CHAPTER 3: PROCUREMENT STRATEGIES
5. Compiling
the
Findings
and
Formulating Final Recommendations
ANALYZING THE SUPPLY CHAIN MARKET
of Supply Chain
The Five Steps to Supply Chain Market
----------------------------------------------------------
Analysis
SPEND MANAGEMENT
1. Defining the Objectives, Scope, and
-
Commodity Profile
process businesses use to track,
control,
a. The primary goal of performing a
and
their financial bottom line.
-
This
includes
procurement
insights to drive better business
supplier/vendor
decisions
your
management,
tools
your
subscriptions,
business
and
competitive
improve
position
via
optimize
organization-wide spending to protect
market analysis can vary, but a
common goal is to develop key
analyze,
supply chain.
costs,
relationships
and
software
travel
and
entertainment expenses, etc.
2. Understanding the Supply Market and
-
Price Structure of the Commodity
This excludes costs like payroll and
employee expense reimbursements.
3. Conducting In-depth Supplier and
Market Analysis
a. Identify the main players in your
market
and
research
them
thoroughly.
4. Identifying the Key Market Indicators
a. Economic-
studying
pricing
trends, inflation, and production
WHAT IS THE BEST WAY TO MONITOR
rates
SPENDING? [AUTOMATION]
b. Price Indices- category involves
Consumer
Price
Index
(CPI),
Benefits of Spend Management Automation
Producer Pricing Index (PPI), and
1. Efficient budget management
Import/Export Price Index.
2. Eliminating
c. Employmentclaims,
unemployment
percentage
of
the
gross domestic product (GDP),
and
fraudulent spending
3. Real-time control over company-wide
workforce that is fully employed
d. Production- category involves
out-of-policy
spending
4. In-depth analytics for all spending
5. Easy
industrial production rates, and
tracking
and
processing
of
payables
capacity utilization rates.
How
spend
management
improves
procurement?
1. Better sourcing opportunities
a. By mapping out all the costs
involved in the supply chain
process, you can identify which
suppliers are yielding the most
value and which ones are not.
2. Increased process efficiency
a. Spend
all your expense data in a digital
management
software
eliminates manual processes
spreadsheet.
3. Verify data
that take up valuable time and
a. removing duplicates, correcting
money and optimizes procure-to-
any
pay
strategic
ensuring that all spend data is
contract
recorded in a single currency.
processes
sourcing
like
and
management.
Cleansing
3. More spend visibility
a. Spend
spelling
mistakes,
and
verifying
your
database validates that the data
management
systems
you’re
using
to
make
provide accurate and timely
company
data that lead to more insightful
accurate as possible.
decisions around procurement
decisions
key
is
as
4. Verify data
4. Better risk management
a. An
and
5. Analyze spend data
end-to-end
spend
a. conduct
a
detailed
spend
management solution provides
analysis that will give you real-
the means to assess the market,
time
identify
company’s purchasing history
risk
factors,
and
develop plans for navigating
visibility
into
your
6. Define a strategy
around them before they occur
a. involve implementing changes
and well into the future.
that affect all stakeholders
7. Forecast and planning
The impact of bad Spend Management
a. Data
forecasting
helps
you
1. time-consuming and
prepare for the future, improve
2. leads to low spend visibility,
supplier
3. poor spend compliance,
provides the insights needed to
4. higher transaction costs, and
adapt to changes in supply and
5. disrupts the overall functionality of
demand.
an organization.
relationships,
and
--------------------------------------------------------------Strategies for Reducing Cost in Supply
Tactics to improve your spend management
Chain
•
Switching suppliers
•
Negotiating volume discounts
•
Eliminating duplicate orders
of
•
Consolidating orders
expenditure, which encompasses
•
Reduce
process
1. Identify
expenses
and
company
spending
a. identify
the
sources
both direct and indirect spend. It
involves
collecting purchase
overbuying
by
using
VMI
services
•
Resolve currency conversion issues by
orders, goods receipts, supplier
identifying whether or not you’re really
invoices, and supplier payment
saving money by sourcing from your
data.
current location
2. Centralize expense data
a. Automation can help maintain
records of spend or you can put
•
Implement more centralized, controlled
procurement
spending
to
reduce
maverick
SPEND ANALYSIS
-
practice of analyzing procurement spend
DIRECT AND INDIRECT PROCUREMENT
to decrease costs, increase efficiency,
SPEND
1. Direct spend
or improve supplier relationships.
-
collecting, cleansing, classifying, and
a. refers to goods and services that
analyzing expenditure data with the
are directly related to making
purpose of reducing procurement cost,
products.
improving
efficiency
and
monitoring
compliance.
-
starting point of strategic sourcing and
creates the foundation for spend visibility,
compliance, and control.
What to look for in Spend Analysis?
