Efficiency and Cost Optimisation - Procurement, Purchasing and Tendering

Following the previous articles about Efficiency and Cost Optimisation published on March 1 and March 15, 2010, we continue in this issue on procurement and purchasing.

(Source: Spiralis s.r.o.)

Following the previous articles about Efficiency and Cost Optimisation published on March 1 and March 15, 2010, we continue in this issue on procurement and purchasing.

Effective procurement and purchasing can be an extremely powerful source for achieving your competitive advantage. Why? Read more, please.

What is procurement and purchasing?
Briefly and pragmatically, procurement and purchasing represent activities aimed at creating and delivering an adequate base of inputs (materials, services, personnel resources, etc.) in order to support the company’s business and strategy. We underline “to support the company’s business and strategy”, as this is essential.

Why is it a powerful source for your competitive advantage?
There are several reasons. The main one is represented by the results that can be reached by effective procurement and purchasing?
Basically, there are 4 main results:
1. cost savings
2. profit increases
3. quality improvements
4. flexibility in processes

It is known among professionals that sound procurement and purchasing can have a great impact on a company’s profitability. The great advantage is that any savings achieved go directly onto the ‘bottom line’. Some experts say that thanks to effective procurement, companies can save up to 30% of costs and double their profit. We can confirm that this is really true.

How does it work then?
Major tools and aspects of effective procurement and purchasing are:
Buying methods
Cost reduction techniques
Price determinations.

One of the most interesting and popular parts of procurement is tendering – the procedure by which potential suppliers are invited to provide the company with their offers for services or materials, specifying price, quality and other aspects that would become, after negotiations, the potential base for a future contract and cooperation.

If you want to act professionally in this area, you should follow some basic requirements of

Many suppliers
Clear specifications
Capable suppliers
Suppliers who want the business
Sufficient time
Correct criteria for selection.

Many times companies are faced with problems in choosing the correct criteria for selection of the best supplier. The general problem is that purchasers simply do not know the scale of the criteria they can select from.
Here are some of the most important criteria for selection of your supplier:
Previous supplier history
Quantity required
Base price
Price for extras
Quoted delivery
Technical specifications and quality
Payment terms
Exchange rates in case of foreign suppliers
Transportation and insurance
Installation and trainings
Warranty period and conditions
Availability of spares.

Last but not least: be very careful in evaluating price issues.
This is a very common mistake in procurement and tendering. Keep in mind that the purchase price does not mean the total costs – it is only the tip of the iceberg. The total costs include also delivery, support, defective work, trainings, maintenance, inventory costs, delays costs, inspection, handling, managers time, etc.

A final advice: Do not decide based only on a low price that a supplier is offering; always calculate the total acquisition costs.

In the next article on April 19 we will take a careful look at cost management.

Author: Marek Fajčík, Spiralis s.r.o.,

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