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What is procurement? (And how to get it right)

As seen in MHD News, Reto Fuhrer, CEO of RF Supply Chain Expertise, discusses the essentials of a successful procurement process – and why strong relationships matter more than cheap prices.

If you’re in the supply chain and logistics game, getting procurement right may seem a no-brainer. Procurement plays a critical role in the success of any organisation, ensuring the secure, timely, and cost-effective acquisition of goods and services required for smooth operations.

But there’s a big difference between wanting to get procurement right and knowing how to get it right.

In my experience, too many companies still prioritise basic purchase price over other criteria when conducting procurement. The focus of procurement should instead be on the security of supply, quality assurance, and optimal costs – encompassing the total cost of ownership.

There are many components to a successful procurement process – but they’re all undergirded by relationship management.

Relationship management is a mentality

For companies to successfully manage supplier relationships, there needs to be a change in mentality. Procurement professionals should view suppliers as business partners, adapting their mindsets to prioritise collaboration and shared success. While this shift can be challenging for some – especially those with decades of experience in traditional procurement – many can adapt with the right tools, training, and support.

Setting up the appropriate procurement organisation

An effective procurement organisation is essential for success. This organisation should have a clear structure, defined roles and responsibilities, and efficient communication channels. It should be agile and flexible, allowing for quick decision-making and adaptation to the ever-changing market dynamics.

Developing a procurement strategy

A well-defined procurement strategy is crucial for achieving the main objectives of procurement. This strategy should outline the organisation’s procurement goals, methods for achieving them, and KPIs to track progress. It should also consider market trends, risks, and opportunities to inform decision-making and ensure a competitive edge.

Defining a strategic material analysis

A strategic material analysis helps companies identify their critical materials and suppliers. This analysis should include an evaluation of the risks associated with each material, the level of supplier dependency, and the impact of potential supply disruptions on the organisation. Based on this analysis, companies can prioritise their procurement efforts and develop targeted sourcing strategies.

Applying the right sourcing strategy

Sourcing strategies should be tailored to the specific needs of each material and supplier. Some materials may require a single sourcing strategy, while others may benefit from a multi-sourcing approach to reduce risk and ensure supply continuity. Sourcing strategies should be periodically reviewed and adjusted to reflect changing market conditions and business needs.

Quality control

Companies must clearly communicate their requirements and specifications to suppliers and have appropriate quality control processes in place. Failure to do so can result in significant costs.

Small mistakes are often hard to avoid in the absence with strong on-the-ground information and understanding – and to get those you need to have confidence in your supplier relationships.

Implementing a best-in-class supplier evaluation program

A robust supplier evaluation program is essential for ensuring the quality and reliability of suppliers. The TQRDCE model (technology, quality, responsiveness, delivery, cost, environmental & social responsibility) is a comprehensive framework for evaluating suppliers. Regular supplier audits should be conducted to assess performance and identify areas for improvement.

Relationship management with strategic and key suppliers

Building and maintaining strong relationships with suppliers is vital for a successful procurement process. Here are a few key methods that I’ve utilised over the years to build and secure strong supplier relationships:

  • Supplier management: This involves developing a structured approach to managing suppliers, including regular communication, performance reviews, and collaborative problem-solving.
  • Supplier development process: Implementing a continuous improvement program that helps both parties identify areas for improvement, share best practices, and foster innovation.
  • Simultaneous engineering: Early involvement of suppliers in the product development process can lead to better integration, reduced lead times, and lower costs.
  • Digitalisation of the procurement process: Leveraging digital technologies can streamline information exchange, improve transparency, and enhance collaboration.
  • Regular exchange of information: Sharing market insights, trends, and forecasts can help both parties make informed decisions and adapt to changing market conditions.

In my experience, organising an annual supplier day is an excellent way to strengthen relationships, share knowledge, and celebrate successes. Such events can include trend presentations, workshops to address current challenges, and awards for outstanding suppliers. This collaborative approach can lead to stronger, more resilient supply chains and long-term business success.

At RF Supply Chain Expertise, we have years of experience in building relationships for optimal procurement processes. In an increasingly complex and uncertain supply chain environment, there’s no margin for error. If you need help getting your procurement strategy right, touch base with us today.

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