Procurement is an important concept as it is the process of finding, agreeing terms and acquiring goods and services or works from an external source, mostly via competitive bidding process. The process in procurement is used to make sure that the buyer receives goods, services or works at the best possible price, without sacrificing in quality, quantity, time and location. Procurement activities are often divided into two different categories, direct and indirect procurement. Direct Procurement refers to the purchase of goods and services that become part of what your organization sells to its external customers. Whereas, Indirect Procurement concerns with purchase of goods and services that does not become part of what your organization sells to its external customers.
In today’s economic environment, doing what you have always been doing—even if you are best at it— is no longer up to snuff. Under pressure supply chain managers must redesign the operations rather than just improve them to contain costs and produce results, despite challenging circumstances. This proves that adopting philosophies, methods, and processes elevate an organization on “top-of-the-line.”
If any organization is implementing some of these below mentioned practices, they can see a strong impact on supply chain excellence.
Need for Governing Supply Chain Council – A governing council is established so that objectives and strategies of supply chain organizations directly correlates with the corporate strategy. The council is also beneficial in removing barriers to success that exist inside the organization. Since the supply chain organization is now aware about the barriers, they have the opportunity to perform upto their potential.
Technology Should Work for You – Many companies choose software that they hope will make them more efficient, and then they structure their workflows and processes around that chosen technology. Instead, they should first review the processes that need improvement, and only then select the technology that best satisfies those process needs.
Big organizations recognize the importance of an efficient purchase-to-pay process and have adopted strategies and mechanisms to get the greatest benefits from technology.
An alliance with Key Suppliers – Big companies work along with suppliers even after a deal has been signed. In many organizations these days, it is called “supplier relationship management.” But that only implies one-way communication (telling the supplier how to do it). For more effective relationship between buyers and sellers two-way communication is required.
Collaborative Strategic Sourcing – Strategic sourcing is the core of booming supply chain management, although a collaborative strategic sourcing drive delivers better outcomes. Few organizations also include customers in decision making process. This approach not only ensures accessibility of supplies, but also results in reducing aggregate cost, streamlined procedures, and increased understanding to customers’ evolving needs.
Total Cost of Ownership (TCO) over Price – Setting up a “Total Cost of Ownership” outlook is an objective that the supply management organization needs to embrace and sustain throughout the entire enterprise. It won’t be simple, however, to convince your company’s executive leadership to truly prioritize value over price.
Contracts Under the Supply Chain Network – More companies are moving responsibility regarding contract management to the supply chain organization instead of leaving it in buying, legal, finance, or operations. One advantage of this move is that it ensures the contracts are gathered and kept up in a central store. The migration of the contract management network to the supply chain organization also permits the supply chain leader to more viably use the company’s spend, especially in the area of services where there is a huge chance for cost-reduction and risk moderation.
Enhance Company-Owned Inventory – The worldwide economic downturn implies that many CFOs have kept inventory on their radar screens, and their financial teams are continuously searching for new ideas to enhance the bottom line and reduce working capital. Supply chain organizations should therefore continuously review the inventory quantities and endeavor to keep them at an ideal level.
Lack of planning and forecasting are direct causes of inventories that are out of stock with the business’s needs. Hence, best-in-class organizations also are placing more emphasis on demand planning and forecasting as other means of ensuring ideal inventory stocks.
Set up Appropriate Levels of Control and Reducing Risk – Supply chain management policies and procedures ought to follow a suitable sequence and structure, and it is essential to review them constantly and update them from time to time.
However, going too far in building policies and procedures is a possibility. This is why best companies regularly audit their policies and controls to confirm that they are not creating congestions.
Some organizations are inducing sound techniques that include: (1) Analyzing all the risk elements; (2) Figure out the chances of the risk incident occurring; (3) Estimating the dollar impact on the sourcing decision if the risk incident certainly takes place; and (4) determine the order for dealing with risks for monitoring and prevention.
Taking Social Responsibility Seriously – While making any purchases, social responsibilities are also considered by buyers and consumers. Social responsibility is deigned in such a manner so that it is of measurable corporate policies and procedures that results in favor of better workplace. When it comes to risk evaluation and purchasing of goods, social responsibility plays a vital role in best in class supply management.
A company that has a meaningful social responsibility program protects offensive comments from workers and/or consumers.