Leading Procurement Strategy: Driving Value Through the Supply Chain

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-define key elements of performance (organizational or human factors, global sourcing or supply chain management, category strategy, cost management, standardization. Sustainability, technology. Talent management)

-Identify projects under each performance area (the project that will affect the performance areas identified)

-Prioritize them using the impact grid based on ease of implementation and impact on performance

The grip categorizes in three categories: quick wins (fast results), change projects (significant impact, but requires effort, need careful planning), major initiatives (long-term programs).

• Implement procurement strategy

Breakdown structures, Gantt and PERT charts, critical path analysis for scheduling the project, focusing on time and cost. Also change management is needed. To understand the potential barriers is stakeholder analysis, in which potential for threat and cooperation has to be identified. In this map there is information about responsibilities, level of contribution required for implementation of the project

Elements that managers can use to influence implementation of strategy: decision rights, designing information flows (access to information, reporting lines), motivators (individuals are rewarded for their performance), structure (match between strategy and structure of the organization)

• Learn and improve

- Collect evidence and measure performance (using the scorecard, collect information for each metric and compare with initial targets)

- Evaluate performance (reflect upon each of strategic goals, to figure out what we can do better next time)

- Apply and communicate learnings (who can benefit from the results), changes to the processes, reports, meetings.

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Part Two Procurement and the supply network

Chapter 04 Supplier relationship management • Why focus on supplier relationships?

SRM has everything that comes after contract is signed and the sourcing process is completed.

The risks if no SRM:

-the procurement negotiates the deal, but not having action if something go wrong

-contracted savings and benefits leaking away and never being cashed

-suppliers considering procurement less credible, because always asking for preferential terms

-focusing on making a deal not building collaboration

If parties avoid these risks, they can focus on continuous improvement

• SAME page framework for structuring SRM

Implementation of SRM

-Select suppliers to drive relationship efforts with

Kraljic matrix (the impact on profit and complexity of the market)

Leverage (from various suppliers, small changes in price have the strong effect on impact, large share of the product cost)

Strategic items (from one supplier, supplier is not guaranteed, represent significant value)

Routine items (small value per unit, many alternative suppliers)

Bottleneck product (limited value in terms of money, vulnerable in regard to supply)

-Align organizations, contract points and relationship governance (operational-day to day interactions, relationship-business period to business period or sponsorship-bringing together senior most leaders contracts)

-Measure performance with a scorecard exchange (discussion about improvement opportunutues, show progress and joint wins, inform upgrades in sourcing strategy,

-Exchange improvement opportunities and efforts (first on operational levels, then on collaboration and investments and sponsors at the top level of the relationship pyramid)

• Challenges in implementing SRM

-hard to find time, the estimation of profit from SRM

-can be difficult to structure

-different skillset from procurement personnel

SRM requires:

-Centring supplier engagement around customer-market opportunities rather than just focusing upstream only on the supplier deal

-Being transparent about where help is needed from supplier

-Broadening the definition of success including multiple elements of value

It focuses on customer value, moving from back to the hourse to front of the hourse. It is about being transparent where help is needed.

Barriers to implementing SRM:

-no time

-a role of cost saver and lack of integration with business processes

-lack of procurement toolkit

Chapter 05 Global sourcing - The true costs of global sourcing

Liberalization of cross-border trade European Union, NAFTA, ASEAN, WTO

Sourcing decisions should be subject of total cost of ownership. To develop good strategy both visible and hidden costs should be identified:

-Factory gate price (purchase price + taxes + insurance)

-Inventory costs (longer the delivery time-greater the inventory, + safety stock)

-transport costs

-risk costs (currency exchange rate fluctuations, geo-political risk, stocks out, loss of intellectual property)

-other costs (customs clearance, quality)

Cash-to-cash cycle time is useful measure of the length of a company’s supply chain.

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