Improving procurement process
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As we are looking to improve procurement process and trying to apply a more category management approach across all its categories. The number of RFQ issued every year is 80 to 100. The contract value for majority of these bids is less than $ 5 M and 5% of tenders are over 10 M. The procurement team includes a manager and 5 procurement leads who manage the bid process and draft the RFQ documents to the final award of the contract. Their average cycle time for RFQ less than 5 M is 5 Weeks and RFQ over $ 10 M is 18 Weeks. The current vendor base includes over 40 design engineering firms and about 15 construction firms. The top 10 design firms account for 80% of total spend and the top 5 construction firms make up 80% of the total spend.
Some of observation based on current operations:
1. The procurement team is not engaged in the project planning and budgeting stages and the procurement team operates reactively to requests from the internal stakeholders groups to process RFQ documents.
2. There is limited collaboration and planning between procurement and other internal stakeholder groups (i.e., Eng and estimating teams) in the development of category strategies and RFQ documents.
3. Prequalification Vendors (E.g. Vendors) are often not in place.
4. There are significant number of vendors providing design / engineering and construction services
5. There is a lack of focus on developing strategies to reduce procurement costs (i.e. bundling procurements)
6. Insufficient tracking of Performance and past vendor performance in not leverage in subsequent go to market strategies.
Question based on the above situation:
Please identify how will we use category management principles to better manage the procurement of these services? The objective of the team is to drive value for money in the procurement of these services, while providing good customer service (CSR) to internal clients. Value for money may include, but not limited to, cycle time reductions, reduced unit rates, demand management, savings from lean process improvements and client satisfaction.
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Solution Summary
This positing discusses the current procurement process and makes recommendation for improving the process based on category management principles.
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At the inception, the procurement team must be engaged during the project planning because not only can they provide valuable advice about the costs, they can also provide inputs relating to the time required for the purchase of material, the budget for procurement, and the quality of materials that may be purchased. The role of the procurement team must be proactive and not reactive. Next, there should be close collaboration between the procurement team and the internal stakeholder groups. For example, there must be close collaboration between procurement, engineering, estimating, budgeting, and designing teams. If there is close collaboration, the procurement will be able to better satisfy the needs of the internal stakeholders, provide better procurement services, and help reduce costs. Also, the prequalification vendors must provide evidence of their capabilities, there should be at least one online inspection of the premises of the vendor, there should be evidence of past achievements, and the vendors must be prepared to immediately respond to orders. Besides, since there are significant numbers of vendors who can provide design engineering and construction services, all vendors must be encouraged to provide quotations, next, the vendors must be screened for reliability, experience, and current capabilities. This will enable the company to select reliable vendors, provide quality goods/services, and are open to negotiations relating to the reduction of costs.
There should be strategies in place to reduce procurement costs. If the procurement is better managed, the costs will decrease. The suggested approach is category management. The principles of category management are there should be strong supply market knowledge, the procurement must make change happen, and there should be stakeholder engagement (a). Other principles of category management are there should be cross-functional teams, and decisions should be facts and data-based. Currently, the procurement team has a manager and five procurement leads. According to category management principles, ...
Education
- MBA, Indian Institute of Social Welfare and Business Management
- BSc, University of Calcutta
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