Pocketblog has gone back to basics. This is part of an extended management course.
Procurement is a deep skill, with its own professional membership bodies around the globe: the Chartered Institute of Purchasing and Supply in the UK. Yet small organisations rarely have the scale to justify a full-time qualified professional purchasing manager.
This means that all managers working within a supply chain need to be able to turn their hand to the craft of buying – and to be able to do it well enough to secure the right materials, assets or services, at competitive rates.
Another reason for needing a good basic understanding of procurement is because, if your organisation does have a professional purchasing team, their interests and yours may not always, on the surface, overlap completely. Understanding how this is so, and what pressures they are under, will help you to negotiate with them and influence the selection process. Often, in setting good practices, purchasing managers create ample flexibility. Your job is then to establish where it is and learn how to exploit it to the good of your organisation. The confrontational approach that many managers adopt with central functions will rarely achieve the results you need.
So what is it that Procurement Professionals know?
Professionals follow a simple purchasing cycle.
What makes the cycle work well is the understanding that blindly following the process can produce unintended results. Each organisation will optimise the details of their process for certain factors, like price, speed, reliability or accountability. Adaptability is the key to getting it right in every case. Here are some tips for a strong underpinning to your process.
1: Cost and value are not the same thing. If you focus only on cost, you rarely achieve value.
2: If you do not specify what really matters, the negotiation process will optimise for cost and deliver the wrong result. Ensure you understand the functional and logistic requirements of the department or team on whose behalf you are procuring the goods or services. Use your expertise to adapt the process appropriately, to balance consistency and transparency against the genuine variability in requirements across a complex business.
3: Over-focus on cost comes with a price: ‘you get what you pay for’ as my dad used to say.
4: A paper and data based evaluation of your supplier is valuable, but if you are going to depend on that supplier, quality accreditation and balance sheets are not enough: you need to speak to other customers and visit the supplier’s site to meet the people you will rely upon.
5: Regular reviews are important to ensure that they are maintaining the quality and service standards that led you to select them at the start of your relationship.
6: The right balance of competitive market testing and long-term relationship building will yield the best results. If you commit to a supplier for too long, without subjecting their prices and services to competition, they may become complacent, but if you try to re-tender your contracts too frequently, suppliers will have little reason to be loyal to you, knowing that an opportunist competitor could offer a lower price in a year or two.
7: Everything is negotiable, but if you take a stance that is too aggressive, your supplier may need to make hidden compromises to maintain their profitability. Those could harm you in the long run.
8: Once you have built a relationship, it is tempting to relax and turn your focus elsewhere. Continue to invest in the relationship with frequent communication, regular meetings and constant research into new developments in the trade, from things like trade shows, conferences and trade journals. Discuss new developments with your supplier and gauge their levels of investment in new ideas and technologies.