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PROCUREMNT, Procurement trends, Procurement, goods, materials and services…
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Procurement trends
Supply Chain Tier Mapping
- is a result of increased comlexity
- driven by megatrends as globalization and sustainability
- procurement teams lack visibility beyond tier-1.
Suppliers Diversity
- reviewing diversity of existing supplier bases & enrolling initiatives to improve upon supplier diversity.
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Suppliers Discovery and Alternate source of supplires
- Modern solutions for supplier discovery leverage basic automation and AI automation to help find & select suppliers fast.
- The Pandemic has highlighted the fragility of a global supply chain where there is an over-reliance on a single-source supply.
- Agile procurement, and the ability to quickly find latent suppliers who can fulfill an alternate supply order is very important to manage risk & have mechanisms to ensure that suppliers won’t impact your own business’ continuity.
- The ability to keep inactive, but approved, suppliers on file is always beneficial when your procurement organization needs to find alternate supply sources fast.
Integrated Ecosystems
- selection, implementation and adoption of modern procuretech solutions.
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Sustainibility
- ESG (Environmental, Social, Governance) and CSR (Corporate Social Responsibility) are areas of massive focus within the European Union
- Sustainability, is greatly reflected in European legislation
COVID riple effect
- biggest problems:
prices and inflation
increasing of inventory
localization of supply chain
Procurement
Operational purchasing
- contains everyday routines such as ordering, verification of invoices and delivery control.
- reactive or responsive and it highlights purchase prices and costs.
- companies does not want to reduce the amount of stored products or suppliers because it sees them as a means of risk management.
Strategic procurement
- planning and development, development of buyer – supplier relationships, forecasts as well as selection and evaluation of suppliers.
- described essentially as proactive procurement which based on value creation, so that in contrast to reactive purchasing, for example, stocks and amount of suppliers are aimed to be reduced.
- long-term and at the same time good risk management.
Tactical Procurement
- include budgeting and contract negotiations
The objective of procurement:
to acquire materials, products and services as agreed on time, in terms of quality and quantity and price.
Procurement has to be carried out cost-effectively and at the same time an adequate level of service should be ensured.
goods, materials and services purchased from outside = 80 % of the total costs of the company
direct, production-related purchases and subcontracting, which usually are shown as purchases in the income statement
indirect purchases
outsourced human resources services, information systems, training and consulting services, marketing services and in addition e.g. financial services and rents.
investments
that are not shown in the income statement directly, but in the balance sheet. All these are acquired from outside manufacturers and services providers in procurement terms, although not all acquisitions traditionally perceived as procurement.
An income statement shows a company's revenues, expenses and profitability over a period of time. It is also sometimes called a profit-and-loss (P&L) statement or an earnings statement. It shows your: revenue from selling products or services. expenses to generate the revenue and manage your business.
The balance sheet provides information on a company's resources (assets) and its sources of capital (equity and liabilities/debt). This information helps an analyst assess a company's ability to pay for its near-term operating needs, meet future debt obligations, and make distributions to owners.
Procurement
Indirect procurement
MRO (Maintenance, Repair, Operating) procurement such as office supplies, spare parts, maintenance supplies, chemicals and safety equipment, marketing, travel and IT consulting services.
- The share of company’s procurement costs in indirect procurement is approximately 40% on average.
- more suppliers in indirect procurement than in direct procurement.
- In the service industries, customer service procurement may be classified as direct procurement and others as indirect procurement.
Direct producement
is used to produce company’s core product or service and they are, for example, raw materials and components.
Service procurement
- can be associated with production, these are, for example, subcontracting. - Services that are not related to production are travel agencies and marketing services.
Lean procurement
- is an approach to procurement that focuses on maximizing value by improving efficiency and limiting waste
- ‘’achieving more with less’
- reducing or loweing costs (inventory, headcount, time, cost)
- focus is on operational efficiency and customer satisfaction
- Enhancing the performance and responsiveness of suppliers
- Adopting procurement technologies (it automates the process and reduces the chances of manual error, providing real-time visibility of the whole process)
Two key principles of Lean:
- Jidoka in Japanese roughly translates to “automation with a human touch,” a method of quickly identifying and correcting issues that may cause faulty production
- “Just-in-time” requires refining and coordinating each step in the production process to only produce what is required for the next phase in the sequence.
Strategic sourcing
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Process 7 steps
Profile the Category
prepare to source- stakeholder outreach
- Major activities:
- use information from your stakeholders
- define sourcing category
- identify category characteristics
- perform market anlysis and explore category evolution
- Deliverables:
- complete category profile
Develop Category Strategy
Major activities:
- understand buying power and critically to position sourcing category
- determine sourcing approach to maximize savings/ value opportunity
Deliverables
- provide initial sourcing approach
Portfolio analysis ( kraljic matrix)
5 forces methodology
develop initial sourcing strategy ( competitive bidding, access to web-based design&sourcing
Total Cost of Ownership
cost of the procurement process
Before making procurement decision
These refer to the costs of finding a suitable good or service, possible visits to the supplier’s premises and factories, inspections to be carried out (supplier audit), evaluation of suppliers and the selection process.
purchase / acquisition price
During making an acquisition
The purchase price refers to the amount agreed between the buyer and seller company and on which the delivery and delivery of the goods and the performance of the service are based.
costs of the usage
training, installation, maintenance and service, warehousing, logistics (e.g., freight and ground transportation), and goods handling.
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Public procurement refers to the procurement of goods, services and works by the state, municipalities and associations of municipalities, state-owned enterprises and other contracting entities defined in procurement legislation outside their own organization.
Tasks of procurement specialist:
- to determine supply needs
- to search for new and competitive sources of supply
- supplier selection and assessment
- to develop buyer-supplier cooperation
- negotiations
- to measure and report
- to ensure the best possible combination of quality, price and service
- to reduce storage costs
- to increase standardization
- to follow market
- to promote flow of demand information
- ensure deliveries of raw materials and products to factories also in unusual situations.
- it is important that alternative routes and suppliers are being searched all the time.