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STRATEGY AND PURCHASING

STRATEGY AND PURCHASING. 1. DEFINITION OF NEEDS. 2. SUPPLIER MARKET ANALYSIS. 3. PURCHASING OPTION. 4. SUPPLIER SEARCH & SELECTION. 5. NEGOTIATION & CONTRACT. 6. SUPPLIER MANAGEMENT. B) THE PURCHASING PROCESS. 2. SUPPLIER MARKET ANALYSIS.

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STRATEGY AND PURCHASING

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  1. STRATEGY AND PURCHASING B.GAUCLERE M2 / NEGOCIA 2012

  2. 1 DEFINITION OF NEEDS 2 SUPPLIER MARKET ANALYSIS 3 PURCHASING OPTION 4 SUPPLIER SEARCH & SELECTION 5 NEGOTIATION & CONTRACT 6 SUPPLIER MANAGEMENT B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  3. 2 SUPPLIER MARKET ANALYSIS • Analyzing the supplier markets is key for: • understanding the players • forecasting the main trends • helping clever decision-making • The central tool used for analyzing the market is the Porter 5 forces’ approach B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  4. 2 SUPPLIER MARKET ANALYSIS • legal • technological • political • environmental New entrants B) THE PURCHASING PROCESS Barriers Market rivalry Suppliers Customers Substitute solutions B.GAUCLERE M2 / NEGOCIA 2012

  5. 2 SUPPLIER MARKET ANALYSIS • The supplier market • Organization • Financial concentration • Production capacities • Technology • Quality • Market strategy • Cost structure • Price index and evolution B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  6. 2 SUPPLIER MARKET ANALYSIS • 2. The supplier’s supplier market • Apply the same analysis to the first tier, second tier and third tiers suppliers • Key issues: • Dependency level • Who are the other customers? • Example: Arcelor-Mittal B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  7. 2 SUPPLIER MARKET ANALYSIS • 3. The customers bargaining power • Helps identifying who’s buying to the same supplier(s) • Key issues: • demand market organization • capacity consumption and trends • quality level • Example: car manufacturing and steel B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  8. 2 SUPPLIER MARKET ANALYSIS • 4. Substitute solutions • New technologies / new services available? ? • Other solutions to get the same result? • What are their costs? What is the cost trend? • Availability period? • Who are the potential players? • Example: MP3 players B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  9. 2 SUPPLIER MARKET ANALYSIS • 5. New entrants • Helps identifying who will invest to enter the market as a new supplier • Key issues: • when will they enter? How? • potential impact on strategies? • opportunities? • Example: flat screen TV panel B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  10. 2 SUPPLIER MARKET ANALYSIS • When to perform a market analysis? • For new/urgent projects: • ASAP in order to forecast the market trends and its impact to the decision makers • For ongoing business segments: • At least one yearly review • Before defining the segment’s strategy • Before renewing a contract B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  11. 2 SUPPLIER MARKET ANALYSIS • Why performing a market analysis? • To identify market trends • To bring information on impact of technical decisions to the decision making people (the buyer’s network) / to help influencing the decisions • To define an ad hoc purchasing strategy per segment B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  12. 2 SUPPLIER MARKET ANALYSIS • How to get the information? • Identify a couple of suppliers: discuss with them, crosscheck information on market trends • Take subscriptions of specialized magazines • Subscribe to one or two professional federations/unions • Identify specialized Websites • Identify internal sources: sales, marketing, finance, IT …. they often have their own information sources B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  13. 1 DEFINITION OF NEEDS 2 SUPPLIER MARKET ANALYSIS 3 PURCHASING OPTION 4 SUPPLIER SEARCH & SELECTION 5 NEGOTIATION & CONTRACT 6 SUPPLIER MANAGEMENT B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  14. 3 PURCHASING OPTION • Once the supplier market has been analyzed, you have enough information to decide which purchasing option you will take per segment. • A purchasing option is a general guideline for purchasing based on: • Level of spend of the segment • Supplier’s market profile and access B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  15. 3 PURCHASING OPTION C SEGMENTS D SEGMENTS B) THE PURCHASING PROCESS - Annual spend + A SEGMENTS B SEGMENTS - Supply risk + B.GAUCLERE M2 / NEGOCIA 2012

