LOG2012 – International Procurement Mr C McKnight MBE cmknight@lincoln.ac.uk Access Code 040981 Agenda • • • • Procurement The Procurement Cycle Global V’s Local Discussion International Procurement • What is procurement? – Procurement is defined as the buying of goods and services that enable an organisation to operate its supply chains, in a profitable and ethical manner. There are many different interpretations of what procurement is, and this definition can vary from sector to sector, subject to the activities undertaken within your organisation. • What is purchasing? – Purchasing can be defined as the buying of goods and services... • What is the difference? – The key difference is purchasing is usually in the ‘short term’ to fill a need, whereas procurement is considered to have a strategic element. The Procurement and Supply Cycle • The CIPS Procurement and Supply Cycle guides organisations through the Procurement Process from start to finish • It is made up of 13 clear steps • Beginning with the specification phase, through to tender and ending with asset management • GR – Gateway Review (CIPS, 2022) Step 1 • Define Business Needs and Develop Specification: – A Specification is a precise and detailed requirement – Involve cross-functional stakeholders to develop a comprehensive specification – Encompass organisational imperatives/strategic objectives – Consider consumer requirements and the organisational obligations – Early engagement of stakeholders creates buy-in – Think about Risk – Opportunity (innovation, technology, sustainability) Step 2 • Market Analysis and Make or Buy Decision – Scoping out your budget and current positioning and dynamics of the marketplace helps you identify potential suppliers and the degree of competition. – Conduct analysis as to whether to make or buy the product or outsource the service. Using STEEPLED can help look at social and environmental macro environment factors. – Understanding the market dynamics, e.g., what the market has to offer, what level of maturity there is now or needs to be developed and the market's appetite for sustainability is an important step. – Insight into the innovation available, and any barriers or risks to delivering your goals will help to plan how to mitigate the risks. STEP 2 – STEEPLED Analysis • Social – The impact of society on business, trends, fashion, social movements (gender, ethnicity) • Technological - The influence of technology or lack of it on business developments. • Economic - The impact of national and or global economic decisions on your business or market. • Environmental - The influence of macro environmental factors • Political - The impact of political decisions on the business environment • Legislative - The impact of new and changing laws and regulations • Ethical - The influence of changing perception of ethical issues • Demographics - The impact of changing population trends Step 2 – Business Environments Internal Environment Cashflow Employees Assets Structure McKinsey 7S The Macro-Environment Political Economic Social Technical Environmental Legal STEEPED or PESTLE Micro-Environment Suppliers Consumers Competition Stakeholders SWOT Step 2 – Kraljic Matrix The Kraljic Matrix is a strategic tool used by procurement and supply chain professionals to identify and minimise supply risks. The tool classifies the importance of suppliers’ products and services It can highlight supply chain weaknesses, support strategy development, and minimise supply disruption. (Kraljic, 1983) Step 3 • Develop the Strategy and plan • Consider the values and ESG goals of the organisation as well as the potential impact of the external environment. • Conducting a competitive tender is a good idea if there is competition and you are well positioned to leverage the market. • Developing competition in the marketplace or bringing this in house may be a better strategy if you are reliant on one sole source of supply. • For example, if your volume represents 50% of your supplier’s total turnover your procurement power will be greater. However, this also presents ‘risks’ and you will need to incorporate these considerations in your analysis before you develop a plan. Act Plan Check Do Adapted from Moen and Norman (2010) Step 4 • Pre-Procurement - Market Test and Engagement – The pre-procurement process includes identifying both stakeholder and business needs now and, in the future, and how changes to implement the procurement strategy can meet those needs flexibly. – Conducting market testing or a strategy test will help to identify if it is the right time to go into the marketplace. – Consider other factors such as crop cycles, competitor activity, suppliers’ end of financial year or new legislation STEEPLED – PESTLE – SWOT – Kraljic Matrix... – Decide on the route to market for the tender process to give the best exposure to sustainability opportunities and innovation in the market. – Request supporting information, e.g., on ESG at this stage to understand and mitigate any risks and establish if suppliers align on their values or practices. If not, any unsuitable tenderers can be eliminated early in the process. Step 5 • Develop Documentation - PQQ and Detailed Spec. – Spend time developing the tender documents, including a detailed breakdown of the volumes, service level agreement and terms and conditions. – Create a detailed specification to ensure consistency on pricing, product quality, and operational functionality. Ensuring products are fit for purpose, reducing the financial impact of the wrong specification. The specification will form part of the tender documentation for suppliers. – Distinguish in your specification between product requirements and preferences, building in tolerances for suppliers to adhere to (Essential v’s Desirable). – Ensure any technical evaluations are part of the core requirements in the specification and detail how these will