3. Procurement

Procurement. In the previous lecture, we talked about the five tactical phases of purchasing, you process the purchase order, you receive and monitor the advanced shipping notice, you confirm there’s a receipt of the goods, you process the invoice. And you pay the supplier. These five tasks are tactical activities that happen as part of the purchasing process. However, all of these is part of the broader procurement departments role. And not just these five tactical items. Now, procurement itself has to also go out and collaborate, not only with suppliers but also internally, with logistics around the movement and storage of items, with manufacturing about the building of products and be informed by planning and how we see the business moving forward. A procurement department’s value add is that it centralizes all activities that revolve around suppliers. And it manages those relationships with suppliers proactively. Rather than different people throughout the organization going out and finding their own supplier, and talking to them, and buying from them, we have the purchasing department doing it in a centralized manner. And they’re able to get the most out of those relationships, and create economies of scale when purchasing which not only helps the suppliers have a better view of sales, but it also helps the buying organization get a better price. Most organizations view the procurement department’s role as managing cost.
And as we heard before, they are a large part of the organization. However, when we talk about cost it doesn’t just come down to negotiations. Sure, we’re going to negotiate over price and settle the other service and quality issues, but price is not the ultimate goal.
We can also achieve lower prices by for example offering volume commitments. So both sides are getting what they are looking for. The seller can sell more and the buyer buys each item for less. In addition to price, quality and service, there’s also other issues such as risk. There’s a lot of risk in the supplier not delivery and procurement has to be able to manage those risks. There are other aspects that are important to the procurement department’s role. And one of these example is sustainability.
No company can be truly sustainable if their inputs are not all so sustainable. For example, on the environmental side, they’re companies such as Patagonia who pay a tremendous amount of attention to environmental issues in general. And they make sure that their supplier have the same high standards of protecting the environment as Patagonia does. In fact, when you buy one of their products you see right there on the web page. Where the product was produced, who produced it, and what type of materials they used. Another example is the social aspect. Since there have been so many stories where companies were using suppliers that had bad labor standards, that were treating people. And I could have believe or
there are also companies that want to have a vibrant communities. So they are actively looking for diversity supplier, minority on businesses, women on businesses.
And lastly, economic, because the economy is still one of the foundational three triple bottom line aspects. We want to have suppliers that are financially viable and that have. The ability to exist long into the future. So therefore, from a sustainable perspective we don’t want to just negotiate hard with them over price. We want them to be able to make a good living. And thus, all of these aspects of sustainability become an important part of the procurement department mission. A procurement department has to take significant steps to ensure continuity of supply, so risk management is one of the foundational pieces that procurement has to pay very close attention to. There are three types of risks. One is the service levels have to not fluctuate very much. So you need to have processing in place that ensure that your suppliers deliver the service level that they promised. The next one is catastrophic events, and they could be national
disasters, such as floods, and there was a big flood in Thailand a couple of years ago that completely destroyed factories in the electronics and technology industries. Of course, there was the Japanese tsunami which severely impacted the odd industry in Japan and also some high tech companies, so a company really needs to pay a lot of attention to how they are exposed to risk and properly mitigate that risk. And then, finally, you have to be able to protect yourself against a supplier going out of business, so you need to be able to monitor a suppliers health from a financial perspective, and be able to take corrective action before it impacts your business. While some of these risks can be managed by buying insurance. A lot of the other ones cannot be insured against. So you have to have management practices in place that protect you against those risks.

Jim Rohn Sứ mệnh khởi nghiệp