NEW PROCUREMENT STRATEGIES

New Procurement Strategies



New Procurement Strategies

Introduction

With the numerous benefits of implementing a procurement management process, the negative aspects of keeping things the way they are become clear. We are wasting time and money by allowing our project managers to do their own purchasing. We are not forming relationships with any vendors. It is unclear how much money is being wasted by duplicate purchases, or supplies that could have been bought in bulk. We are not able to track costs, and evaluate our vendor costs because we have no idea what each project manager is paying for their services. Once our procurement management process is in place we will be able to do this through reverse auctions which will track supplier's costs and see if they live up to our expectations.

Increased competition, new technologies, and rapidly changing global markets are forcing businesses to identify strategies for continuously improving their productivity and cost management. Web-based procurement emerges as a powerful strategy to attain these goals. For example, Digital Buyer, a solution developed by Digital Market Inc. (now part of Agile Software), offers a comprehensive enterprise application suite for Internet-based sourcing and supply chain optimization for direct materials. By facilitating quote and order transactions, it helps manufacturers speed new product introduction to boost product revenue and enhance customer satisfaction, while at the same time, cut direct material costs to improve profits. Many other online exchanges that focus on connecting buyers with potential sellers for the exchange of indirect materials, such as www.insurance.com (insurance policies), www.bridgepath.com (IT contract staffing), and www.noosh.com (printing services), report of substantial cost savings that their customers have realized by using their services. Research conducted by Aberdeen Group indicates that early adopters of e-procurement strategies have realized significant reductions in purchasing costs, with most user organizations realizing a return-on-investment of greater than 300% in Internet procurement automation within the first year of deployment. E-procurement solutions help buyers to reach a large number of potential suppliers and thus negotiate better contract pricing. In addition, automating direct procurement reduces the cycle time, making a manufacturer more responsive to the market. Given the low vendor search cost, implementing an e-procurement strategy is likely to result in higher profits. A recent survey conducted by Deloitte Consulting reports that more than 90% of businesses indicate that e-procurement is a part of their on-going business plan, with more than 30% having already implemented this new capability to some degree.

On the other hand, a long-term relationship with a single supplier has its own advantages. Some of them might be harder to quantify, such as a potential for higher quality. But even when decisions are solely cost driven, working with a single supplier might still be valuable; a long-term contract substantially reduces cost uncertainties and provides an incentive for the supplier to lower prices so as to secure the sale. For example, Varian, a manufacturer of semiconductor processing equipment, reports that implementing a value managed relationships strategy where close relationships are established and maintained with a reduced ...