be scored. – Highlight and communicate the importance of these goals and requirements, to the tenderers. – Including key stakeholders in this process will help to mitigate risks. Step 6 • Supplier Selection to Participate in Tender – Conducting a Request for Information (RFI) at this stage in the procurement cycle will help to gain insights into suppliers: size, capabilities, financials, strengths and weaknesses. – Assessing the criteria can help you determine if they should be included in the tender process and receive a Request for Quotation (RFQ). – Ranking the performance qualifiers against the business needs with key stakeholders is a useful exercise at this stage – Carry out due diligence to check any potential supplier’s sustainability and ethical compatibilities to prevent any reputational risks. – This due diligence will validate their claims and should be inclusive and compliant of regulatory requirements. Step 7 • Issue Tender Documents – Once you have selected the companies to participate, you need to send formal documents. – Send an Invitation to Tender (ITT) and Request for Quotation (RFQ) to selected suppliers to participate. – Include the detailed specification and documentation developed around the business requirements and essential criteria, along with clear timescales to respond. – Running a sustainable tender, without excessive travel, paper or transaction obligations should be considered as part of the tender process, and not just a tender requirement. Step 8 • Bid and Tender Evaluation and Validation – Bid evaluation and validation against pre-defined award criteria. – This helps to identify which is offering the best Value for Money (VFM) and meets your organisational needs (Ethics & Sustainability) in selecting the preferred supplier. – Ensure your tender evaluation is structured, disciplined and transparent. – To reduce any risks bid evaluations should explore price comparisons alongside policies, technical capability, capacity, quality, and financial health. – A robust evaluation of credit checks, an assessment of environmental, social, governance and ethical elements of suppliers’ proposals – Consider supplier visits, technical audits, product sampling or trials. – Conduct Post-tender negotiation – Consider impact (sustainability goals and carbon emissions targets). – Consider whole life costs, including decommissioning, removal or disposal. Step 9 • Contract Award and Implementation – Once the supplier has been selected, you will award a contract to the preferred supplier. – This allows both parties to fully understand their obligations and key success criteria as part of the agreement. – This forms the foundation to manage the contract and relationship effectively. – Award criteria offers agreed terms and conditions to minimise contractual risks and exposure when doing business, holding the supplier to account and to honour what they have agreed. – The communication and implementation process sets out clear timescales and parameters on both sides to effectively manage the implementation and contract management. – Develop SMART KPIs in the contract that encourage responsible and sustainable practice should be measurable. – Define the total life cycle of the products and any future plans for the assets or services. Step 9 - SMART KPI’s KPI - Key Performance Indicators SMART Specific Measurable Achievable Relevant Timely Provide a clear description of targets Quantifiable Metrics Set achievable targets. Ensure aims are relevant Set Deadlines! Step 10 • Warehouse, Logistics and Receipt – – – – – Product coding and classification. Space, layout and racking. Frequency of deliveries. Waste management and recycling. Consider environmental implications and ensure sustainability standards are adhered too, both internally and externally. Was circularity and Modularity considered in the Development stages? Step 11 • Contract Performance and Improvement – Contract performance should be monitored and reviewed at agreed periods against agreed Key Performance Indicators (KPIs). – KPIs should be defined in the contract, agreed by both parties and used to track and improve performance. – The contract review should include discussions on how the relationship is working and resolve any conflicts with agreed actions and timescales. – Proactively discuss plans for continuous improvement and share learnings. – Discuss any future business changes, added value activities, innovation, what may already built into the contract and how to achieve joint objectives. – Define any actions and set the next review date. Step 12 • Supplier Relationship Management – Supplier relationship management (SRM) is an important part of supply chain management (SCM), reviewing your portfolio of suppliers and establishing the right level of input to develop the relationship and achieve specific objectives. – Time devoted to SRM depends on your strategy, type of purchase, length of contract, goals and objectives and the marketplace. – SRM helps to create the right relationship and environment in which to work on new innovative developments, create sustainable businesses, reduce risk and streamline processes. – Having the right relationship with a supplier may be the difference between achieving goals and targets, being first to market with a new concept or ensuring continuity of supply. VIPER Model (O’Brien, 2022; 2023) Step 13 • Asset Management – Over time, assessments should be carried out to determine if business requirements have changed, whether the agreement is still required and fit for purpose, what can be learnt from the process and how improvements can be incorporated next time. – The end-of-life considerations need to be carefully assessed and managed to ensure safe, responsible, and compliant disposal. – Disposal should be a last resort, and wherever possible, organisations should seek to decommission, dismantle, reprocess, recycle, or