  16. 3 PURCHASING OPTION C Use purchasing power Immediate savings Suppliers’ competition Cost analysis Imposed productivity LCC use D Long term savings Partnerships Supplier’s integration Project management Risk management Strategic control B) THE PURCHASING PROCESS - Annual spend + A Simplify process E-procurement E-catalogues Standardization outsourcing B Secure supply / avoid costs Long term agreement Alternative supplier Functional analysis Safety stock Bonus / penalties optimization - Supply risk + B.GAUCLERE M2 / NEGOCIA 2012

  17. 1 DEFINITION OF NEEDS 2 SUPPLIER MARKET ANALYSIS 3 PURCHASING OPTION 4 SUPPLIER SEARCH & SELECTION 5 NEGOTIATION & CONTRACT 6 SUPPLIER MANAGEMENT B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  18. 4 SUPPLIER SEARCH & SELECTION Once the supplier market analysis is done and the purchasing option is selected, you enter the « technical » phase of the procurement process: searching and selecting the supplier(s) you intend to work with. This stage is also called SOURCING. B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  19. B) THE PURCHASING PROCESS 4 SUPPLIER SEARCH & SELECTION SEARCH CRITERIA DEFINITION STEP 1 SEARCH FOR POTENTIAL SUPPLIERS STEP 2 RFI STEP 3 NEEDS MET? YES SITE VISIT STEP 4 NEEDS MET? YES RFQ STEP 5 ELIGIBLE? Current suppliers STEP 6 YES SUPPLIER SELECTION PORTFOLIO MANAGEMENT STEP 7 B.GAUCLERE M2 / NEGOCIA 2012

  20. B) THE PURCHASING PROCESS 4 SUPPLIER SEARCH & SELECTION Search criteria Company’s purchasing guidelines Purchasing strategy per segment Technical needs per segment • Financial situation • Minimal size • Maximum share with one customer • Quality certifications • Ethical charter • Environmental constraints • Ownership • Capacity • Location • Logistic features • ... • Equipment type • Process type • R&D capacity • Patents • Logistics • ... B.GAUCLERE M2 / NEGOCIA 2012

  21. B) THE PURCHASING PROCESS 4 SUPPLIER SEARCH & SELECTION Criteria definitionGO / NOGO preselect / discard supplierIMPORTANT select supplierSECONDARY define supplier’s share B.GAUCLERE M2 / NEGOCIA 2012

  22. B) THE PURCHASING PROCESS 4 SUPPLIER SEARCH & SELECTION Potential suppliers’ analysis using weighted selection criteria Poids : 1– 2 - 3 B.GAUCLERE M2 / NEGOCIA 2012

  23. B) THE PURCHASING PROCESS 4 SUPPLIER SEARCH & SELECTION SEARCH CRITERIA DEFINITION STEP 1 SEARCH FOR POTENTIAL SUPPLIERS STEP 2 RFI STEP 3 NEEDS MET? YES SITE VISIT STEP 4 NEEDS MET? YES RFQ STEP 5 SELECTABLE? Current suppliers STEP 6 YES SUPPLIER SELECTION PORTFOLIO MANAGEMENT STEP 7 B.GAUCLERE M2 / NEGOCIA 2012

  24. STEP 2 – Search for potential suppliers • Start with« generalist » sources • Generalist directories, … • Professional directories • Chambre of Commerce directories … • Specialized sources • Specializedpress–from international to local • Shows, fairs, exhibitions • Consultancy • WEB sources • Specializedportals and Marketplaces • Yourpotentialsuppliers’websites • Yourcompetitors’websites • Informal sources • Associations (buyers groups) • Personal contacts • Company’sinternaldatabase B.GAUCLERE M2 / NEGOCIA 2012

  25. STEP 2 – Search for potential suppliers • Most of available sources will provide you with generic data such as Name, Address, Turnover, business area … • Is it enough to decide whether the supplier meets / doesn’t meet your company’s requirements? • NO !!! B.GAUCLERE M2 / NEGOCIA 2012

  26. B) THE PURCHASING PROCESS 4 SUPPLIER SEARCH & SELECTION SEARCH CRITERIA DEFINITION STEP 1 SEARCH FOR POTENTIAL SUPPLIERS STEP 2 RFI STEP 3 NEEDS MET? YES SITE VISIT STEP 4 NEEDS MET? YES RFQ STEP 5 SELECTABLE? Current suppliers STEP 6 YES SUPPLIER SELECTION PORTFOLIO MANAGEMENT STEP 7 B.GAUCLERE M2 / NEGOCIA 2012

