what is procurement?
TRANSCRIPT
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What is Procurement?
Gone are the days of procurement existing simply as a purchasing function.
Modern procurement makes organizations smarter and more profitable through
sourcing diversification, whilst improving both input costs and cash flow.
Back to the analogy of the household kitchen we made in –
What is Supply Chain?
Many factors come into play when we make our purchasing
decisions. When doing our groceries, we will buy more or
less of an item based on factors such as whether it is a
perishable or not.
For example a factor in our purchasing consideration is the cost of items.
Most of our suppliers have a choice of two or more types or brands of a
product. As the customer, we may choose one brand over another based
on a price that fits our budget or quality that fits our taste.
With some items we will refuse to buy above a certain price, but
equally refuse to buy the product with the lowest price due to
our perception that the quality is not right for our taste.
Should a supplier not have stock of our
preferred brand, we would willingly go to
another supplier and buy from there, even
though it costs us time and resources.
If one of our suppliers is constantly out-of-stock,
we may give up shopping at this store in favor
of another store that always has stock. If many
customers did the same, the effect would be a
reduction in cash flow for one store and an
increase for another.
Many people have their kitchen managed right
down to finer details and are continually
searching for suppliers with lower prices at the
quality desired. In these cases, many may
choose to optimize their kitchen operations.
All of this is the act of obtaining or
buying goods and services
But how does your organization
view suppliers?
How does your organization
view suppliers?
In the past, organizations believed that
Procurement’s role was to put the
squeeze on suppliers.
Management practices have moved on
since then taking a more sustainable
approach:
Suppliers are now viewed as
partners, integral to an organization’s
success.
Procurement is better able to
establish supplier partnering
agreements in alignment with
company objectives.
The sharing of vital supply-chain
information, ensures a symbiotic
relationship in planning and aligning
activities.
This new era has led to…
cost reductions;
improved efficiencies across the supply-chain;
improved profitability… for all involved.
With improved and richer information and
increased efficiencies, modern procurement and
ERP have become vital profit driving factors,
crucial for the success and survival of any
manufacturing business today.
Vendor Managed Inventory allows companies to
guarantee input supply and expend working
capital on its use. This vastly improves a
company’s cash position and removes the costs
associated with managing large stock holdings.
Supplier partnerships not only require strong agreements
but sharing of sales and operational forecasts and plans.
ERP systems are able to facilitate this exchange of
information as well as record the usage of inputs; both
crucial for notifying suppliers so they can immediately
react. Additionally, the financial transactions in honouring
the partnering agreement are also able to be automated.
Additionally, inventory trend analysis and forecasting and
material requirements planning are also provided by the
ERP system, helping refine input requirements even
further. The procurement process also allows for a higher
level of quality “inputs” in the supply chain process
whether that be raw material or purchased product.
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A comprehensive guide, to the concepts,
techniques and technologies of SYSPRO
Supply Chain, inventory management and
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