What is Supplier Management and Procurement?

Procurement is the process of purchasing goods and services from suppliers and is a critical part of supply chain management. There are several key aspects of procurement that are involved in supply chain management, including:

Supplier selection: Supplier selection involves identifying and evaluating potential suppliers in order to choose the most suitable ones for a company’s needs. This may involve considering factors such as cost, quality, delivery schedules, and the supplier’s reputation.
Negotiation: Negotiation involves the process of establishing the terms and conditions of a procurement agreement, including the price, delivery schedules, and payment terms. This may involve negotiating with suppliers to secure the best possible terms for the company.
Order placement: Order placement involves issuing a purchase order to a supplier and specifying the goods or services that are being purchased. This may include providing detailed specifications and delivery schedules.
Receiving and inspection: Receiving and inspection involves receiving the goods or services that have been purchased and verifying that they meet the company’s quality and quantity requirements. This may include conducting inspections to ensure that the goods or services meet the specified standards.
Payment: Payment involves settling the financial obligations associated with a procurement agreement, including paying the supplier for the goods or services that have been received.

Overall, procurement is a critical aspect of supply chain management that involves coordinating and managing the purchasing of goods and services from suppliers.

Advantages and Disadvantage

Advantages of procurement and supplier management:

Cost savings: Effective procurement and supplier management can help a company secure better prices for goods and services, as it can negotiate with suppliers to get the best deals.
Quality assurance: Procurement and supplier management can help ensure that a company gets high-quality goods and services by setting strict performance standards and evaluating suppliers based on their ability to meet those standards.
Risk management: Procurement and supplier management can help a company manage risks associated with its supply chain, such as the risk of supplier failure or delivery delays.
Improved efficiency: Procurement and supplier management can streamline the process of acquiring goods and services, making it more efficient and cost-effective.
Stronger relationships: Effective procurement and supplier management can lead to stronger relationships with suppliers, which can be beneficial in the long run.

Disadvantages of procurement and supplier management:

Complexity: Procurement and supplier management can be complex processes, especially for companies that work with a large number of suppliers.
Time-consuming: Procurement and supplier management can be time-consuming, as it involves researching and evaluating potential suppliers, negotiating contracts, and managing relationships with suppliers.
Limited flexibility: Procurement and supplier management can limit a company’s flexibility, as it requires a company to commit to a specific supplier for a certain period of time.
Dependency: A company may become reliant on a single supplier, which can create risks if the supplier experiences problems or goes out of business.
Resource constraints: Procurement and supplier management can be resource-intensive, requiring a dedicated team and budget to manage effectively.

Cost Savings: Procurement and Supplier Management

Cost savings with procurement and supplier management can be achieved in a number of ways:

Competitive bidding: Procurement and supplier management can involve soliciting bids from multiple suppliers, which can help a company secure the best prices for goods and services.
Volume discounts: Procurement and supplier management can help a company negotiate volume discounts with its suppliers, which can lead to lower prices for goods and services.
Consolidation of suppliers: Procurement and supplier management can involve consolidating the number of suppliers a company works with, which can help a company negotiate better prices and terms.
Supply chain optimization: Procurement and supplier management can involve optimizing the company’s supply chain to reduce costs, such as by reducing lead times or minimizing inventory levels.
Improved contract management: Effective procurement and supplier management can involve managing contracts more effectively, such as by negotiating better terms or ensuring that suppliers are meeting their obligations. This can lead to cost savings for the company.

Evaluate Supplier Performance.

In order to get the most out of suppliers it is important to decrease the supplier base and work closely with existing suppliers. Use the following information to evaluate supplier performance.

PRIMARY MEASURES

Price
Financial Feasibility
Attitude
Training Resources
Facility Location
IT Resources
Capacity
Speed
Delivery Performance
Damages
On Time Deliveries
PO Correctness
Stock Out Frequency
Perfect Orders
Product Availability
Dependability
Number of claims/discrepancies
Labor relations

Quality
Past History
Warranties
Costing Procedures
Information Sharing
Company Reputation
Packaging Abilities
Shipping Capabilities
Cycle Time
Facility locations
Product Availability
Flexibility
Reliability
Order Cycle Time
Lead Time
Convenience
Billing Errors
Quality control
Warranties

Questions for Supplier Development/Management

Works closely to lower overall costs
Provides market/product knowledge/information along with service and support
Supplier identifies opportunities to decrease costs and suggests ideas on ways to improve the supply chain.
Performs joint cost-reduction/quality improvement programs
Supplier can deliver products across various geographic regions
Shares data and supplies resources to locate and solve problems.
Deliveries meet deadlines and do not need to be expedited to meet delivery time.
Supplier readily shares cost information.
Recognizes potential opportunities to incorporate new ideas.
Supplier is involved with product in early stages of design
Supplier implements procedures for controlling fluctuations in raw material costs
Provides technical support for production/quality problems
Supplier gives ideas and suggestions during initial stages of product development
Proactive in offering innovative and alternative technologies
Supplier is proactive in finding problems and discovering solutions
Supplier gives feedback on quotations to reduce costs
High interest in joint problem solving.
Reacts quickly and effectively to problems and proactive to finding solutions
Supplier is flexible and adjust to special requests when needed
Responds quickly and effectively under adverse situations.
Supplier keeps the lines of communication open and lets customers know when problems may occur
Expedites emergency orders in a timely manner
Suppliers do what they say and are trustworthy
Proactive in communicating forecasts for planning and deliveries
Suppliers’ technology roadmap aligns with the company’s current IT initiatives
Capable to exchange information through the Internet
Proactive in providing value added proposals
Supplier provides innovative suggestions for improvements and anticipates future problems
Participates in joint development efforts
Provides technological assistance and engineering support
Supplier is willing to provide rapid modeling and prototype capabilities
What is the financial feasibility of the company
What is the vendor’s reputation in the industry
Is the quality worth the price
Is the product over engineered
Does the supplier have a quality system in place
Is there a quality improvement plan in place
Does the vendor meet delivery and cycle time goals
Does the supplier try to reduce lead times
Are there processes for controlling and leveraging raw material cost