Contexts of Procurement

and Supply-2
Dr. Md. Moniruzzaman, MCIPS
Further ‘rights’ for external procurement

• The right procurement (or the right need)

• The right supplier (or supply chain)
• The right relationship
• The right process
Obtaining value for money
• The use of value analysis to eliminate non-essential
features
• Challenging user-generated specifications
• Proactive sourcing
• Consolidating demand
• Adopting whole life costing methodologies
• Eliminating or reducing inventory and other ‘wastes’
• Using IT systems to make procurement processes more
efficient
• International sourcing
The ‘Triple Bottom Line’
• Economic sustainability (Profit)
• Environmental sustainability (Planet)
• Social sustainability (People)
Integration of supply chain activities
Materials management (MM)
• Materials and inventory planning
• Procurement of the necessary materials, parts and supplies
• Storage and inventory management
• Production control
Physical distribution management (PDM)

• Warehousing and storage

• Transport or distribution planning
• Materials handling
• Inventory management and control
• Transportation and delivery
Logistics management
Principal flows in a simple supply chain
Dyadic supply relationships
Principal flows in a (simplified) internal supply
chain
A simple supply network!
A retail supply network
Tiered supply chain structures
All manufacturing performed by top-level purchaser:
Tiered supply chain structures
Top-level purchaser outsources most manufacturing:
Management issues in closed-loop supply
chains
• Effective supply base management, integration and
collaboration
• Effective supplier and customer relationships
• Supplier selection and contract award on the basis of
recycling or ecologically friendly disposal capacity
• Product and packaging design to facilitate return,
recycling and safe disposal
• Visibility
• Reverse logistical activities
Innovative value-adding strategies
• Value engineering
• Lean supply
• Agile supply
• Value-adding negotiations and relationships
Purchasing and supplier management
PURCHASING ACTIVITY SUPPLIER MANAGEMENT ACTIVITY
Focus on non-critical items Focus on critical/strategic items
Ordering or calling off purchases Sourcing and appraising suppliers
Order expediting Rationalising the supplier base
Maintaining inventory Developing supplier potential
Receipt and storage of supplies Early supplier involvement
Arranging payment Negotiation
Supplier relationships
Monitoring supplier performance
Ethical and environmental issues
Benefits of an SCM approach
• Reduced costs, by eliminating waste activities
• Improved responsiveness to customers’ requirements
• Access to complementary resources and capabilities
• Enhanced product and service quality
• Improving supply chain communication
• Sharing demand forecasting and planning information enables Just in
time supply
• Faster lead times for product development and delivery – ‘Agile’ supply
• Better communication allows greater transparency
Developing supply chain management
TRADITIONAL WAYS NEW WAYS
Key feature: Independence Key feature: Integration
Independent of next link Dependency
Links are protective End-to-end visibility
Uncertainty More certainty
Unresponsive to change Quicker response
High cost, low service High service, lower cost
Fragmented internally ‘Joined up’ structures
‘Blame’ (adversarial) culture ‘Gain’ (collaborative value-adding) culture
Competing companies Competing supply chains
Why are stakeholders important?
• They may seek to influence the organisation
• There is strong public and regulatory pressure for business organisations
to be ‘socially responsible’
• Organisations themselves increasingly follow (and publicise) ethical and
CSR frameworks
Categories of stakeholders
• Internal stakeholders
• Connected stakeholders
• External or secondary stakeholders
Internal stakeholders
STAKEHOLDER
Directors/managers
Staff/team members or other organisation members
Technical/design function
Manufacture/production/operations function
Sales and marketing function
Finance/admin function
Storage and distribution (or logistics)
Connected stakeholders
STAKEHOLDER
Shareholders
End customers
Intermediary customers (eg agents, distributors, retail outlets)
Suppliers
Financial institutions/ lenders
External stakeholders
STAKEHOLDER
Government and regulatory bodies
Pressure groups (eg Greenpeace) and interest groups (eg
consumer associations, trade unions)
Community and society at large
Social responsibility objectives
• Sustainability issues
• Environmental issues
• Ethical trading, business relationships and development
Environmental responsibility
• Recycling and re-using of materials and waste products
• Safe disposal of waste products that cannot be recycled
• Supplier selection policies (and tender criteria) to support firms that
conform to environmental standards
• Supplier and product selection policies that reflect concern for
conservation and renewal of resources
• Safe and animal-friendly testing of products and materials
• Concern for noise, spray, dirt, vibration and congestion in the planning
and operation of transportation
Stakeholder management
• Take their interests and likely responses into account
• Communicate effectively with them on matters that affect them
• Engage the interest, support and commitment of influential (and
potentially helpful) groups
• Manage potential issues and problem areas that might arouse resistance
or opposition from influential groups
Mendelow’s power/interest matrix
Stakeholder position analysis
• Partners: those who support the change agent
• Allies: those who will support him or her, given
encouragement
• Fellow travellers: passive supporters
• Bedfellows: people who support the agenda, but do not know
or trust the change agent
• Fence sitters: those whose allegiances are not yet clear
• Loose cannons: people who may vote either way
• Opponents: people who oppose the agenda, but not the
change agent personally
• Adversaries: people who oppose the change agent and the
agenda
• The voiceless: ‘silent’ stakeholders
Stakeholder management
• Goal analysis
• Desired outcomes
• Stakeholder marketing and communication programmes
• Relationship management
• Issues management
Stakeholder management
A generic procurement cycle
Procurement process stages
Pre contract award: Post contract award:
• Identification and definition of • Expediting
need • Payment
• Procurement planning
• Contract or supplier
• Development of the contract
management
• Market survey and
• Ongoing asset management
engagement
• Appraisal and selection of • Post-contract ‘lesson’ learning
suppliers
• Receipt and evaluation of
offers
• Contact award
Supplier relationships
• Spot buying
• Regular trading
• Fixed or call-off contracts
• Single sourcing
• Strategic alliance
• Partnership
Why have structured procurement processes?
• It ensures that all tasks have been • It supports compliance with relevant
performed that need to be performed standards, law and regulation
• It ensures adequate co-ordination of • It enables the documentation and
effort between parties collaborating in sharing of good practice
a process • It enables meaningful process analysis,
• It helps to maintain consistency in problem-solving and improvement
processes and outcomes, • It supports the systematic
• It prevents conflict and sub-optimal development of procurement staff,
behaviour systems, technology and other
• It fosters efficiency resources
• It supports the devolution of some
• It supports good governance and
procurement tasks to non-
managerial control
procurement staff
Approaches to best practice
• Best practice sharing
• Applying for quality awards
• Benchmarking
Specification
• Define the requirement
• Communicate the requirement
• Minimise risk and cost
• Provide a means of evaluating the quality or conformance
• Support standardisation and consistency
A conformance specification may take the
form of:
• An engineering drawing, design or blueprint (technical or design
specification)
• A chemical formula or ‘recipe’ of ingredients and materials (composition
specification)
• The specification of a brand name and model name or number, if a
marketed product meets the buyer’s criteria
• A sample of the product
• The specification of compliance with a recognised standard
A performance specification might include the
following:
• The functionality, performance or capabilities to be achieved
• Key process inputs which will contribute to performance
• The operating environment and conditions
• How the product is required to interface with other elements
of the process
• Required quality levels
• Required safety levels and controls
• Required environmental performance levels and controls
• Criteria and methods to be used to measure whether the
desired function has been achieved
Procurement function contributions

• Supply market awareness

• Supplier contacts
• Awareness of commercial aspects of procurements
• Awareness of legal aspects of procurements
• Procurement disciplines