Procurement and Contract Management

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Procurement and Contract Management Services


Procurement – process & organizational business development.

We assess, implement, improve, and optimize the integral procurement framework in procurement development according to the eight main processes (MSU + Robert Monczka) the eight main processes and supporting processes.

The eight (main) strategic procurement processes:
Insourcing / outsourcing
Develop a world-class supplier base
Develop and manage supplier relationships
Integrating suppliers in the product creation process
Integrating suppliers in the order realization process
Supplier development and quality management
Strategic cost management

The supporting processes focus on creating conditions and resources that are necessary for the professional execution of the strategic processes:
Determine plans for policy and procurement
Establishment of procurement organizations
Develop purchasing procedures
Develop performance indicators (KPIs) for procurement and supply management
Develop and implement procurement information systems
Human resource management and training


Procurement process phases

The purchasing process provides structure to the purchasing function, objectives, responsibilities and organization. While going through the various process steps, the procedures and working method must be such that they fully clarify the current situation and status of the purchasing process. An evaluation must take place on vagueness, contradictions, complexity, and gaps to implement improvements from there.

0. Orientation
It starts with continue reviewing new possibilities, products, services, and distinctive solutions offered by potential suppliers.
Further research and analyses provided by knowledge centres can also provide insight into possible benefits.

1. Procurement preparement.
Determining the purchasing strategy
determining what is absolutely necessary, in the short, medium and long term
which developments may influence this – collecting information regarding legislation and regulations and the market
making an inventory of existing purchasing cooperation and/or (framework) contracts
analyze purchasing alternatives
tenders and award criteria
weighing up the desired contract duration and extension options concerning security of supply and market developments
appropriate tendering forms and choices between functional or technical specification
drawing up procurement policy including purchasing objectives
next is the procurement policy to be linked with the requirements and the business strategy f.e. competitive advantage, durability, safety, guarantees
elaborating the main points of supplier management
drafting a handy purchasing plan to promote
– a systematic approach to purchasing policy
– what is being discussed is, therefore becomes a recurring item on the agenda and will stimulate internal cooperation
– provide a manual and standards for implementation
– motivation for the purchasing staff

2. Specifying.
Specifying the desired products or services is the most crucial step in the purchasing process given the definitive binding nature and determining the integral costs of the product or service.
Considerations and decisions on behalf of the conditions are;
determine precisely what to buy; call in call in experienced experts
eliminate unnecessary items/materials
research alternative solutions
rationalize the (number of different) products, standards and/or qualities and/or quantities
opt for market standards
the mode as a specification should be
using checklists and standards that support the drawing up of specifications
use available sustainability criteria
determine the basis and any additional added value
use and limit award criteria, purchase costs, other budgets and lead times
describe the internally involved employees in the purchasing process, their role and the manner of decision-making
determine award criteria, purchase costs and other budgets
define the requirements for contractors
determine the optimal number of suppliers and contractors, make a conscious decision about fewer or more suppliers, whether or not to bundle assignments, form combinations, subcontract, etc.

3. Selecting
Selecting suppliers based on an appropriate market approach and/or tendering strategy includes
define how candidate suppliers are invited to submit a quotation
if possible, write an application or mini-competitions
determine whether offering suppliers will receive the selection criteria and weighting factors in the request for quotation.
also try to reach buyers or suppliers other than the usual
and have them offered (broadening the market)
think of existing suppliers or existing (framework) contracts
compare offers according to a predetermined assessment framework
try to exclude subjective emotions at all times during the assessment
define award criteria based on either an Economically Most Advantageous Tender (EMAT) or the lowest price only
preferably use TCO (Total Cost of Ownership) as a basis for assessment, i.e. view all costs and expenses in the entire chain, not just the purchase price
which supplier (is expected) to provide the best service, and what may this service cost extra?
write off dropouts or, even better, hold rejection discussions with providers who drop out and ensure that this is done professionally so that they will be prepared to offer attractive offers in the future.

4. Contracting
Contracting starts after negotiation and is the recording of agreed agreements
appoint negotiators who negotiate on behalf of the contractor and contractor, and to what extent their powers extend?
take notes there and share them with the relevant suppliers
first of all, remove all (possible) ambiguities
are there standard delivery terms or a contract with a specific order agreement?
agreeing payment method and financial guarantees
agree on product and service guarantees
also determine matters such as payment terms, indexation and/or inflation correction, quantity discounts, distribution of efficiency improvements or joint cost reductions and the method of reporting on this.
there must be a procedure for dealing with contracts, including registration and archiving
internal instructions and communication: regarding the content of the contract and recording powers for procurement order, delivery acceptance, purchase payment and handling of disputes
external communication: how to deal with the publication of the news messages about concluded contracts
verification of the delivery to the contract according to quality, volume and term, etc.

