Sep
2
The role of centralized procurement in large companies
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Whilst the purchasing organizations in large and small companies often share the same core functions – structure, organization and culture can be very different. Large companies with multiple business units (often geographically dispersed) are typically faced with the question of how to tackle their procurement function, providing continuity of supply, minimizing risk and leveraging spend across the organization.
Procurement functions typically fall into one of three models.
1/ De-centralized
This is characterised by business units executing their procurement activity locally – they will typically be responsible for supplier selection – executing orders, and managing supplier relationships and improvement initiatives.
2/ Centralized
Most if not all procurement is carried out by a central function within the organization – this is often facilitated through a single MRP system where requirement and fulfilment can be managed through a single system. Supplier relationships are managed centrally and performance management takes place centrally.
3/ Hybrid
The third option, and arguably the most common, is a hybrid of centralized and decentralized where the operational element of the procurement activity (i.e. the requisition and purchase order process are carried out within the business unit) and either part of or all of the strategic procurement element (supplier selection, performance management, deploying key initiatives) are run centrally.
Key Benefits of Consolidated procurement
There are a variety of benefits associated with consolidated or centralized procurement – these include
• Centralized deals and contracts with major suppliers
• Consolidated performance measurement
• Relationship management
• Deploying key initiatives and championing technology
The key benefit from centralized procurement is a global view of the supply chain, total visibility across all suppliers from a top level – viewing the consolidated spend not just of individual suppliers but from suppliers within groups or holding companies. This view can facilitate effective account management and consolidation of spend.
Problems of Group Procurement
Whilst deploying a group procurement function can bring many benefits it is not without its problems – some of these are:
1/ Communication challenges – both with the external suppliers and with internal customers
2/ Maverick Spend outside of agreements made by some business units not buying into group procurement deals
3/ Cultural issues around ownership of the purchasing process
4/ Product/Niche knowledge
Reasons for deploying centralized procurement
Large organizations deploy group procurement initiatives for two traditional reasons
1/ Cost Saving
2/ Efficiency
Cost savings are traditionally obtained through consolidating spend (supplier rationalization) and negotiating discounts based on that spend. Large and geographically spread companies will often have a diverse and fragmented supplier base. Through the deployment of commodity programs spend can be grouped and appropriate deals be found (including through sourcing suppliers in low cost countries).
Sep
1
Managing your procurements expediting process
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We all know what its like – the cry goes up “we need that part yesterday – get onto the supplier and make it happen!”. Urgent and/or critical parts chasing can be one of the most stressful experiences that procurement departments deal with.
The expediting process will usually try to achieve one of two things
1/ Bring forward the delivery of a part
2/ Ensure the supplier meets the agreed delivery schedule
But why expedite in the first place? Expediting is usually symptomatic of other problems within the organization and chasing deliveries can happen for a number of reasons for example
1/ The part has missed its contracted delivery date and is now late for the manufacturing team/customer
2/ Damage has been caused to existing stock and replacements are urgently required for production
3/ A customer order has been placed within lead time (i.e. shorter time than it actually takes to make the product) and parts are required to support this revised build time.
4/ The supplier being used has previous issues around delivery schedule adherence and regular checks need to be made to ensure deliveries remain timely.
Getting it right first time
Whilst this article is not aimed at solving the problems that cause expediting it should be noted that if expediting is carried out frequently companies should investigate the route cause and aim to reduce the need for the process to be carried out.
Expediting is a common task
The purchase order management process is a common task for many companies and relates to ensuring that the order is raised against the correct requirement that is received and processed by the supplier that delivery schedules are agreed and that the parts arrive when expected and are of correct quality.
Who actually expedites varies from company to company – for many it may be the buyer who originally placed the order – in others it may be an administrative function – in others expediting is divorced completely from the procurement team and becomes a planning function. It’s important to make the lines of communication with the supplier clear. The last thing you want is for lots of people to be chasing the same supplier for the same part – this is a quick recipe to sour any relationship!
Bringing in parts
There are a variety of techniques that can be used when expediting – simply confirming the due date is typically insufficient – finding the root cause that stands between you and your required date whilst understanding the recovery plan is essential – also consider a suitable escalation process to involve senior decision makers (you’d be surprised how many organizations are prepared to go that extra step when challenged by a company director!).
Techniques that can be used include
1/ Re-prioritizing the suppliers manufacturing plan
This really is a “he who shouts loudest gets the part” but by first communicating to your supplier and asking for a certain delivery date and then regularly touching base to see if it’s still achievable are sometimes all that’s required.
2/ Incentivising the supplier
Often techniques such as premium working (e.g. late shift, weekend work) can be utilized to reduce lead time – this may incur additional cost but will typically yield your part earlier.
3/ Assisting the supplier in shortening their supply chain – your supplier may be waiting on parts or tools – depending on both the size of the organization (in comparison to yours) and the strength of your relationship with them – you may be able to assist the supplier in reducing bottlenecks to get your part earlier
4/ Alternative supply
Whist maybe a last ditch effort – you may be able to acquire improved delivery terms through selecting a different supplier – note you will almost definitely need to continue your existing order (unless you are able to cancel it) but if the part is that urgent and you can find stock elsewhere then this is one method of securing your materials.
Communication
As with most business processes – communication is key – clearly articulating at an early stage to your supplier when you want your part is more likely to result in delivery than leaving things until the last minute and then piling on the pressure.
Summary
At the end of the day – expediting is usually a necessary evil – as a process it doesn’t really add value and in fact points towards inefficiencies in the supply chain attempting to mitigate them – however its unlikely that you will be able to negate the need to chase suppliers for parts completely from your organization so understanding the process and employing the correct techniques is as important as understanding the root cause of the problem that caused the delay in the first place.