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No company can engage in high efficiency, high productivity business with a poor supply chain, which could be the proverbial weak link prone to disruption.
Not too long ago, Sourcing and Procurement activities went under the nomenclature of Purchase Department, which was considered a staid place with the boring job of identifying suppliers to make the necessary purchases for an organisation. This led to many inefficiencies in the system mainly caused by lack of planning, ad hoc decisions and ill-conceived cost saving measures that invariably compromised quality. There was also the time lost due to the long winded process of documentation which was difficult to track and monitor. Not any longer. Today companies view Sourcing and Procurement strategies as an important activity that has a direct bearing on the bottom line with a procurement strategy in place for better supply chain sourcing. The goal is to reach better operational efficiency. The cost saving now happens with a well experienced supply chain partner, economies of scale and greater transparency in the process.
Planning, or the lack of it, is at the root of most problems. It is more so, when it comes to a business activity, so gathering of requirements becomes important before any further step is initiated when it comes to the procurement process. A good sourcing strategy must start with requirements gathering, understanding what the process or plant actually needs – the correct type of machines, spare parts, components or consumables. It is important to have all stakeholders within the organisation on the same page, with proper documentation of the requirements to avoid such problems. Manufacturing today is all about high precision and quality control. The list of requirements made should be referred for cross checks and confirmation before a vendor is identified and order placed. The nature of product or service requirements vary, but the process remains the same.
The first step in problem solving is identifying the problem. If there are inefficiencies in the process that adversely affect production, start by identifying those inefficiencies with a complete review of the process. Lack of planning is already cited in the preceding paragraph, so to improve the efficiency of the process, establishing the correct procedure is a must. Start by making a list of: machines and equipment if expansion is on the anvil; spares and consumables required for routine maintenance; provision for critical components in stock for emergency breakdown. Anticipate the requirements in cases of natural disaster or things beyond the control of the management like supply chain disruptions. A proper risk assessment and management policy is a must to ensure better productivity. Similarly, identifying the required vendor base – large enough to divide the risks but not a huge one that adds to cost and confusion – a consolidation of suppliers to ensure economies of scale as well as improved product or service quality. Arriving at the optimum size of the inventory is equally important. A good understanding with the suppliers with clear communication helps a great deal. There is also the matter of resource allocation – based on anticipated requirements and past experience – that can only be established through proper documentation. Maintaining productivity and efficiency is the primary goal of an effective supply chain.
No company can engage in high efficiency, high productivity business with a poor supply chain, which could be the proverbial weak link prone to disruption. The cost of the supply chain is an important factor and often organisations do not calculate these correctly by failing to consolidate all the impacting factors. It is not just the cost of sourcing and purchase alone but the entire cost of overheads engaged in the procurement process as well as the transportation and delivery of shipments. A good job done in negotiating the cost of goods can be undone by high transportation charges. A proper sourcing strategy takes into account the total cost of procurement.
An important consideration today is outsourcing of procurement functions to professional company, which many businesses adopt as part of strategic sourcing. This lends an unbiased perspective to the procurement process with better professional expertise and greater transparency. The company can have control over the process by creating an oversight team to liaise with the outsourcing firm and draft a proper framework with contractual obligations. Either way, the success of a business depends much on creating an effective supply chain.
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