Procurement: Spend Less.
You'll Make More.

How important is procurement? As long as this equation still exists:

Very important. At one time, this group had the back seat of the supply chain division. Not anymore. Sourcing suppliers, contract management, outsourcing, supply performance metrics and making sure costs don’t overtake revenue....have turned this function into a science.

The next whistle you hear is the announcement procurement has stepped onto the bridge.

Procurement is responsible for acquiring all the goods and services required by an organization. Purchasing is sometimes used interchangeably. If you want to get technical about it, procurement refers to any means of acquisition…..(renting, leasing, outsourcing, and buying.) Purchasing means an actual buy.

Manufacturers spend an average of 60% on goods and services. Expenditures like these affect the bottom line. A skilled group of purchasing professionals will minimize this. And Wall Street will like you better.

Things procurement does :

• Sourcing the best suppliers and maintaining good relationships. You never know when this will come in handy.

• Monitoring the flow of materials and services into the organization. You don’t want to find out the last minute that the supplier of cheese for your frozen pizza can’t make delivery for three months.

• Negotiation. You want the best price. Your supplier wants the best price. Good negotiation will keep both parties happy and your supplier willing help out when you need a favor.

• MRO. Maintenance, repair and operations.

• Consumption management. Understanding what products are being used across the company and are they within budget.

• Contract Management. Once vendors are in place, performance must be measured. Acme Supply Company may be supplying widgets to your factory in Kalamazoo. Are they arriving on time? Are there returns? They may have the best price in Michigan, but how is their performance affecting your customer service?

Supplier metrics are used to measure a vendor’s performance. Basic metrics measure delivery, price, quality and responsiveness to concerns.

Purchasing departments are getting hit on all the time by potential vendors. Seeing what products are out there keeps you informed on innovation. Choosing a supplier boils down to common sense: Financially secure, good reputation in the industry, able to deliver on time, quality products.

When it comes to the number of suppliers, purchasing officers are faced with an age-old question. Few or many. Both have their bright spots.

Few Suppliers : Stronger commitment from the vendor, larger orders lead to better pricing, easier to keep issues confidential, can foster data integration between the two firms, simpler processes.

Many Suppliers : You can spread the risk should a vendor fail, competition reduces prices, likely to encourage innovation while firms compete for your business, if demand should peak you can offload ordering to a second vendor.

• Develop integrated relationships within a supply chain network.

• Outsourcing. Contract job functions or even manufacturing out. This does not always mean to India.

• Access to company data on inventory levels. When procurement is alerted before materials need to be ordered, purchasing can source the best vendors effectively.

• If you’re a smaller company, join a buyer’s consortium to achieve pricing benefits.

There’s that letter ”e” again. Most companies use some shape or form of e-procurement. In another words…...ordering online.

Instant access to suppliers all over the world, time & cost reduction and as I alluded to above, the transaction can automatically be recorded in your legacy systems. What can be bad?

There is one pitfall to be aware of. The big ”e” will improve communications between the buyer & seller. Buyers may even be able to deal with the manufacturer directly. However, that doesn’t mean the physical flow of goods will improve too.

Unless you’re downloading software, delivery still runs on planes, trains and automobiles.

Procurement is an important part of the supply chain equation.

Your sales staff exists to generate as much revenue as possible for your company. That being the case, procurement is around to make sure least one line item as low as possible....expenses.

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