PROCUREMENT
❑ Learning Objectives
1 .To compare procurement, purchasing, and supply management
2 .To review procurement objectives
3. To review supplier selection and evaluation approaches
4 .To review Kraljic's Portfolio Matrix
5. To establish issues associated with global procurement
6 .To identify social and environmental aspects of sustainable
7 .To describe the concept of supply chain finance and how it can be used in procurement
relationships procurement
PROCUREMENT
➢ Refers to the raw materials, component parts, and supplies bought from outside
organizations to support a company’s operations Procurement costs often range
between 60%-80% of an organization’s revenues
➢ Currently has a more strategic orientation in many organizations
➢ Procurement manager may have responsibility for:
1.Reducing cycle times
2.Playing an integral role in product development
3.Generating additional revenues through collaboration with the marketing department
PROCUREMENT
Procurement” and “purchasing” are sometimes viewed as synonymous terms
Supply management is viewed as a relational exchange approach involving a limited
number of suppliers.
Electronic commerce continues to bring many changes to the procurement discipline
including
1.Electronic procurement
2.Reverse auctions
PROCUREMENT OBJECTIVES
Supporting organizational goals and objectives
Managing the purchasing process effectively 1.max. our value
2.min. costs and effort
and efficiently
Managing the supply base
Developing strong relationships with other functional groups
Supporting operational requirements (Internal cooperation)
SUPPLIER SELECTION AND EVALUATION
Target – find the
best suppliers
One of procurement’s most important responsibilities
Involves stating an organization’s needs and determining how well various potential
suppliers can fulfill these needs
SUPPLIER SELECTION AND EVALUATION
SUPPLIER SELECTION AND EVALUATION
❑ Steps to supplier selection and evaluation
➢ Identify need for supply
➢ Situation analysis
➢ Identify possible suppliers
➢ Select suppliers
• Single source approach
• Multiple sourcing approach
➢ Evaluate decision
• Process based approach
• Performance based approach
SUPPLIER SELECTION AND EVALUATION
❑ Evaluate decision
Process based approach
Is an assessment of the supplier’s service and/or production process (supplier audit)
▪ Performance based approach
Is focused on the supplier’s actual performance on a variety of criteria including cost and quality
Many companies use supplier scorecards to report performance information.
PROCUREMENT PORTFOLIO APPROACH
Within the “situation analysis” step for supplier selection and evaluation,
procurement managers must be continually aware of the supply and demand characteristics of the
- Raw materials
- Component parts
Continuous screening/monitoring
- Purchased supplies internal and external situation
PROCUREMENT PORTFOLIO APPROACH
Kraljic’s Portfolio Matrix
-Used to classify corporate purchases in terms of their importance and supply complexity
-Goal is to minimize supply sensitivity and getting the most of the firm’s purchasing
GLOBAL PROCUREMENT (SOURCING)
Refers to buying components and inputs anywhere in the world
• Driven by: Globalized industries –
-Factor-input strategy (organization is seeking low-cost or high-quality) automotive, electronic,
pharmacy
-Market access strategy (organization is sourcing in markets where it plans to do significant business)
GLOBAL PROCUREMENT (SOURCING)
Components of Global Sourcing Development model :
-Planning
-Specification
-Evaluation
-Relationship management
-Transportation and holding costs
-Implementation
-Monitoring and improving
GLOBAL PROCUREMENT (SOURCING)
Challenges in establishing a successful global sourcing strategy include understanding hidden costs
as supply bases are expanded
Examples of hidden costs:
-Increased costs of dealing with suppliers outside the domestic market
-Duty and tariff changes that occur over supply agreement life
-Increased inventory-related costs associated with global supply chains
-Rising levels of logistics cost volatility (e.g. ocean freight rates)
SUSTAINABLE PROCUREMENT
Sustainable Procurement
-Refers to the integration of social and environmental considerations into all
stages of the purchasing process
-Goal is to minimize the impact of procurement activities on human health and
the environment
SUPPLY CHAIN FINANCE
supply chain finance
How the supply chain finance can be used in procurement
relationship ?
-supply chain finance. Supply chain finance is a set of technology and
finance-based processes that strive to optimize cash flow by allowing
businesses to extend their payment terms to their suppliers while
simultaneously allowing suppliers to get paid early
SUPPLY CHAIN FINANCE
To support the implementation of supply chain finance, financial
technology firms are stepping in to facilitate transactions between
buyers and sellers. These so-called FinTech companies use cloud-based
software to optimize the connection between procurement and
accounts payable. Procurement would negotiate extended payment
terms with its suppliers by using technology to enable the supplier to
choose to receive its money early (minus a service fee for this
convenience).
