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Strategic importance of procurement and supplier on-time delivery scores points

By Suzanne Franco, Surveys Editorial Project Manager at ITWeb.
Johannesburg, 09 Oct 2015
To ensure quality service from suppliers the formal reviews should be done at least every anniversary of the contract, says Gen2 Enterprise Software's Diederik Jordaan.
To ensure quality service from suppliers the formal reviews should be done at least every anniversary of the contract, says Gen2 Enterprise Software's Diederik Jordaan.

Few businesses view procurement as a strategic process. Most often, procurement staff report to the CFO. This astonishing trend indicates that procurement is still viewed as a financial/ accounting activity and not an operational strategic activity that directly impacts the bottom line.

A large percentage of survey respondents (61%) cited that their suppliers do have supply contracts with their organisation, only 8% indicated such contracts are not in place.

"Supplier contracts establish the terms of a working relationship between a vendor and a customer. A supply contract is often necessary in order to lock in discounted pricing and other benefits that the supplier agrees to provide to the client for a specific period of time," says Diederik Jordaan, MD of Gen2 Enterprise Software, commenting on the results of the Supply Chain & Procurement Survey, which ran online for 14 days in August.

The terms of a supply contract often define everything from the means whereby the products are delivered, terms of payment, and any other aspect of the relationship that the two parties have determined to be necessary, he adds.

Just over half of survey respondents (55%) indicated their organisation does use a procurement system, while 45% said they do not.

Jordaan believes there are many benefits for an organisation when making use of a procurement management system, some of which include: lowered risk of unauthorised spending; simplified inventory control; enhanced cash flow; time saving; streamlining the workforce and preventing late payments.

"A procurement management system enhances an organisation's ability to compare suppliers regarding price, quality, service, and to ultimately get bigger bang for every procurement buck," he explains. "It also enhances ability to control and oversee procurement in real time without adding an additional layer of bureaucracy."

According to Jordaan, the benefits of an automated procurement management system do not stop there. The system also allows organisations to analyse procurement spend in detail as well as centralising an organisation's procurement needs across divisions, thereby eliminating duplication of functions.

Jordaan lists the downfalls of not implementing a procurement management system, which include: training challenges, report availability problems, data duplication, and lack of security.

An overwhelming majority of respondents (80%) indicated that their organisation's procurement department is centralised.

"In centralised procurement, the buying and managing process is performed from one location to all locations within an organisation. This can also be run by a central location buying into a distribution warehouse that feeds smaller warehouses. This is called a hub and spoke system," says Jordaan.

He points out the main advantages of a centralised procurement department are production economies of scale; avoiding duplication of efforts; reducing mistakes; increased specialisation and knowledge resource sharing.

Supplier on-time delivery scored the highest (61%) when respondents were asked what information they regularly measure and record, supplier quality and cost reductions came in second at 54% and responsiveness was third at 52%.

According to Jordaan, capacity, competency, consistency, control of process, cost and culture should also be measured and recorded by organisations.

It also emerged from the survey that exactly half of respondents (50%) cited they have not implemented formal supplier scorecards, only 11% said they have done so.

"Formal Supplier scorecards can help companies reduce vendor lead times, improve inventory management, maximise sell-through and reduce costs, and ultimately result in an improved bottom line and cash flow," he adds.

Interestingly, the survey also showed that a third of respondents have never performed formal reviews of their top-tier suppliers.

"To ensure quality service from suppliers the formal review should be done at least every anniversary of the contract - at re-negotiation. Informal review of contracted and non-contracted suppliers should be a routine procurement activity. One cannot wait for a formal review to address inferior goods or services."

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