  27. A questionnaire has to be used to obtain detailed information about the supplier in order to: Feed a structured database Decide whether the supplier meets minimal criteria to become a potential supplier The typical questionnaire will have 2 parts: GENERAL INFORMATION: whoever the supplier is SPECIFIC INFORMATION: for a given family or segment STEP 3 – Get information Building a questionnaire B.GAUCLERE M2 / NEGOCIA 2012

  28. B) THE PURCHASING PROCESS 4 SUPPLIER SEARCH & SELECTION SEARCH CRITERIA DEFINITION STEP 1 SEARCH FOR POTENTIAL SUPPLIERS STEP 2 RFI STEP 3 NEEDS MET? YES SITE VISIT STEP 4 NEEDS MET? YES RFQ STEP 5 SELECTABLE? Current suppliers STEP 6 YES SUPPLIER SELECTION PORTFOLIO MANAGEMENT STEP 7 B.GAUCLERE M2 / NEGOCIA 2012

  29. STEP 4 – site visit Building a process for the visit The supplier’s site visit (for those meeting the criteria built in the questionnaire) is a KEY part of the sourcing process as it allows to: • Check the accuracy of data given by the supplier • Introduce your company and its needs, strategy... • Ensure feasibility of a futurecollaboration • Check their capacity (eye-witnessing) • Check their strategy and their real will to work with you B.GAUCLERE M2 / NEGOCIA 2012

  30. STEP 4 – site visit Building a process for the visit • Before the visit: • Set the targets • Gather existing data about the supplier • Identify people to meet (sales, but also: top management, quality, R&D, production, purchasing, etc.) • Organize a programme / structure the visit and send these informations to the supplier • Obtain the supplier questionnaire (filled!) • Prepare the bid • Prepare a presentation of your company, your purchasing policy and process, bring samples, etc.… B.GAUCLERE M2 / NEGOCIA 2012

  31. STEP 4 – site visit Building a process for the visit • During the visit: • Stick to the agenda • Search for any available information (documents, notes….) • Write a report with the supplier • After the visit: • Debrief with the people present during the visit • Complete the visit report and dispatch it • Settle an action plan: what are the next steps the supplier is supposed to follow? B.GAUCLERE M2 / NEGOCIA 2012

  32. STEP 4 – site visit Analyze financial situation Be sure there are no supply risks (short & mid terms) WHYI Use your company’s financial analysis tools Use financial services providers (Dunn & Bradstreet) HOW Starting at first visit with a regular follow-up in case of common work WHEN B.GAUCLERE M2 / NEGOCIA 2012

  33. B) THE PURCHASING PROCESS 4 SUPPLIER SEARCH & SELECTION SEARCH CRITERIA DEFINITION STEP 1 SEARCH FOR POTENTIAL SUPPLIERS STEP 2 RFI STEP 3 NEEDS MET? YES SITE VISIT STEP 4 NEEDS MET? YES RFQ STEP 5 SELECTABLE? Current suppliers STEP 6 YES SUPPLIER SELECTION PORTFOLIO MANAGEMENT STEP 7 B.GAUCLERE M2 / NEGOCIA 2012

  34. STEP 5 – analyse a proposal To know the supplier’s price level compared to the market price and to our targets WHY In asking an RFQ on already existing parts (1rst stage) HOW For standard products –after the questionnaire For complex products – after the first visit WHEN B.GAUCLERE M2 / NEGOCIA 2012

  35. B) THE PURCHASING PROCESS 4 SUPPLIER SEARCH & SELECTION SEARCH CRITERIA DEFINITION STEP 1 SEARCH FOR POTENTIAL SUPPLIERS STEP 2 RFI STEP 3 NEEDS MET? YES SITE VISIT STEP 4 NEEDS MET? YES RFQ STEP 5 SELECTABLE? Current suppliers STEP 6 YES SUPPLIER SELECTION PORTFOLIO MANAGEMENT STEP 7 B.GAUCLERE M2 / NEGOCIA 2012

  36. STEP 6 – supplier selection Listed and potential suppliers Listed supplier(s) track record Potential suppliers’ analysis using selection criteria Strategic fit analysis Most valuable suppliers Preferred suppliers’ list B.GAUCLERE M2 / NEGOCIA 2012