2. Indirect spend
1. Should-cost analysis
a. also known as cost breakdown
analysis,
is the
process
of
breaking down why a product
or service costs what it does.
b. a comparison of the estimate of
what something should cost to
how much is being paid based
a. sourcing of goods and services
not
directly
manufacturing
Indirect
related
of
to
products.
procurement enables
businesses
to
maintain
and
develop its operations.
i. marketing services (media
buying, agency fees)
on material cost, labor rates,
ii. professional services
overhead, and profit margin.
(consultancies, advisors)
2. Cost versus mass analysis
a. helps to compare current versus
potential suppliers by providing
iii. travel and lodging
iv. MRO (maintenance,
repair, and operations)
a closer look at the parts that have
a higher cost per mass
b. identifying
opportunities
for
redesign or of finding a more costefficient
supplier
while
still
retaining quality.
These are the basic questions we are asking
when performing spend analysis:
1. Identify Data Sources
a. Doing this allows you to restrict
those purchases to just a few key
sources.
b. Start by identifying the areas of
your
business
that
make
significant purchases, such as
procurement,
finance,
and
marketing.
TYPES OF SPEND ANALYSIS
1. Tail Spend Analysis
2. Data Extraction
a. amount
of
money
that
an
different
organization spends on purchases
formats, different languages, and
that make up approximately 80%
different currencies, so collecting
of transactions but only 20% of
it into one single source might be
total spend volume
a. Data
is
usually
in
2. Supplier Spend Analysis
challenging.
a. task of identifying the amount of
3. Data Cleansing
a. . This
includes finding and
eliminating
errors
and
discrepancies in descriptions and
transactions to ensure accuracy.
b. Through data cleansing, you can
identify which contacts in your
database are
incomplete or
spend
coming
from
critical
vendors
b. creating a detailed spend profile
for each vendor using historical
consumption data
3. Category Spend Analysis
a. allows you
to explore spend in a
defined spend category hierarchy.
irrelevant.
b. This is useful in identifying spend
4. Data Enrichment
a. process of enhancing, refining,
leakage issues.
4. Item Spend Analysis
and improving raw spend data.
b. Enriching the spend data makes
sure that all the header and line-
a. analyzing expenditure at an item/
SKU level.
are
b. gives the ability to know whether a
accurate and to a specific naming
specific item is being purchased
standard.
from various suppliers, or in
level names and details
several locations and at different
5. Classification
a. Classification typically involves
grouping several suppliers of the
same
parent
company
or
b. At the same time, you can also
meaningful
marketing,
5. Payment Term Spend Analysis
a. It
explores the opportunities of
leveraging all possible discounts
organization
categorize
item prices.
the
data
groups
office
or interest from the
invoice
into
payment
(like
increasing working capital.
supplies,
b. utilizes
process,
data
and
while
gives
a
software) to identify how and
comprehensive view that enables
where the business is spending its
to identify
money.
through late payments of invoices
6. Analysis of Data
a. Analysis can be geared towards
investigating all sorts of business
problems, such as ensuring that
you
have negotiated the best
contract deals per supplier.
or
unrealized discounts
opportunities
to
negotiate
better payment terms to capture
unrealized interest
6. Contract Spend Analysis
a. tells
companies
complying
with
if
they
their
negotiated contract terms.
are
existing
b. It ensures that the best contract
deals per supplier have been
Benefits Of Supply Positioning Model
negotiated and that all the buyers
are purchasing from preferred
1. Simplicity
suppliers.
2. Focuses
on
potential
SPEND MANAGEMENT RED FLAGS
those
benefits
areas
and
where
risks
are
greatest
1. Significant Purchase Price Variant
(PPV)
Disadvantages Of Supply Positioning Model
2. Too many suppliers
1. It ignores the fact that not all the risk
3. Annually inflating prices
of supply comes from within the
relationship between customer and
SUPPLY CHAIN MODELS
supplier.
2. It does not take into account the
possible strategies and reactions of
the supplier.
e-Procurement
-
1. Continuous flow model
a. Offers supply stability in high
demand situations that vary
very little
b. Beneficiaries
are
manufacturers that produce
the same goods repeatedly
with very little fluctuation
c. one of the most traditional
supply chain models.
a. Ideal for manufacturers that
manufacture products that are
trendy with short life cycles.
b. works well for a business that
change
products
frequently and get them out
fast before the trend ends.
c. Flexible model
3. Efficient chain model
4. Custom configured models
5. Agile model
6. Flexible model
businesses,
consumers,
businesses
and
and
businesses
and
governments through the internet
e-Procurement Process
1. E-informing
2. E-sourcing
3. E-tendering
4. E-auctioning or E-reverse auctioning
5. E-ordering
2. Fast chain model
must
sale of goods or services between
Types of E-Procurement Tools
1. Online tools and platforms
2. Electronic systems
BENEFITS OF e-PROCUREMENT
1. Reduced costs
2. Enhanced spending control
3. Improved transparency and visibility
4. Saved time
5. Improved
relations
internal
and
external