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Best practices in procurement

Updated: Jul 29, 2020

It is time we learn from the best-in-class when it comes to efficient and effective procurement. Here is a quick lowdown.

These practices have been listed in no particular order and are in no way suggesting a set roadmap but these can lay down a strong foundation for supply chain excellence.

· Establishing a governing supply chain council: In line with a governing council’s goal of giving direction and aligning supply chain strategy with the organisation’s overall strategy, a business should involve corporate executives, leaders of the supply chain organisation, business unit managers and other stakeholders. The council should also hold regular scheduled meetings. The supply chain organisations should have their strategies in tandem with the corporates’ strategies and in case, they aren’t, governing council can help prevent it from happening and also help in cross-functional communication.

· Correctly staffing the supply chain organisation: In order to maximise the effectiveness of the supply chain, many companies use a hybrid approach which is a combination of centralised and decentralised approaches to improve services. Placing contract management, logistics, procurement and forecasting or demand planning under a supply chain leader is another emerging trend that gives an idea of the current thinking capacities of supply chain management. Globally successful companies employ supply chain managers who have strong relationship management skills, communication skills and have the potential to strategically think and focus on value creation.

· Technology: Instead of focussing workflows around technologies, technologies should be chosen to supplement and complement workflows and strategies. This seems simple but something that companies constantly struggle with.

· Alliances with key suppliers: Working with suppliers long after a deal has been signed is of paramount importance which is called supplier relationship management. A two-way communication between seller and buyer is more effective in the longer run which is alliance management. The primary objectives of such management include a platform for problem resolution, providing a mechanism to ensure the relationship is healthy, developing continuous improvement goals and ensuring performance measurement objectives are achieved.

· Collaborative strategic sourcing: It produces better results. Best-in class get internal customers involved in decision-making process. They help in gathering information on engineering, finance and accounting, operations and maintenance amongst others. This ensures increased responsiveness to customer’s changing needs, lowers total cost and streamlines processes.

· Instead of price, focus on total cost of ownership: Companies consider many factors that affect total cost of ownership. They look for suppliers and internal stakeholders that can reduce cost.

· Contract management: Purchasing and procurement teams often negotiate significant potential savings. It ensures contracts are collected and maintained in a central repository. It also allows supply chain leader to more effectively leverage the company’s spend and find ways for risk mitigation and cost reduction.

· Optimise company-owned inventory: Inventory levels have to be kept at optimal level. Forecasting and poor planning may cause poor inventories. Therefore, best-in class companies place more emphasis on demand planning and forecasting for optimal inventory levels.

· Appropriate levels of control and minimize risks: Reviewing the policies and procedures is paramount for companies. Risk mitigation goes hand-in-hand with controls and policies. Companies are adopting sound methodologies for determining probability of risks occurring, identifying all of the risk elements, prioritise risks for prevention and monitoring and assess the dollar impact on the sourcing decision.

· Social responsibility: Companies are looking for suppliers who are environmentally-conscious. There are more requests for proposal that ask suppliers and service providers to provide information about green initiatives.

These practices can help carve out a niche for companies and help companies gain useful insights.

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