5. Ordering
Ordering is the directive for delivery.
segregation of duties must be applied for ordering, receiving and payment to prevent possible fraud
ensure a correct ordering procedure and administration
designate employees for the order, assign them appropriate authorizations, and record this authorization
lay down in advance the additional rules about order authorization within the applicable budget responsibility (for example, having several people to sign)
order promptly based on future needs
avoid rush orders
organize according to a correct delivery schedule with the correct quantities
ensure good stock management and/or have suppliers carry out stock management (orders on call)
optimize logistics
reduce the number of invoices and payments
simplify payments
pay on time and take advantage of the payment discounts

6. Delivery
Organize and monitor deliveries on quality, quantity, costs and time.
check contract compliance
proper budget control makes financial management and procurement manageable
appoint persons responsible for contract management
ensure proper delivery and use
check and monitor supplier/contractor performance
organize supplier/contractor audit/reviews
monitor usage and waste
collect the information required for a TCO
organize the provision of information, including reports from suppliers and users
run benchmarks
check on and block possible procurement orders which are done without involving the procurement department (the so-called ‘maverick buying’ can be established by expenditure analyzes)

7. Aftercare
Complete and initiate improvement cycle.
prepare an invoice handling procedure; receipt, approval/acceptance and payment
start on time with the cancellation, renewal or new tendering of contracts
evaluate procurement or tendering processes and record the experiences as input for improving and update the process
conduct exit interviews with suppliers at the time of confirmation and learn from the input
calculate the TCO
communicate: share lessons learned, good experiences, best practice and benchmarks
make information easily accessible and keep it up to date
have regular conversations with contractors/suppliers to check the contracting method and/or the content of the contract
a procedure for variations (additional and less work) should be drawn up; which persons are responsible for this; identity, estimate, negotiate and allocate (and up to what amounts?)
handle disputes and claims professionally, first try to find a mutual solution, then experience experts and finally; legal proceedings
settle bank and financial affairs quickly and correctly


Procurement tips

1. the use of an external buyer can offer advantages (better outcomes, negotiation skills, objectivity, product/market knowledge, time savings)
2. purchasing department does not stand alone, purchasing is a team effort within a company, but a business determined
3. preparation with a focus on knowledge, objectives, room for negotiation, options is essential and determines % of the intended result
4. first, make a list of wishes and requirements, a so-called program of requirements. (POR), and for larger purchases, have this tested extensively, both internally and externally.
5. invite several parties to make an offer based on the program or requirements.
6. check the reputation, financial status, specific conditions and interests of intended suppliers
7. assess suppliers for strengths and weaknesses and specific industry knowledge
8. estimate the flexibility of the suppliers if problems arise (problem-solving capability)
9. purchasing is much more than just the lowest price
10. long-term relationships start with a “fair price.”
11. has the offer based on a “negotiable tender”, or in other words, not a total price, but a statement of all components (labour, material) separately. (insight into the structure of the cost price structure)
12. preferably contract at a “firm fixed price”, a fixed price without avoiding surprises and setbacks.
13. plan the supplier/contractor with the best-rated offer in the negotiations as the last or the penultimate, so knowledge optimally can be used.
14. try to apply your purchasing conditions; accepting the seller’s delivery conditions generates a lot of additional work and possible risks.
15. never ask for the discount; go through the entire offer and the conditions.
16. realize what negotiating is; achieving a good outcome for all parties based on shared values.
17. pay attention to the positioning; only negotiate with sellers who are fully authorized and can make direct decisions.
18. respect your negotiating partner and instil and build trust.
19. communication starts with listening carefully, supplemented by asking open questions and summarizing.
20. you can already practice procurement conversations for yourself to determine the intended structure and to come up with possible questions and answers and the reactions to them (“what if”)
21. be aware of potential pitfalls and avoid risks.
22. keep the initiative, give the other party two choices (on the one hand, this limits the space without being too unlikable and intrusive).
23. as a buyer, dare to ask for (other) proposals and solutions
24. never be the first to state your price, first try to find out what amounts the seller has been given (start the negotiation and minimum sales amount)
25. start with the easy-to-agree aspects and keep severe points of contention until the end (to build and maintain a positive atmosphere and understanding).
26. in tough negotiations or with minor differences in offers and alternatives, test the sales interest by first negotiating heavy aspects and, if possible, threatening or applying a ”walk-away” tactic.
27. negotiate face to face, assessing the seller’s emotions and non-verbal communication.
28. constantly observe the effect of behaviour and adjust style and tactics accordingly (buying/selling and in particular negotiating is not a rational process)
29. protect yourself as a buyer, do not allow viewing your notes, do not show unwanted (!) emotions, attitude and gestures
30. as a buyer, you must ensure that time is in your favour (postpone and follow-up negotiations/purchasing discussions)
31. don’t cancel a delay and keep communicating to keep the seller interested.
32. never take a position until the last moment, do not put yourself in a dire position as a buyer; keep room to manoeuvre.
33. corporate social responsibility requires that risks are identified, prevented and reduced in the supply chain (OECD guidelines)
34. use purchasing checklists for the different phases and activities.
35. measure supplier quality through clear key performance indicators (KPIs).
36. good contract management takes time, improves supply security and prevents or at least minimizes any problems.
37. check and continue to track purchase invoices and look for possible discrepancies.
38. optimize purchasing processes and automate purchasing administration
39. make procurement LEAN through fewer suppliers, deliveries, less storage, fewer invoices, ordering to optimal quantities, less packaging, fewer transports and costs, automate, automatic additions to stocks/orders, etc.

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