Apr
28
The role of commodity buying teams
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If you consider that a typical organization (manufacturing or service provider ) may procure thousands of different products and services to support the creation/manufacture of its own product – then it would be sensible to consider that a free for all procurement approach (buy anything from anywhere) would not drive down cost – so what could the answer be? The answer for many organizations is commodity management.
What is a commodity?
The process of developing a segmented approach to procurement is known as commodity management. Commodity management is the categorization of individual parts, products and suppliers into groups known as commodities. There are various goals of commodity management – but commonly it targets to:
1/ Provide a method of spend analysis and aggregation
2/ Develop insight into the market
3/ Meet business targets on cost, delivery and quality
Examples of commodities
While there is no hard and fast rules of how you group your spend there are common commodities categories that are utilized within industry – these include
1/ Electronics
2/ Fabrication
3/ Raw Materials
4/ Stationery
5/ Bearings
6/ Chemicals
Implementing commodity management
Organizations that choose to adopt commodity management will typically structure their procurement organization into teams (mirroring the commodities managed) these teams will have responsibility for analyzing spend and developing and deploying an appropriate strategy for sourcing, supplier management and spend profiles
Need for analysis
Robust data is required to support commodity management – this is typically the same data used in a spend analysis system – in that you need to know as a minimum by supplier (and in some cases by part) the spend and demand profile. Coupled with this there may also need to be some requirements gathering to ensure that the completed commodity strategy meets the needs of business in terms of future needs, QCD requirements and other non price related variables.
Need for specialist commodity managers
Given how spend is grouped into commodities – many organizations choose to recruit specialist commodity managers who are likely to have specific expertise in that field for example
• Product knowledge
• Supplier knowledge
• Market knowledge
This is especially true of complex commodities such as electronics. A commodity manager may lead the strategic aspects of the purchasing function for that group.
Summary
For medium to large sized organizations commodity management is commonplace. It helps to segment spend allowing the supporting teams to develop focused strategies and develop key skills and knowledge for their niche. While often used as a cost reduction tool – commodity management can drive a range of improvements to a previously fragmented supply chain not least risk reduction through continuity of supply.
Apr
18
The purchasing function typically acts as the interface between the customer (internal or external) and suppliers. Purchasing’s primary role of taking a business requirement – finding a supplier, negotiating a deal and then ordering the item is hinged on that first step – without knowing what’s really needed – costs can be far higher than required and the purchasing process inefficient.
Specification can be attributed in two ways, attributes related to things – (i.e. the part, component or raw material) and actions (functions, processes, ,procedures, services, performance)
Let’s consider this practically:
Requisition 1) A loose specification – “I want something to drink my coffee out of”
Requisition 2) A tight specification – “I want a red cup to drink my coffee from – it must be no more than 15 inches high – and it must have a white handle – it must be microwave safe.”
Consider in the above simple example that both orders want things (a cup) but they want different attributes. Requisition 2 enables the buyer to measure the market against specific needs and where he can achieve cost reduction it’s done directly against the specification without detriment to the fit form and function. Requisition 1 provides the buyer with much more scope however there is the chance that the person who raised the requisition may well change their mind / refine the specification as quotes begin to arrive.
Once the item is delivered the specification can be used to compare the delivered item to what was ordered. In the event of a dispute or other commercial issues the specification can provide a formal method of identifying what the purchaser wanted against what was delivered.