English Articles

15 large errors in procurement management

The procurement management used to be an activity that required no more effort. The offer was designed  in relation to the best-selling products, adding an amount that would respond to an unexpected increase in demand.

Globalization markets have diametrically changed since the time of the industrial revolution, which established the foundations of Western consumerism; globalization as a dynamic process and constant has developed on customers needs that remained hidden and determine the opportunity to establish strategies to strengthen the symbiosis of the availability of inventory and the satisfaction of the consumers, generating errors that often are originated in the procurement management, diminishing financial and operating results.

Because of the growth of markets appear new sourcing models. The procurement technicians, as their main managers, are vulnerable to assume as their own to extend them in their functions, designing methods that wear out the relationship with suppliers and the objectives with inventory levels. We can identify 15 errors to which they are exposed and measures that should be considered in favor of a supply without bias.

By the Suppliers

1. No policies in procurement. The policies represent a set of rules that must be fulfilled in the process regarding to the conditions of purchase cost, choice of suppliers, service level, warranties, financing and operating modalities such as credit notes and returns (among other issues).

2. Not standardize suppliers. To develop a standardized supplier profile allows us to measure the capacity in the management of information, response, availability of materials and reliability in delivery times. To work under unequal parameters, there is a high degree of risk exposure on the quality of materials and services that require our customers.

3. Only providers should visit us. Have you received proposals from suppliers able to cater all kinds of products?. It is a constant to understand the supply activity as if the suppliers were our assistants in the task. Have you ever left the comfort of your desktop to visit suppliers?, and what a surprise for you¡¡¡¡. Mostly, the procurement area assumes the role of commercial brokers forgetting the inventory and risking the capability to respond to unexpected changes in the market.

4. Not evaluate the performance of suppliers. It is necessary to keep track of quantitative/qualitative evaluation for each supply of providers considering factors such us delivery times, attended quantities, product and logistics quality, trade compliances among others, providing the measurement to the suppliers periodically with the necessary recommendations to strengthen the commercial relationship.

5. Do not exchange information. It is a determining function in the planning of the supply. Through the advance of our purchasing forecast to the suppliers, gives the advantage to establish supply schedules and increase the benefit and confidence of both parts.

6. Limit the negotiating to discounts. When products are not considered critical or not exposed to scarcity, it is necessary to assess the impact on the increase in the volume of purchase by discounts in unit cost. These proposals hidden in its essence surplus inventories, which can increase other costs – storage, finance.

7. The procurement process does not end in the purchase order. Many buyers respond to customers; “that purchase order has already been generated and have to wait until the supplier attend it”. This kind of response upsets all requesting because of the absence of visibility. It is important to enforce the agreements established in the order purchase. The control over the supplier process is a vital part to ensure the availabity of the product when are requested by the customers.

By the Products

8. Ignore turnover. Products, the key elements of our business, are the starting point to determine the frequency and quantities to purchase. To identify high and low turnover items, where the first must have a special treatment with strategies that guarantee the availability of the inventory. For items with low turnover, investment immobilization should be avoided.

9. Manage all items equally. In order to categorize items, we can use tools as the Pareto principle,  ABC model and the rates of turnover. All of them will help us like sources of information for decision-making in the supply process. We can also set up subcategories according to the functions in the company, finding seasonal, spare parts, obsolescence, new developments, etc,. These subcategories can determine different premises for the sourcing.

10. Discard items of low turnover. A premature decision is to get rid of low turnover items of the inventory. If we deeply study its performace, among them we could find seasonal, critical or sensitive to the shortage items. Therefore, it is important to maintain in inventory quantities that attend the demand for these items.

11. Errors in the catalog. The creation of the internal item codes must be a central task of the procurement department. This area has the technical and functional information to identify items with similar features created previously. To ignore or simplify the degree of complexity of this activity can duplicate inventory using two different item codes (or more) for the same product.

12. Logistics must also project the demand. Procurement department should combine efforts with internal and external customers to anticipate and attend the demand. To reach it, should participate functions as receiver of information using programming models of inventory with low margin of error.

13. Work without inventory alerts. Through the inventory levels, we can minimize surpluses and stockouts. The maximum stock will enable us to have the amount needed to cover the demand and the safety stock. On the other hand, the minimum stock alert us to carry out the replacement avoiding stress situation in the inventory and the further stockout.

14. 100% service level?. It is a paradox, but keeping the capability to attend everything our customers need, it is not the most appropriate policy. We will face possible immobilizations of low rotation inventory, increasing the inventory costs by obsolescence, warehousing, urgent transports, etc.

15. Management without indicators. Dashboards and key performance indicators will allow us to concentrate our efforts on the 14 previously identified errors.

We experience constant changes in the market competition. The organizations must leverage the opportunities that emerge from new resources (I&T, Collaborative relationship, Internet, etc) for building a dynamic network with suppliers that promotes a long-term relationship.

Original source in spanish: Click here

Marco Espejo González
Administrador por la Universidad de San Martin de Porres con post grados en Gestión de la Cadena de Suministros por la misma Universidad y Centrum Católica, investigador y columnista logístico en revistas especializadas en la materia de México, Chile, Perú y Argentina, colaborando también para el Diario La Nación de Argentina y Gestión de Perú. Conferencista en Lo Mejor de la Logística III 2011 – Universidad de Lima, Expo Logística Panamá 2012, II Seminario Logístico del Sector Eléctrico – Perú 2012 y Logistic Summit & Expo México, Workshop Asociación Peruana de Profesionales en Logística – Universidad Pacifico 2013. Experiencia de 9 años en áreas de gestión de stocks y procesos, participando como consultor en más de 25 proyectos, incluyendo México y Panamá, en el ámbito académico como docente en materias de pre grado y programas de especialización.

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