The Procurement and Supply Manager's Desk Reference

Fred Sollish, John Semanik

• Publisher: Wiley
• Year: 2012
• ISBN:
  9781118238493
• Edition: 2
• Topic: Business
• Subtopic: Contabilità gestionale
• Index: Business

Every supply manager's essential desktop tool with in-depth, authoritative coverage of each topic

Leaving no stone unturned in covering all aspects of the procurement and sourcing functions, The Procurement and Supply Manager's Desk Reference, Second Edition is filled with everything every organization needs to know about the key roles and responsibilities of a procurement professional. Presented logically to match the flow of the procurement and sourcing functions, the book is filled with practical aids such as step-by-step guides to each segment of the process, as well as checklists and customizable forms. The new edition of this essential book provides an easy-to-use road map for the procurement and supply manager in the new millennium.

• Coverage on how to select suppliers and measure performance
• Reveals the easiest way to drive continuous improvement in the supply base
• Features tips on providing value to the organization
• Helps you identify those strategies that will work best for your business for years to come

Written for the worldwide profession of procurement and supply management, The Procurement and Supply Manager's Desk Reference, Second Edition offers detailed coverage and tips with an eye toward incorporating proactive strategies and best practices.

CHAPTER 1
Procurement and Best Business Practices

The role of the procurement and supply management professional is rapidly changing. While in the past the procurement professional's area of responsibility was clearly relegated to efficient “processing” of purchase orders, the pace of today's business environment has expanded that role to control of the entire sourcing and acquisition process. To be successful in this rapidly changing, dynamic marketplace requires not only the traditionally disciplined approach to managing critical business relationships but also the ability to quickly understand and employ strategic new methods and technology. Procurement professionals today must have the ability to assess and respond effectively to current market conditions and the foresight to envision the future needs of the organization, setting into motion plans that will respond to the changing dynamics of the continually reinvented organization. Indeed, today's procurement management professional must be a master of change. And to facilitate that dynamic of change, the procurement professional must also be a master of best practices—methods shown to provide outstanding results—to continually ensure that change drives improvement in the business process and does not simply replace one poorly functioning system with another poorly functioning system. That is why we begin this Desktop Reference by reviewing the key elements of those processes and best practices that are fundamental to excellence in procurement.

Understanding Procurement

Effective procurement requires the utilization of sound business practices that maximize value to the organization through the acquisition of goods and services. This follows the old adage that the Procurement Department's role is to deliver the right material (or service) in the right amount to the right place at the right time and at the right price. You can do this by employing well-conceived strategies—a plan to enhance competitive bidding, for example—that leverage clearly defined processes to manage the supply base. As a procurement professional, you will be expected to conceive and implement strategies that employ best practices.

Employing best practices in procurement ensures that the procurement professional and ultimately the organization make correct decisions. This means that an organization must develop plans that are in alignment with its goals and best interests. Frequently, these plans evolve from well-defined sourcing strategies developed to help the organization achieve its overall objectives. In turn, sourcing strategies rely on a clear set of tactical procedures to ensure their implementation. At the root of these tactical procedures are the day-to-day methods the organization employs to convey its requirements to the supplier. Many organizations refer to these processes as standard operating procedures (SOPs) and maintain them in formalized document libraries.

Understanding and Conveying Requirements

Sound business practice requires that you understand and can clearly describe to a prospective supplier the requirement of your purchase. Unless you can describe to a supplier exactly what you need, the procurement process will not be successful. As we will detail below, this description often takes the form of a specification for materials or a statement of work (SOW) for services. Most commonly, it is the internal user who generates this information—often called a requirement—and it is the procurement professional's responsibility to ensure that it is properly conveyed to the supplier in the procurement document (such as the purchase order or contract). In the case where a purchase is particularly complex, the process of stating organizational needs is so critical that you may find a face-to-face meeting with your supplier is in order. That way, you can ensure that there are no misunderstandings or faulty interpretations of the requirement. A well-developed and well-stated requirement describing exactly what it is you expect to receive is the key to successful procurement. For this reason, you must ensure that there are systems in place that accurately convey the needs of your customers to you so that you can formalize them into a contract or purchase order. At the minimum, you should include the following elements in your procurement documents when stating requirements.

Material or Service

Describe exactly what it is you expect to receive from the supplier. This description can be provided in the form of a specification, an SOW, a drawing, a part number, or the nomenclature of an off-the-shelf or brand name part. Generally, we use a specification to describe a material requirement and an SOW to describe a service. Along with the stated quantity and the quality of the purchase, this can be the basis for approving payment and must be easy for third parties such as receiving personnel, finance, and auditors to understand after the transaction is completed.

Specification

A specification contains a technical description of the material being purchased. In its simplest terms, it can be a reference to a supplier's stock number or a brand name. It can also refer to an engineering drawing (or a set of drawings) provided by the internal user that shows the part or assembly with call-outs for the type of materials required and all necessary dimensions to produce the part. Or, in the case of chemicals and other formulated and processed materials, the specification can be tendered as a recipe or in a compositional format.

Statement of Work (SOW)

Unlike a specification, the SOW describes the requirements for a service. It may be stated in detailed and prescriptive format, describing not only what needs to be done but the method to be used (called a design specification) and how often the service must be done as well. Or it may simply be stated in terms of expected outcomes. Frequently, the SOW also contains a set of metrics describing the level of performance required (called a performance specification). The measurements used to determine the level of performance needed for a specific element are called key performance indicators (KPIs) and are often used to assess any performance requiring corrective action or, conversely, when an incentive bonus may be due.

We'll discuss the SOW in greater detail in Chapter 2, “Sourcing Management.”

Time of Performance

This indicates the date when you expect to receive the product or service you're procuring in the procurement document. The document must clearly state delivery or work completion dates so that the supplier understands precisely when performance is required.

Expressions such as “Rush” or “ASAP” are inappropriate because they can be open to a variety of interpretations. It requires only a little more effort to specify an exact date. Consider calling the supplier to determine the earliest possible date and pass that along to your internal customer. If the proposed date is acceptable, it should then be included in your procurement document.

Price and Payment Terms

You'll need to include exactly how much your organization has agreed to pay for ...