Procurement and Supply Chain Management Chapter 3 PDF

For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  CHAPTER 3 PROCUREMENT AS A BUSINESS FUNCTION For use with Pr...

For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  CHAPTER 3 PROCUREMENT AS A BUSINESS FUNCTION For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Learning objectives The major tasks and responsibilities of procurement. The basic principles underlying procurement management. The key elements of the procurement management process. The major processes and enablers of the procurement function. How procurement may develop over time as a business function. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Primary tasks and responsibilities Operational excellence. Cost control and reduction of all procurement-related spend. Supply risk management. Innovation and continuous improvement. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022 Changing procurement agenda For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Standard procurement procedure (I) 1. Send an offer of collaboration to the best companies, the offer contains the specifications and final reply date (confidential). 2. Reject offers delivered after the deadline. 3. Proceed with an opening session of the letters. 4. Countersign the offers. 5. Draw up a comparative table of costs. 6. Proceed with a consistency check on technical level. 7. Preselect the two best proposals (quality and costs). For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Standard procurement procedure (II) 1. Check the references. 2. Draw up an assessment grid of recent realizations. 3. Compare costs and renegotiate item by item. 4. Recommend a final choice. 5. Maintain contact with the other supplier (avoid monopoly). 6. Draft the contract with legal department. 7. Write to the companies not chosen to notify them of refusal. 8. Regularly sound out the competition. 9. Preserve partners’ long-term motivations. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Managing procurement Major principles of procurement policies Business alignment – Develop a procurement strategy. Integrated, cross-functional approach – Procurement decisions cannot be made in isolation and should not be aimed at optimization of procurement performance only. Performance driven – Procurement engages in a healthy debate with its internal customers. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Procurement management process Procurement and supply (market) research Procurement and supply (market) research refers to the systematic study of all relevant factors which may affect supply and demand of goods and services, for the purpose of securing the company’s current and future requirements. Procurement and supply objectives, strategy and planning Based upon the company's overall objectives, procurement objectives will relate to cost-reduction, improving product quality, lead time reduction, etc. Through these objectives the company directs, manages and controls its procurement activities and supplier strategies. Management can focus on different areas for action. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022 Project management process For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022 Procurement canvas: Preparing objectives, strategy and actions For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Strategy implementation Implementing a procurement strategy requires change that calls for several coordinated measures (e.g. changes in organization; changes initiated with a training or competence development project for procurement professionals). The implementation of a procurement strategy requires a lot of communication both internally and externally. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Control and evaluation Procurement management needs to see that results and activities that have been planed are realized within available (financial) resources and within the estimated time periods. Procurement activities must be periodically checked against the procurement plans. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  How procurement develops over time Step-wise development of procurement on the following characteristics: – Integrated final stage ❑ Procurement is business driven, strategically oriented, integrated into the major lines of business and line management is actively involved in developing and implementing procurement strategies. – Close collaboration with key suppliers ❑ Enables them to contribute to the competitive position of their customer. – Procurement processes are organized around multidisciplinary team- based structures. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022 Procurement development model For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022 Procurement development model For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Procurement development model Stage 1 Transaction orientation: serve the factory The primary task of procurement is to find appropriate suppliers for raw materials and supplied components. There is no explicit procurement strategy in place. Stage 2 Commercial orientation: lowers price orientation Procurement strategy at this stage is characterized by a sharp focus on low prices. Important skills for procurement staff are negotiating skills and the ability to make price comparisons. Stage 3 Synergy orientation: co-ordinated procurement Led by a strong central procurement department to implement uniform buying policies and systems, the emphasis here lies on cross unit co- ordination and compliance with nationally negotiated contracts. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Procurement development model Stage 4 Internal integration: cross-functional procurement The emphasis is on cross-functional team-based problem-solving with the objective of reducing the total life-cycle cost and not just the unit cost of purchased goods and services. Stage 5 External integration: supply chain management An explicit outsourcing strategy is combined with extra attention to collaborate with supply chain partners on product development and preproduction planning. Stage 6 Value chain orientation Delivering value to the end customer in order to satisfy the needs in end- customer markets. Subcontractors seek for support among their suppliers. This model should be applied carefully; all stages may not be relevant for all types of commodities, companies and industries. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Some observations from practice It is important to create a closed loop between different process elements – if the loop is not closed, procurement activities may suffer from lack of control. In many cases, the objectives and targets for procurement are missing and therefore, procurement performance cannot be measured or monitored. Procurement digitalization has improved allowing procurement operatives to work on procurement development. Procurement has become more integrated with other business domains, such as operations management and supply chain management. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Summary Systematic approach to managing the procurement function can increase potential for professionalizing procurement. Procurement objectives and strategy need to be derived from overall company strategies and should support these. It takes time to put all the elements of the procurement management process in place. Procurement management should design an appropriate organizational structure, implement digital support systems, recruit and retain skilled procurement professionals and periodically deliver detailed peformance reporting. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022