  37. Potential supplier analysis using selection criteria - EXAMPLE SCALE: 1 insufficient – 5 excellent Weight : 1 low importance – 3 great importance B.GAUCLERE M2 / NEGOCIA 2012

  38. Strategic fit analysis for suppliers acting on strategic segments • Supplier / company fit has to be examined in order to give an idea on how the relationship may evolve on time • An analysis needs to be run with each listed and potential supplier in order to identify strategic segments and bottleneck segments B.GAUCLERE M2 / NEGOCIA 2012

  39. How to measure the supplier’s fit? • Strategic fit : • What is the supplier’s general strategy (quality, innovation, costs, geographical location , growth, etc.) ? What is its strategy against your area ? Our competitors ? Is there a link with your company’s strategy ? • Has the supplier the right capacity and motivation to implement cost reduction plans ? • What is the level of risk in terms of dependency ? • Technological fit : • Is the technology / process of the supplier compatible with your current needs? Future needs? • Cultural fit : • Is the supplier’s culture fitting yours? Are there serious communication issues? Is its organization adapted to the type of relations you want to develop with him? • Is the management of this supplier a difficult task for your company ? B.GAUCLERE M2 / NEGOCIA 2012

  40. Strategic / critical suppliers • Critical supplier : • You cannot avoid working with him. • You’d like to change but it’s difficult : high switching costs,, technological dependency, dependency on capacities. … • Past decisions can explain today’s situation • Strategic supplier: • You chose him ! • You know WHY you want to work with him • This supplier will bring VALUE to your company in the future B.GAUCLERE M2 / NEGOCIA 2012

  41. How to measure the supplier’s fit? • The relationship with the supplier depends on the ATTRACTIVENESS of both parties towards each other HIGH STRATEGIC FIT Having our company As a customer has a strategic importance LOW HIGH LOW The supplier has a strategic importance for us B.GAUCLERE M2 / NEGOCIA 2012

  42. Conclusion • Companies need a preferred supplier basis meeting the company’s requirements • The sourcing process needs to be structured. • Companies also need suppliers considering them as preferred customers B.GAUCLERE M2 / NEGOCIA 2012

  43. 1 DEFINITION OF NEEDS 2 SUPPLIER MARKET ANALYSIS 3 PURCHASING OPTION 4 SUPPLIER SEARCH & SELECTION 5 NEGOTIATION & CONTRACT 6 SUPPLIER MANAGEMENT B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  44. 6 SUPPLIER MANAGEMENT Cost management and TCO Imposing permanent reductions on prices has put enormous pressure on the suppliers’ shoulders. In the recent period, it has favored bankruptcy of many suppliers as they hadn’t enough cash to stand a severe drop in activity A more balanced approach will use TCO B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  45. 6 SUPPLIER MANAGEMENT Cost management and TCO TCO (Total Cost of Ownership) has been created by the Gartner Group in 1987. It represents the total cost associated with a product or a service during its whole life cycle, including pre-acquisition, acquisition, use, maintenance and disposal. B) THE PURCHASING PROCESS B.GAUCLERE M2 / NEGOCIA 2012

  46. B) THE PURCHASING PROCESS 6 SUPPLIER MANAGEMENT How does a TCO look like? UPSTREAM COSTS NOT VISIBLE PURCHASING COSTS VISIBLE DOWNSTREAM COSTS PARTLY VISIBLE B.GAUCLERE M2 / NEGOCIA 2012

  47. B) THE PURCHASING PROCESS 6 SUPPLIER MANAGEMENT PURCHASING COSTS Raw material Production Amortizing Fluids Overhead Sales/marketing costs Logistics Profit B.GAUCLERE M2 / NEGOCIA 2012

  48. B) THE PURCHASING PROCESS 6 SUPPLIER MANAGEMENT UPSTREAM COSTS Definition of requirements Suppliers’ sourcing process Product’s qualification B.GAUCLERE M2 / NEGOCIA 2012

  49. B) THE PURCHASING PROCESS 6 SUPPLIER MANAGEMENT DOWNSTREAM COSTS Administrative costs (issuing order, invoice, Order follow-up) Delivery Insurance Payment terms Installation Maintenance Warranty Supplier management Usage Recycling Disposal Contract Internalpolicies Non-quality Non-delivery B.GAUCLERE M2 / NEGOCIA 2012

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