reuse materials wherever possible. – Remember to calculate and account for end-of-life costs, including decommissioning, removal and compliant and safe disposal of assets. – Repeat Cycle Break – 15 minutes LOG2012 – Global V’s Local Mr C McKnight MBE cmknight@lincoln.ac.uk Global V’s Local Supply Chains “Global supply chains are networks that can span across multiple continents and countries with a purpose of sourcing and supplying goods and services. Global supply chains involve the flow of information, processes, and resources across the globe”. “A global supply chain utilises low-cost country sourcing. It’s the procurement of products and services from countries with lower labour rates and reduced production costs than that of the home country. A global supply chain will usually flow from your own organisation in your home country as a buyer across your supplier tiers; it’s these suppliers who will be located in other areas of the globe”. “A local supply chain will look to optimise suppliers who are regional to your own organisation. This means all suppliers feeding into your supply chain will be located within the country in which your organisation is based. This often gives a clearer visibility of the whole supply chain from raw material through to consumer”. (CIPS, 2023) RISK V’s OPPORTUNITY By Comparison Contemporary Supply chains: Local – what is local? Lincoln Grimsby National – what is National? Lincoln Global – What is Global? Tokyo Hybrid – What is a hybrid? Muscat Inverness Lincoln Lincoln York Glasgow Think of some potential problems and Opportunities at the different levels Local – National – Global – Hybrid - Berlin The Argument for Local Sourcing: Professor Martin Christopher 1. Transport Costs 2. Supply Chain Risk – – – – – – extended lead times exchange rate changes that mean a lack of certainty about the final price Greater variability in ead times caused by the supply coming from further away loss of control, especially of second tier suppliers (visibility) reputational risk loss of Intellectual Property Rights (IPR) because there is often less legal protection or enforcement of it in developing countries – geopolitical risks 3. Loss of Agility – Having global supply chains makes it difficult to respond with speed 4. Sustainability The Argument for Global Sourcing: Professor Richard Lamming 1. Human Nature – – – – – expect choice are natural traders hate to think we have paid more than necessary find ways around problems have a need to develop and improve to have a better life 2. Global Sourcing Is Necessary to Sustain Our Way of Life 3. The Most Sustainable Option May Not Be the Obvious One 4. Innovation Will Provide Solutions to the Issues Posed by Global Trade – – – innovative technological solutions will be developed to mitigate problems associated with globalisation global trade contributes to peace people love a bargain and will go where they believe they can get one Finding a Balance Cost Reduction Access to markets More Choice Risk Global Strategy Sustainability Government Pressure Visibility Risk Local Discussion • • • • What are some of the Benefits of a local supply chain? What are some of the benefits of a Global Supply Chain How does Globalisation influence or supply chain activities? What are some of the main challenges to consider? Concluding Thoughts... Chartered Institute of Procurement and Supply, conclude the global v’s local debate as: • Both global and local sourcing have their place in modern strategic sourcing strategies. Organisations must choose the most appropriate sourcing option for a given requirement based on some of the key considerations outlined above. • The strongest performers know who their key suppliers are, where they are and maintain strong relationships with them. They also have the ability to quickly change their arrangements should problems or developments occur. Please Explore Further... • • • • • • • • • • • • • • Boddy, D.(2008) Management: An Introduction. Pearson Education: Harlow. Buchanan, D. Badham. R. (1999) Power, Politics and Organisational Change: Winning the Turf Game. Sage: London. Chartered Institute of Procurement and Supply (2023) Global Supply Chains. Available from: https://www.cips.org/intelligence-hub/supply-chainmanagement/global-supply-chains [accessed 21 August 2023]. Chartered Institute of Procurement and Supply (2022) CIPS Procurement and Supply Cycle. Available from: https://www.cips.org/intelligencehub/procurement/procurement-supply-cycle [accessed 21 August 2023]. Christopher, M. (2016) Logistics and Supply Chain Management. Harlow: Pearson Education Ltd Kraljic, P. (1983) Purchasing Must Become Supply Management. Harvard Business Review, September 1983. Available from: https://hbr.org/1983/09/purchasing-must-become-supply-management [accessed 21 August 2023]. Mangan, J. Lalwani, C. Calatayud, A. (2021) Global Logistics and Supply Chain Management. 4th Edition. John Wiley and Sons: New Jersey Moen, R., D, Norman, C., L. (2010) Circling Back: Clearing Up the Myths of the Deming Cycle and Seeing how it Keeps Evolving. W Edwards Deming Institute. Available from: https://deming.org/wp-content/uploads/2020/06/circling-back.pdf [accessed 28 August 2023]. O’Brien, J. (2023) Sustainable Procurement: A Practical Guide to Corporate Social Responsibility in the Supply Chain. London: Kogan Page. O’Brien, J. (2022) Supplier Relationship Management: Unlocking the Value in Your Supply Base. London: Kogan Page. Porter, E., M. (1985) Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press. Slack, N. Brandon-Jones, A. (2019) Operations Management (9th edition). Harlow: Pearson Education (Pages 636 -666). Waters, D. (2011) Supply Chain Risk Management: Vulnerability and Resilience in Logistics. London: Kogan Page. Whittington, R. Regner, P. Angwin, D. Johnson, G. Scholes, K. (2020) Exploring Strategy: Text and Cases. 12th Edition. Harlow: Pearson.
