A major output of the strategy development process is a set of functional strategic objectives, including procurement strategy objectives. As procurement managers interact with other members within their business, as well as with corporate executives, a major set of strategic directives should begin to emerge.
The process of aligning procurement goals with business objectives is especially important for procurement managers. These managers often face some very broad directives from corporate management, for example, to reduce costs or improve quality. The strategy development process takes place on four levels as outlined below.
The need for procurement to develop processes, which enhance an organization’s competitive position through strategic sourcing, is greater than ever. From this perspective, an effective sourcing process means more than simply promising maximum efficiency or lowest cost. Given the diversity of available strategies, an effective sourcing process is one that fits the needs of the business and strives for consistency between the internal capabilities and the competitive advantage, which is sought, as defined by the business strategy.
Low-value Procurement (also known as tail spend) is usually considered as low risk and not strategic to be controlled, therefore the process is decentralized with huge total amount of spending and high risk to audit findings. This was a case study presented during our last Procurement Quarterly Meetup by Lily Sastriyanti, who is the Procurement Manager of CNOOC SES.
Lily has spent more than 10 years of assignment in Procurement Department working with Oil & Gas operators in Indonesia, specializing in the area of Contract Management and Cost Control. She has been leading her team in the development of Procurement Strategy for the required Services and Goods.
In her 30-minutes presentation, she presented a case study of her procurement transformation initiative. She shared her learnings on how she centralized the tender process for low-value procurement services to create more controllable spending, including challenges on the business process changes. The new centralized procurement process has resulted on the significant decrease of the number of SO per year, which in turn have contributed to improved compliance and avoidance of 75% yearly average spending cost of low value procurement to her company.
So, you aren’t a logistics person and you don’t know the red flags to be aware of when undertaking an international trade. Here are the things that you should focus on to make sure that your logistics service provider is acting in your interest.
This is the last article following Part 1 and Part 2 of Life Cycle Costing. If you missed them, you probably want to read them now to catch up on the basic concepts of life cycle costing.
The reasoning behind life cycle costing (LCC) is that meaningful purchasing decisions need to be made only after fully considering each available option. All significant expenditure of costs and resources must be assessed for each option, from initial consideration through to disposal. The degree of sophistication of LCC will vary according to the complexity of the goods or services you are acquiring. The cost of collecting necessary data can be considerable, and where the same items are procured frequently a cost database can be useful.
If you read our last article Life cycle costing and its four major benefits, you will understand that why choosing a supplier because they are the cheapest can often cost you more. In this article, we will take a deep dive into the various types of costs associated in life cycle costing. This will ensure that you take account of all costs when you are making a purchase decision.
For most of us, the purchasing process is relatively simple: find the cheapest product/service, make the purchase and then move on to the next task. However, this is a risky tactic. Too frequently the simple, short-term approach of only considering the price results in a purchase that ends up costing much more than expected, especially if the item fails prematurely, turns out to be less efficient than expected, or requires more time to install or maintain than anticipated. Though many buyers are using life cycle costing as a decision-making tool, its use is still far from widespread. Nor are many buyers using life cycle costing to inform important decisions − this needs to change.
Establishing a good project procurement plan is critical to improve the efficiency and minimize the risks of procurement of goods and services from suppliers external to any project. The performance of the project is largely depending on the performance of these suppliers, and it defines the quality standards for the project.
As it is more and more difficult for forwarding and shipping companies to plan their warehouse and fleet capacities due to the growing volatility resulting from increasing globalization, procurement logistics is becoming increasingly important, especially from the perspective of costs reduction. If you are a logistic manager who want to achieve cost stability or even cost reductions, below are the 5 key tips to make sure that you get your procurement logistics right from the beginning.
Local content has now become a very hot topic in procurement departments. Most countries have made, or are making, local sourcing mandatory for companies in specified industries. But, what is local content? And why has it become such a hot issue?
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