Supply Chain Unit 1

What does procurement do?

Procurement is responsible for buying goods and services the company needs, ensuring they are the right items, from the right suppliers, at the right price and quality, and delivered on time

Why is procurement so important financially?

Companies spend more on suppliers than they make in profit

What is the average salary in procurement?

Over $100,000 per year

What must procurement focus on to do its job correctly?

1. Buy the right things (correct specifications)

2. Buy from the right suppliers (supplier selection)

3. Buy from the right number of suppliers (ensure reliability)

What factors matter in specifications?

• Technological standards

• Quality levels

• Delivery/service

• price

• cost

How are specifications weighted in decision-making?

Companies use a weighted score decision matrix

What happens if procurement gets it wrong?

• Major financial loss

• Supply shortages - production stops

• Empty shelves - customers go elsewhere

How does procurement contribute to customer value?

• Keeps the supply chain moving

• Enables delivery and creation of customer value

• Impacts sustainability of the business and society

What are the three primary processes in procurement?

1. Strategic sourcing

2. Ordering cycle

3. Supplier relationship management

Strategic Sourcing

Matching needs with market suppliers

Ordering cycle

Placing and processing purchase orders

Supplier relationship management

ongoing supplier collaboration and improvement

What was procurement like pre-1980s?

Mostly administrative:

• placing orders

• handling invoices

• negotiating after specification were set

What changed in the 1980s - 2000s?

Companies realized procurement could accelerate corporate goals, they invested in talent, IT tools, and integrative procurement organizations

What is procurement like today and into the future?

Strategic, an enabler of company mission, involved in supplier relationships, driving innovation, and positioned from back-room to boardroom

What is strategic sourcing?

Establishing long-term agreements with suppliers to meet business needs over time

What are the 6 steps of strategic sourcing?

1. Assess needs and spend

2. Define specifications

3. Analyze suppliers

4. Develop strategy

5. Conduct sourcing event

6. Plan and transition

What is a spend cube?

A tool that analyzes spend by what is bought, by whom, and from whom

Volume Concentration

Consolidate suppliers, leverage volume

Best price evaluation

Renegotiate, auctions, unbundle

Global sourcing

Expand supply base, exploit imbalances

Demand management

Avoid unnecessary spend, optimize specs

Product specification improvement

Substitute materials, lifecycle optimization

Joint process improvement and relationship restructuring

Alliances, integrated supply chain