Following are the important points discussed in the webinar:
Supply Chain and Logistics is “the design, planning, execution, control and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally”. Purchasing is a function that comes under supply chain management and it determines the profitability of an organization. In contrast to the popular notion, profit isn’t an outcome of selling, but it is made as a result of purchasing.
Procurement and risk management
Risk can be defined as the combination of the profitability of an event and its consequences. Following are the important types of risks in procurement:
- Operating risk
- Financial risk
- Political risk
- Market risk
- Supply base risk
- Distribution chain risk
Purchasing professionals must always foresee the risks, understand the causes of risks, how it will affect the process and find effective solutions.
Pareto analysis in procurement
Pareto Analysis is a statistical technique in decision-making used for the selection of a limited number of tasks that produce a significant overall effect. It is based on the idea that we can generate 80% profit by focusing on 20% key tasks. This technique is also called the vital few and the trivial many. It can also be applied in procurement to yield better results. Instead of focussing on all the suppliers, the purchasing professionals can concentrate on the 20% of suppliers that contribute the 80% turnover of products. In this way, the purchasing professionals can ensure that the relationship with the key suppliers is always maintained and the flow of materials isn’t disrupted in challenging times.
The five rights of procurement
Procurement objectives and analysis of the procurement function are normally set against the five rights of procurement. It’s a simple combination of the key deliverables of a successful procurement process.
- The right product: The purchasing professionals must ensure that they buy the right product.
- At the right place: It must be delivered to the appropriate delivery point in a good condition.
- At the right time: The product that doesn’t reach on time may affect the functioning of the supply chain.
- In the right quantity: Sufficient quantity has to be delivered to meet the demand.
- At the right price: Price is an important parameter in the purchasing process. The main aim of the purchasing officers to buy products at an affordable price and ensure profitability.
Why does efficiency matter in procurement?
The organizations that don’t have efficient purchasing strategies will have to keep their prices high to cover the cost of ‘doing it right’. Furthermore, there are many benefits to having efficiency:
- Helps to measure the current performance of your business process
- Shows the waste in your process and helps you identify what to improve
- Provides a common language
- Helps to ensure that all elements of the operations system are working together- information and material flow
- Set your ultimate goals, activities and scoreboard
- Execute your plan and be able to adapt to any changes