct staff is hired by the company is a critical component of success. Strong communication and relationship management skills (internal and external), strategic thinking and strong value creation are a list of some quality traits which companies look for while hiring potential employees.
Shifting contracts to the supply chain function:
Putting contracts under the supply chain function ensure that the savings are realized and not lost in translation. The migration of contract management to the supply chain organization allows leaders of the supply chain to leverage the spending of the company, particularly in areas of cost reduction and risk mitigation. Now-a-days, a lot of companies are shifting responsibility for contract management to supply chain management. The fundamental reason for this is the fact that the contracts cannot be maintained in a central repository. Increased emphasis should be placed on the demand planning and forecasting to ensure the inventory levels are kept optimal.
Minimize risk by setting appropriate levels of control:
Supply chain management policies and procedures follow a set structure and sequence. Reviewing supply chain policies periodically and bringing them up to date is crucial. Keeping them realistic, easy to understand and follow ensures regular compliance. Risk mitigation goes synonymously with policies and controls and the best-in-class companies often integrate risk mitigation policies into their own source decision process.
Make the most out of company-owned inventory:
Due to ongoing global economic downturn, inventory reappeared on the radar of top CFOs and financial teams are looking at new and improved ways to improve the bottom line to reduce the working capital requirements. Inventory holding costs represent 60% of the cost of an item which is held in inventory for 12 months.
Taking CSR seriously:
As the years have passed, it has become extremely important for many large companies to take CSR seriously. Corporate social responsibility consist of a series and package of corporate policies which are cleverly designed to ensure they provide tangible benefits to the workplace, individual, organization and community. CSR include a variety of green initiatives which are taken by companies. A company which does not take CSR seriously risks severe criticism from members of society. Now-a-days, plenty of companies receive a plethora of requests for proposals which ask suppliers and service providers to provide information about their own green endeavors.
Ensuring fair and transparent quotation processes:
It seems pretty obvious, but many minimum quotation requirements are not actually enforced properly in some companies, and everyone knows in many cases it is a ‘paper’ tender or ITQ where the vendor is already chosen, or even worse, where employees call in friends who own companies to bid. Do you think they would try to get the lowest price for your company from a friend? The conflict of interest also results in further complications down the line. Reduce these situations by insisting on blind ITQs or use vendor networks/procurement platforms where relevant.
Use full-bore procurement analytics for proper oversight:
Most procurement analytics suite give only post-contract-award data, instead work towards obtaining valid quotation and evaluation data as well as proper RFP scorecard procedures to identify opportunities to analyse and evaluate the bid prices that are being received on a general level as well as analysing and recording them on a long term basis for full spend vs. budget analysis.
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