Limiting Costs Through Strategic Procurement
In today's time of Lean Supply Chain, strategic procurement plays a very important role as major cost of running a business for any organisation is the purchasing expense. The process of selecting the ‘Right Product' at ‘Right Time' at ‘Right Price' from a ‘Right Source' forms the basis for Strategic Sourcing.
Strategic sourcing initiatives start with identifying a supplier after carrying out multiple audits for the same product being manufactured by a number of suppliers. This has multiple advantages. All these suppliers can be judged on similar scale of Productivity (meaning ability to scale up volumes or manage variability in the same product), Quality Parameters (like all similar things cannot be same, however, a minimum benchmark or standard for product performance can give a fair indicator of which supplier to partner in the long run.), Cost ( Multiple suppliers for similar products can have different cost structures which may be based on various methods of costing) and last but not the least Management Capability. Management Capability is turning out to be a true differentiator for companies which are efficiently run and companies which are not. To think of it, if the management capability is correct then all the above parameters will under check and will be an ideal case for selecting a right partner. Once this exercise of selecting a right supplier through strategic sourcing is complete, challenge for organisations become of managing these good suppliers.
The first step towards this initiative is to lay down service level agreements between supplier and buyer which will lay the framework for Supplier management and Strategic Sourcing.
The agreement ensures the respect of buyer and seller agreement and can be bound by law. The agreement will have key deliverables required from both the sides. The deliverables from Supplier side include transfer of title of materials supplied in good quality and deliverables from buyer include timely rewards of the supplied material in form of periodic lot wise payments.
The second step of supplier management will be to continuously monitor the trend of supplier for its delivery and quality targets. Today, many mechanisms are available to create an industry wise benchmark for a product category. If any delivery or quality targets fail, they act as symptoms for a quick review and again strategic sourcing comes into play with a decision to make, i.e whether to upgrade the supplier or to look out for new one and develop it? However the cost of finding should be offset by the business volumes and value.
Thus, strategic sourcing initiatives and supplier management act as a tool which benefits both the supplier and the buyer and establishes respect for each other.
Questions and Answers
In a technically advanced world today, E-procurement acts as strategic platform for procurement through electronic mediums. One of the key tools of E-procurement is reverser auction.
Supplier management is the process of defining the structure for how relationships with suppliers will be developed and maintained.
Companies divide funds into two main sections. One, that drives funds "in", becomes revenue, while the other that drifts them out becomes expenses. In hard times, revenues are hard to come, often leading to lower bottom lines.
In today's world of global markets, customers want one point shop for sourcing solutions. The need may be the ability to do volumes, quality to compete in global market or giving products having a competitive cost advantage.
If the senior executives in the companies you are invested have less than 14 years experience as an executive, then they have not managed in a difficult economic period. Equally as challenging, analysts that are covering company stocks with less than 14 years of experience may not have the experience to properly evaluate the activities of senior management. So what clues should investors look for in properly evaluating whether the company they are following is going to survive the downturn?
What do you know about virtualization? Do you care very much about it? If you are a business owner or manager who deals with lots of data and data storage, it might be a good idea to get yourself familiarized.
Making business is a big task that you get into. You should have the idea of how you can increase the traffic of your store and make it more popular. But how? Because of what modern technology can do to us, having your own website online would be such a good idea. You will no longer going to somewhere else to promote your business.
Most CEOs may not realize that data disasters occur every day, and the repercussions can be devastating.
Small business IT support services provide you a real network with proper guidance, realistic ideas, updates, advice so as to maintain your work and competition in the present market.
Sometimes, the DBCC CHECKDB Repair command of SQL Server fails to open Microsoft SQL Server database and database remain unrepaired then, in such situations, the user has to use a third party named SQL Recovery to fix MDF file.
Good vendor management is one of the keys that can enable firms to achieve business performance excellence. Some of the reasons for the increased spotlight.
Purchasing requires getting the best product at the best price, on time and in the right place. Procurement Management is a process which involves managing the ordering, receipt, review and approval of items from suppliers.
Master data management (MDM) has emerged as an important aspect of all ERP implementation or consolidation exercises. With ever evolving and increasing inventory.
The pain that top companies are experiencing in consistent reporting, regulatory compliance etc once they have moved to new/upgraded ERP platform has prompted a great deal of interest in Master Data Management (MDM).
The need for procurement to be a more strategic function has never been as important as in this current volatile scenario (supply chain disruption caused by the recent Japan earthquake is one example).
Discuss this Article
