In this module , we are going to talk about procurement. In other words, how do companies buy? The way companies buy is not like you and me are buying, because they buy in large quantity. In fact, most of the expenses, most of the cost of companies
is in what they buy. Very few companies make everything themselves, so they buy a lot of stuff. Parts, they buy material. They buy what’s so-called non-direct material , material that doesn’t go directly into production. We will talk about how to do it. And you think about why do you need to talk about it, because there are various types of buying. It is different if you decide to buy new machines, some three or four trucks, or to buy a new plant. This is a long-term buy. Of course, it’s different if you decide to buy a million of something, a million chips or a million screws.
You’re not going to put the same type of process for a one-time buy as to buying in large numbers.
Furthermore, if you’re buying number 2 pens just something that is not expensive, and you buy a lot of it, it doesn’t go into production, and the inventory carrying costs are not high,you’re not going to worry about that much. So you do different processes for different types of procurement. Some things, however, may be the same for all types of procurement, all types of buys. And they always start with collecting information about the market. You want to collect information about your internal customers, the stakeholders who are going to use the stuff that you buy. You want to collect information about the market.
who is out there? and about the suppliers.
So both about market prices and who are the good suppliers. So you collect information. Then you have to develop strategy.
What does it mean develop strategy? You want to develop the specification of the product , how exactly you need it, what kind of details you need in the product or in the service that you are looking for.
And you also want to talk about the levers of power. Can you use your scale? Can you use knowledge of the market? Can you use other levers to get low cost and high value? Once you’re finished with this, you are going through the bid process itself. Procurement is basically an auction process. So what you want to do, you want to first of all evaluate or develop the evaluation criteria. How are you going to judge which supply is better than others? And it’s not straightforward, because some supplier may be better than others on certain dimensions, while others are better on other dimensions.
Then you want to develop the request for proposal RFQ . This is how you communicate all this to the suppliers and to the marketplace. And then you actually conduct the auction process. We’ll talk in detail about how to do it. And then you go into some negotiation process with this short list. In this negotiation process, you may point out
to some of the bidders why they fall short in some areas and you give them an opportunity to fix their bid. Or you negotiate further over price showing them that there are good bidders, but the price is too high, whatever. Once you finish the negotiation process, you go through the implementation. and so on .
This module will teach you the best procurement strategies available and useful in market the module 3: Supply chain procurement Strategy and optimization will introduce you to the optimization part using spreadsheets.