Five aspects of procurement management for different enterprises
To supply quality management is to ensure that there is material. The roles of procurement are buyers and planners, doing typical secretarial work. For example, in a high-tech company, engineers determine the requirements at the beginning of the start-up, and buyers place orders, follow orders, receive materials, and make payments. Another example is some small companies with a small purchase volume and little room for negotiation. It is good to ensure that the procurement can supply materials on time. Purchases are also negotiated, but the impact on prices is minimal. There are many reasons.
For example, the internal customer strength is too muscular, and the engineers have the final say in setting specifications, finding suppliers, and negotiating prices; the company is too small, the division of labor is not detailed, and procurement is only a support function in the minor details; the supplier market, The market is very transparent and there is little room for negotiation (e.g., raw materials). The strength of the internal customer and supplier market, coupled with the low quality and low status of the procurement personnel, is destined to be an extensive operation, and its value can only be guaranteed. But that doesn’t mean on-time delivery rates are high, for the same reason.
In the pricing aspect, the role of procurement is changed to a negotiator, and cost savings is the leading indicator of procurement (but this does not mean that delivery rate and quality are not necessary – these indicators are, of course). Compared with the material supply stage, companies in the price stage systematically track and compare prices and count purchasing savings. In large, well-organized Western companies, these two systems are primarily complex (but not necessarily perfect) and are the main criteria for measuring the purchasing department. How complicated is it? The Center for Advanced Purchasing Research (CAPS Research) has held several rounds of roundtable meetings around the world.
Most participants are chief procurement officers, vice presidents, and senior directors of Fortune 500 companies. The theme is how to count savings (not how to save). Within the company, how to set the standard price, track the actual purchase price. Predict the purchase price difference often troubled purchasing and accounting personnel. Many bureaucratic mechanisms in procurement systems, processes, and policies are built around these two aspects. In practice, some large companies take advantage of scale to obtain the best purchase price systematically and even help other companies purchase, making purchases a profit center for the company. For example, HP buys some products, sells them to their suppliers at a premium, and then integrates them into the final product and sells them to HP because HP can get better prices. IBM has a similar approach.
Procurement savings is an essential indicator of procurement performance because it is straightforward, straightforward, and easy to quantify. However, the purchase price is only a part of the cost, and its optimization often leads to the non-optimization of other costs. For example, if a piece of equipment is bought cheaply, the purchasing department is rewarded, but the user department pays the bill because the use and maintenance costs are too high. This takes into account the total cost, the third stage of procurement. This is easy to handle, and the economic order volume model can solve the problem.
However, if the purchase price also varies with the one-time purchase volume. How do you optimize the one-time purchase volume? In addition to the transportation mode, shipping is cheap but has a long shipping period and high inventory, while air transportation is fast but expensive; there are fixed and floating parts in freight; how can you optimize it? This is just the acquisition cost. Optimization is even more difficult if you add the cost of use, maintenance, recycling, inventory expiration, etc. These costs are easy to quantify. Optimization is basically impossible if factors such as quality and opportunity cost that are difficult to quantify accurately are added. So why are there so many companies implementing the total cost?
The reason is simple: suboptimization of the total cost is also better than no optimization. This is the same as many business problems. You may never achieve optimization, but pursuing optimization, even if sub-optimization is achieved, will add value or save a lot of money to the enterprise.
The three aspects above focus on the supply side. After the demand is determined, the procurement meets the requirements most economically but has a limited impact on how the demand is determined. In this way, procurement is managed after the fact. In fact, 70 to 80 percent of the cost is determined in advance at the design stage. If procurement wants to demonstrate its contribution to the company, it must effectively intervene in the stage of demand determination to help with design and planning. This is also the fourth step in procurement, demand management.
The early intervention of suppliers
Supplier management services are one of them; that is, the good ideas of suppliers are incorporated into the design as soon as possible to make the design more reasonable. Also reduce the cost from the design point of view. Customer management is the second, ensuring that suppliers with the best overall performance are used, minimizing demand fluctuations, and controlling the bullwhip effect, all of which will fundamentally reduce the total cost of the supply chain. Some might say procurement is a support department, and it seems inappropriate to be service-oriented and manage customers. Customer orientation is not blind obedience. Managing internal and external customers from a professional perspective is for the good of internal customers and the company.
For example, by helping customers make plans, suppliers don’t need to rush work, and they don’t need to pay rush fees. persuade internal customers to change unreasonable requirements because although these requirements do not increase the company’s cost, they will increase the supplier’s cost. Body”, after all, the company has to pay for it. These place new demands on procurement in terms of skills. Most of what the production staff sees is in short supply, and the demand is always continuous. The fast-moving market and the plunging demand seem out of reach for them, or not their problem. How to explain these explanations clearly, you still have to understand the market. Procurement must be transformed into supply chain management. And it must be persuaded rather than persuaded, and it must be influenced by support and assistance rather than by executive orders.
The fifth aspect is comprehensive value-added. Better to sell than to buy. In many industries, procurement has become the company’s core competitiveness. For example, in the automobile manufacturing sector. the original factory must pay about 80 yuan of every 100 yuan sales revenue to the supplier. Purchasing is the lifeblood of the company, not only to save costs but also to ensure the quality and technical content of the purchased products. In the contract processing industry, labor costs are almost the same, and the purchase price of materials is significant. Procurement has risen to a strategic level due to increased reliance on suppliers.
Correspondingly, the procurement indicators have also added a lot of financial and operational aspects. Such as cash flow, asset management, and other indicators that were initially responsible for the operation and financial departments. The problem at this stage is that procurement is related to the company’s survival, but its means is often price negotiation in the second stage. Which is, to put it bluntly, profit transfer. It’s like fighting a nuclear war with earth guns and earth cannons.
The U.S. auto industry can be described as representative. The result of squeezing the supplier’s last silver dollar is a bad relationship between the two parties. In the long run, the industry faces collapse. The reason is simple: the overall value-added of procurement is not reducing supply chain costs by optimizing the supply chain and solving problems, but by shifting costs to suppliers through solid practices. Procurement fails because it cannot build a first-class supply chain. The company naturally cannot stand out in the competition between supply chains and supply chains.
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