In a recent conversation with a colleague, I was asked for guidance on the best practices for commodity purchases. I sort of then pivoted into the difference between purchasing and procurement as it relates to commodities.
For our seasoned professionals in procurement and supply chain management, we know there’s a difference. A matter a fact, please check out our learn at your own paced course ‘Getting it Right – Strategic Sourcing Insights’ for detailed information on this topic.
Whenever I train Teams on matters of procurement categories, the tactics tend to vary however the process generally includes key steps in procurement such as proper planning and best selection of procurement method that reflects market conditions.
Procurement - Annual outlook/Contracts
At this level, significant decisions are made around aligning procurement and supply chain decisions to the overall corporate objectives. This is where we set the budget and keep an eye on where we are against this budget. The Strategic Sourcing course mentioned above, goes in more detail. Here are some summary steps to consider:
- Review data on historical usage and sales trends for demand planning re annual volume.
- Insights: review market research and periodical reports.
- Execute Request for Information actions if needed and use this information to formulate a solicitation document that considers existing risks.
- Solicitation planning - often using restricted bidding or open competitive depending on the commodity. Unless proprietary materials are at play, I tend to prefer competitiveness as default.
- Review and assessment of bid submissions. This part here can be tricky, try to ensure you have an evaluation team ready in advance for faster decisions, as well as clear bid evaluation criteria.
- Contract award decisions. Choose a contract award-criteria and use it to conclude the process of buying your commodity. Depending on what you’re buying, you may just use least cost. However based on supply complexities and varying technology in the marketplace, there is some value to derive from using most advantageous economic tender (in some circles we say “most advantageous tender”.
- Monitor global market trends such as inflation, government policy (e.g. export restrictions) - to execute pricing orders. Depending on your pricing model, you may not have fully priced your commodity at the time of contract award. It is very important to keep an eye (or two) on this right here. Geo-political tensions can swing markets before you blink. Know your budget and make the bests decisions around what you’re willing to pay.
- Contract management actions (data-driven)
- Produce reports for improvement actions!
The course ‘Getting it Right – Strategic Sourcing Insights’, goes in more detail on many of the above.
Purchasing - Transactional, short-term
- Provide forecasts to awarded supplier(s).
- Create and issue single delivery or blanket purchase orders.
- Confirmation of purchase order (PO) receipt (e.g. via a sales acknowledgement). This here is important as our suppliers can make mistakes. After all, we are human beings.
- Check pre-arranged supplier delivery schedules to verify shipment has been prepared and match PO with tracking number (e.g. bill of lading (BL) #, air way bill (AWB) #, booking #).
- Track your shipment! This is important and frequency is dependent on internal company policy. We at The Shelf, recommend this being done weekly as global logistics has become very complicated causing shipment delays. Several delays can be seen in a single week.
- Update ETA information in your database. Check us at The Shelf for interactive dashboards that helps you to manage this part of the process with increased shipment visibility and root cause analysis for delays!
- Documentation - check, review and take actions! Yes, these documents will not review themselves and it is important that commercial invoices, packing lists and accurate transportation documents (e.g. bill of lading) are in place to clear your shipments.
- Confirmation of delivery - it is important that shipments are closed-out in the software used to create the purchase order, a task often done by your Warehouse Team. Also ensure that your stakeholders are aware that the shipment is here. If your warehousing solution is not digital or does not automate the dispatch of this information, then have a conversation with the Team here at The Shelf!
- Delivery non-conformances - things will not always go well. Packages break, quantities arrive short, sensitive products may arrive spoilt before their best before date, the list is long. When these issues arise, ensure you follow internal company policy to get them resolved as quickly as possible to the tune of a credit note or shipment replacement. Depending on the issue, it can mean your inventory is significantly affected!
- Payment - like a true procurement to pay (P2P) process, our partners need to be paid! We used the term partner here because our suppliers are more than a transaction. They are partners with bills to be paid. Credit terms are often extended to us on good faith that we will pay on time, so let us do exactly that and ensure that payment delays or issues are resolved promptly. I always ask my suppliers, "are you being paid on time," and I do it genuinely.
The Shelf Procurement Solutions Limited helps with data driven insights geared towards improving objectives in procurement and supply chain management. These include risks reduction, improving competitiveness, reducing staff workload, improving internal customer service, setting and achieving key performance indicators (KPIs) such as YOY costs savings etc. Connect with me to have a conversation.
Author: Sandre Lowers, Director – Corporate Procurement at TSPSL