The Significance of Procurement Category Management

In today’s competitive environment, every second of time matters and is worth its weight in gold. This fact is readily observed as there has been a lot of research in the development and introduction of various methods aimed at saving time in the industry.

One of the most important metrics that represent the extent of time utilization or loss in regards to suppliers is supplier lead time, i.e. the time between placing of order and receiving the goods. It usually includes purchase order processing time, in transit time, receiving, inspection, and any inventory processing/repackaging time.

Besides, according to a survey conducted by Accenture during the recent economic recession, most procurement officers admitted that the recession had an impact on the supplier relationships and augmented supplier risk. The main reason was that the suppliers were looking for increase in their prices.

Procurement category management involves strategic development, assessment and monitoring of procurement and supplier performance in specific supplier categories. So, the basic steps for implementation are:

1.      Categorize each supplier based on the needs served by the goods supplied by the supplier. So, in other words, the suppliers supplying similar or substitutable items are placed in one category. For example, in case of a retail business, toothpastes and hair oils can be two different categories.

2.      It is also advisable to assign a person, as category manager or owner, to each category, based on the knowledge and application of the goods being procured from it.

Apart from shorter supplier lead time, the following benefits can be derived from this methodology:

1.      Since each of the categories requires similar procurement strategies and supplier relationship programs, it is far easier to manage the categories than to manage the uncategorized suppliers.

2.      It facilitates better relationships with the suppliers, which in turn improves supplier performance.

3.      It also helps in managing the spend by providing better purchasing power.

4.      It reduces supplier risk, develops a better supplier portfolio and provides better control over procurements.

In terms of supplier lead time and turnaround time, very significant differences have been observed between the organizations that are employing procurement category management and those that aren’t. According to “APQC Open Standards Benchmarking” in procurement, the supplier lead time in the former case is found to be around one-fourth of that in the latter case. Similarly, the purchase order processing time is found to be around nine times lesser for the organizations implementing procurement category management.

Procurement is undoubtedly one of the most lucrative areas to look into for cost optimization, and category management represents a well-defined and proven technique to go about it.

References:

1.      http://www.apqc.org/knowledge-base/download/229883/a%3A1%3A%7Bi%3A1%3Bs%3A1%3A%222%22%3B%7D/Category%20Management.pdf?destination=node/229883

2.      http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_Leveraging_Category_Management_podcast_transcript.pdf

3.      http://www.driveyoursuccess.com/2011/08/using-pert-analysis-to-estimate-vendor-delivery-times.html

The writer of this article, Akshay Agarwal is a PGP student of Indian Institute of Management, Raipur and has done his B.Tech from Indian Institute of Technology, Guwahati.

SAFEXPRESS

 Safexpress has created benchmark in terms of the “Knowledge Leader” in the Supply Chain & Logistics Industry. With the mission of adopting and internalizing a work culture demonstrating a “We can We will” attitude to reflect in daily responsibilities with exceeding objective towards market dominance., Safexpress has vision of conscious learning organization maintaining flexibility for change for providing the most customized solutions. The company has expanded its reach to 560 destinations across India through more than 3,600 GPS enabled vehicles, across 35 states and union territories delivering 80 million packages a year, with ware house space of over 6 million square feet. With the operations of 24 X 7 in real time Safexpress provides Express Distribution, Third party Logistics services & supply chain Consulting. By Implementing Innovative and benchmarking services, the company has given a new face to Supply Chain & Logistics Industry.

As a service provider of third party logistics, the company allows the clients to focus on their own core competencies. Which means clients can focus more on the expertise of field leaving the logistics expertise to Safexpress. The ever increasing need for technological flexibility is another important advantage of the use of Safexpress as the third party logistics provider. The Company has been able to cope up with the advanced technology coming in the Logistics Industries. Thus outsourcing logistics to the Safexpress reduces the lead time and improves the service level. Safexpress provides Technological Flexibility to the client. The company gives flexibility to the client for the service in the different geographical location.

Investments in coss-docking strategy has given Safexpress The Competitive Advantage. In such strategy warehouses function as inventory coordination points rather than as inventory storage points, so goods arrive at warehouses from manufactures and are transferred to the retailer’s vehicle, so that delivery time can be reduced as much as possible. Thus Safexpress indirectly cuts down  the inventory cost of manufacturer/distributor & decreases the storage time which finally leads  to reduction in lead time. But all in all cross-docking needs an initial investment and startup setups. Still Safexpress has managed to implement it by-
        o   Linking Distribution centers, retailers and supplier by advance information systems

        o   Fast and responsive transport system

o   Accuracy in forecast by multistage information sharing



All these have not only added value to the manufacturer/distributor but also to the whole Supply Chain Process. 

A unique value-added Supply Chain & Logistics Service, Reverse Logistics has reduced the time and cost involved in carrying defective parts. This kind of logistics is generally used for shipping the defective parts from retailer to distributor and finally to the manufacturer. Safexpress directly takes these defective goods under its possession and moves them to its warehouses where they are repaired and re-shipped.  Services such as reverse movement of goods, repacking, re-labeling, refurbishing provided by Safexpress was a step to reduce the time and cost involved in the backward supply chain & prevented customer dissatisfaction, cash lockdown for the retailer and a rise in the distributor‘s inventory. For providing reverse logistics to clients, Safexpress has deployed reverse logistics centers, where they stock thousands of Stock Keeping Units (SKU) of the client and employ well trained professionals to handle the product. Indeed, Safexpress has revolutionized the Logistics Industry in India.

 The writer of this article, Amol Deogade is a PGP student of Indian Institute of Management, Raipur and has done his B.E. from Government College of Engineering, Amravati. Prior to joining IIM Raipur, Amol was working at Cognizant Technology Solutions. Amol can be reached at titanamol@gmail.com

Lean Manufacturing at Dell

 

Dell has also used Just in Time principles to make its manufacturing process a success.  They leverage their suppliers use JIT. Dell is about quickly assembling the part which are sourced from their suppliers and delivering to customers. They force their suppliers to carry inventory and Dell stays lean on inventory. Short lead times are provided to customers and thereby shorter lead times are demanded from their suppliers. Quick assembling and quick shipping is the USP of Dell. They have been able to do successfully implement JIT because of variety of reasons. It has had a Dependable supplier base. They have been able to meet Dell’s demanding lead time requirements. Also it has a seamless system that allows Dell to transport its system requirements. The systems are very efficient as they arrive in time to help Dell fulfill its lead times. Somehow Dell has been able to fore the suppliers to carry inventory and this willingness of suppliers to carry inventory on hand allows Dell to have low costs on inventory.

Because of JIT it has been able to successfully reduce the inventory related costs.  In 1993 it followed a practice of carrying over 10 weeks of inventory. Since 2001 it carries 1 week of inventory. This saves it majority of costs now. Inventory costs are even higher in computer industry as rate of depreciation is very high. By this rate Dell used to lose roughly 10% of the value of inventory per year.  After implementing JIT it loses roughly 1%. By this calculation dell has been able to save 9% costs in inventory management.

References : www.inventorymanagementreview.org/justintime/

The writer of this article, Naman Jain, a PGP student of Indian Institute of Management, Raipur has worked in GE Healthcare Labs. He has done his B.Tech in Computer Science & Engineering from Vellore Institute of Technology, Vellore and can be reached at namanvit @ gmail . com