Procurement

In Supply Chain Management (SCM), Procurement ensures the efficient flow of goods and services by managing sourcing, vendor selection, contracts, and supplier relationships. It secures inputs for production while optimizing costs.

Aligning Procurement with SCM improves resilience, reduces risks, and drives performance. Streamlining processes ensures cost savings, quality standards, and sustainability through eco-friendly practices.

Set The Terms

There is a lot of literature and out-of-experience knowledge out there but yet, in daily business life, one encounters a very common misunderstanding of the terms Procurement, Purchasing and Buying. Whilst the first two are mostly B2B undertakings, the latter may be a B2C process as well.

Procurement must include the importance of strategy preferably at corporate management level. Because procurement is an umbrella term that includes several core business functions it should be considered a core part of any organization’s corporate strategy.
Purchasing is a subset of procurement. Purchasing generally and simply refers to purchasing goods or services. It may include receiving and payment as well.
Buying may be considered as a further subset of purchasing, widely recognized as the immediate act of actually acquiring something for the value of money be it in cash, wire transfer or against credit.

“Revenue is generated by sales but profit is made in procurement.”
– Eric Roth

Procurement Strategy

Every company has its own business strategy from which a procurement strategy with its strategic sourcing must be drawn and executed. Here are major points to consider when formulating a solid procurement strategy:

Supplier Optimization: The company chooses an optimum mix of vendors who can provide the best prices and terms. This process usually means that the less able suppliers who cannot provide a quality service at the terms and prices required are discarded.
Global Sourcing: Multinational companies view the world as one market, sourcing from vendors globally. Supply and demand can shift, turning supplier markets into consumer markets with rising prices. To mitigate this, monitor emerging markets and source as close to raw materials or manufacturers as possible.

TQM: Total Quality Methods, requires vendors to provide an ever-increasing quality of service with zero errors. Suppliers ensure best practices using tools like KAIZEN or Six Sigma, emphasizing continuous improvement and efficiency.

KAIZEN

Lean + 6σ = Lean 6σ

Risk Management: As more companies obtain their supplies from so-called LCCs (Low-Cost Countries), they are more concerned with the risk management of this supply chain. Whilst these countries can supply products at very advantageous prices, these advantages can be soon negated by a natural or human disaster.
Vendor Development involves collaborating with vendors to improve their processes and performance. Companies may assist vendors, especially when dependent on a single supplier, by helping them meet required standards or enhancing their procurement cycles.
Green Purchasing: This is one of the more common purchasing strategies for larger corporations and governments. This strategy champions the need for recycling and purchasing products that have a negative impact on the environment.

Effective procurement leads to cost savings, improved quality, and stronger supplier relationships. A solid strategy allows for better negotiation and collaboration with vendors. Additionally, efficient procurement supports sustainability by considering eco-friendly options. Mastering procurement is essential for organizations to thrive in a competitive environment.

Speaking Of Strategy

You may have faced challenges with uncooperative vendors. In My Publications, you’ll find a 5-point Strategy to improve Supplier Cooperation. This approach has benefited large international corporations and helped me over the years – I hope it helps you too! These strategies could transform your vendor relationships and drive your business forward.

“Do procure at favourable price but do not procure at cheap, low price.”
– Eric Roth

Procurement Guidelines

Once a procurement strategy is concluded and set in place, there is need to come up with some procurement guidelines mostly but not necessarily only for internal use. Procurement guidelines contain policy, process and measures as major points.

Procurement Policy

In My Publications, you will find a sample of a procurement policy.

Payment- & Delivery Terms

Within delivery terms, the delivery time might be an issue. As lead time and delivery time get confused as often as procurement and purchasing (see above), let me emphasize here that there is a big difference between those two. At the bottom of this page, you will find a graphic showing this difference. In addition, you will the most common payment- and delivery terms too. Highly advised: Stick to one of the Incoterms (current issue) and think outside the box: There is more and more intercontinental dispatch by train (as opposed to sea shipments) available.

Certifications / Quality

When procuring, ensure the certifying body is also certified, obtain and verify the original certificate, and recognize that vendors and products might carry separate certifications. Quality is as crucial as price and availability, so conduct both announced and random inspections at vendor facilities and of goods, packaging, and loading. Consider AQL quality checks, reporting both internally and to suppliers. You can find links to widely demanded certifications at the bottom of this page for further details.

Procurement Process

The procurement process involves key steps such as identifying requirements, conducting market research, issuing RFPs, evaluating bids, and finalizing contracts. Each stage ensures the organization secures the best value, minimizes risks, and complies with regulations, enabling strategic and efficient operations.

In My Publications, you will find a sample of a procurement process.

Procurement Measures

In My Publications, you will find a description of two major procurement measures. Naturally, there are more to consider but included is a workable (*.xlsx format) sample of vendor KPI scorecard with a traffic light rating system. Additionally, each measure is complemented by detailed methodologies to ensure effective implementation.

“Transform your procurement staff in your enterprise into entrepreneurs in your procurement team.”
– Eric Roth

My Publications

I have been active in the fields of Business Excellence and Procurement Management as well as all the processes thereof for nearly three decades by now.

Along the way, I have developed not only a certain level of expertise but also true interest in all the challenges involved.

In My Publications, find completing insight material on Procurement Policy, Procurement Process and Procurement Measures made available online for you.

Procurement Management

Procurement is the process of obtaining goods or services usually on a relatively large scale. Often confused with purchasing, procurement represents a more strategic and less purely transactional process.

Procurement Mgmt

A solid professional Background, extensive experience, and well-developed core competencies are available to address diverse business needs, ensuring exceptional outcomes in Business Excellence and Procurement Management.

Services include tailored solutions for short-term assignments or long-term roles, with flexibility for global travel. Each engagement is customized to align with strategic goals, ensuring a lasting impact on performance.

Contact today for effective support in navigating challenges and driving success.