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Procurement is defined as sourcing or buying required resources like materials and services for the production of the final product to satisfy the end-consumers demand. Let’s have a glimpse of how procurement has evolved over a period of time.
As per research data, skilled procurement professionals are only 10 % of the total graduates each year, the research speaks out that the right guidance from the universities has been not to the graduates on procurement or in supply chain management in choosing their domain. Why the guidance or the education on procurement and SCM is not been carried in any university is because it has always taught as a downstream program of the business, but the fact is “It is downstream value chain activity “.
So, the most important and effective way of education is to explain to the graduates how procurement works in a real-time scenario. Even before that, it is essential for everyone to know what the types of procurement are and how it impacts the business in day to day activities.
Basically, procurement has two critical segments based on the industry requirement, one is Direct and the other is Indirect, both have different tools and way of approach which ultimately plans the road map for supply chain success.
In India, every year IT service companies enable the creation of about 10 million jobs, in which procurement has now gained an ascending demand in the Indian market. As per recent studies, every year 30,000 jobs for procurement and supply chain is been posted and the average compensation is from 925000 to 1125000 INR. So, there is no wrong in stating procurement will be one of the finest profession in recent times.
From the above chart, the concept of procurement is more prevalent in Service based organizations than a product-based company.
Evaluation from Material Men to Procurement Professionals:
Early 1800’s, Material Men was the terminology used to buy goods and services in the mining industry. Later during World war, procurement was the term that evolved around the order placement for raw materials, services to simply keep the economy running.
Procurement was once considered as an occupation, but spurred by the rise of Industry globalization, it has evolved as a recognized profession.
On average, in fact, research in the Michigan State in the early ’90s claims the important reason behind procurement been a profession is 70% of manufacturing units purchase products or goods from outside suppliers, and 40% of the non-manufacturing source their products from outside suppliers.
The thought process is to make procurement integrated as a strategic planning process in the business to eliminate the unethical approach between suppliers and the stakeholders. Below displays the key process of procurement in olden days, (without system utilization)
Modern Age Procurement:
Ever since the era, where negotiation was the bread and butter of procurement, attaining sustainable success in the globally competitive and versatile market, the requirement of new strategies and capabilities has been always a big –league. To grow strong and survive, any organization requires to form an ecosphere of suppliers and stakeholders that, in the aggregate, make them a stronger system in this exceptional market.
The important aspects of procurement are not just satisfying the requirement, it is front and foremost to manage and mitigate the risk associated with the extended supply chain capabilities. At sometimes, supplier management needs to leverage suppliers to drive innovations. Most of the supplier management or procurement professional has to eliminate the scope of transaction job and provide strategic advice to business partners.
Modern-day procurement had driven cost-cutting analysis, supplier due diligence and supplier performance metrics have a key value driver in attaining and achieving the organization’s goal. Now a day’s procurement along with technology has been a boom in the industry of supply chain and procurement allowing the company to leverage off larger data for spend analysis, adhere to compliance through policy and drive efficient operations for business.
After the technology has taken over a dominant role in procurement, all the requirement of the business partner has of yesterday and it is tough to deal with it!!!! After interaction with procurement icons in the key industry, I accept the below five facts are the proactive measures to sustaining with the stake holder’s needs,
- Identify the area’s which can be a repetitive purchase.
- Expectations are changing with the business partners – Keep our self ahead.
- Mutual beneficial
- It delivers bigger opportunities – Increase in savings, new innovative ideas etc.
- Technology can simplify the process.
Reiterating it again “Procurement is not only savings “, but it’s also about creating bigger opportunities, delivering quality in terms of service and putting yourself ahead in the market”
How Supplier Management / Procurement Team Works:
Procurement set forth the foundation for the implementation of a consistent approach towards the execution of contracts across various commodities which in turn contribute value chain to the company. As business is diverse with different functional units, procurement team requirement was classified under IT and Non IT as a commodity. Both the commodity has different learnings, different approaches to attain the core value of a business.
Also, it determines how well a company executes its value-driven process in order to achieve the objectives in line with their compliance. Better procurement is sustainable procurement.
Purpose of supplier management:
Over the period of my experience in procurement, I only came across a bad note on procurement by the Business Partners and the users. They have a perspective that procurement is a time–consuming process, and it does not add value either to the company or to their stakeholders.
I always want to convey this indirectly to the stakeholders and the business partners/users that a procurement team represent the company to an outsider, where we have to be very careful on each and every step we progress. Why? It’s as simple it directly hits the reputation of your company.
We still get many requests from the user as urgent, but we do carry those requirements in a proper way with the supplier and get it done whereas our question was why it was not pre-planned? – When a production manager requires an ample amount of time to make the product, how a procurement professional can execute it without any processing time?
Therefore not deviating much, the purpose of supplier management are:
- Ensure a contract is successfully executed
- Provide a formalized method of monitoring supplier performance against Contract requirements
- Ensure that there is clarity of the roles and responsibilities by all parties relating to contract and supplier management
- Monitor overall compliance by all parties to the terms of the agreement
- Contract, refining and improving KPIs, SLAs and service delivery.
- Honest, open communication between the supplier and the Council, delivering improvements to both parties
- Improve and develop relationships with key supplier representatives.
- Mutual trust and understanding, open communications and a joint approach to managing the delivery.
- Realize estimated and planned savings through continuous monitoring of spend
- Identify potential additional savings and benefits through the proactive contract and supplier management.
- Co-ordinate the supply chain.
- Provide a focus for the development of initiatives/innovation.
- Deliver learning and knowledge transfer.
- Drive continual improvement.
Apart from the above mentioned, the foremost important aspects of supplier management are communication and avoid gaps in communication.
We have witnessed the evolution of Procurement, but this is just a glimpse of it. Procurement is still considered as a transactional job which is considered as one of the key employment opportunities. The most imperative thing here is to understand that there is a vast differentiation between procurement and Sourcing. It should be kept in mind, however, that this procurement management system must run efficiently and smoothly for all benefits to be reaped. The key to this would, therefore, be an efficient system as well as the right supplier and resources. For the purpose of procurement management, there should be a team of highly trained individuals, if procurement management plays a key role.