This lecture slide was prepared for my guest lecture session in Bina Nusantara University's undergraduate program of International Business Management. It discussed the role of procurement function in an organisation, and how the function has been continuously evolved to meet market expectation by engaging business partners, as well as intra-company stakeholders. It shares top tips of how buyer can create value-add to the business from the book “Value-Added Purchasing” written by Eberhard E. Schening, PhD. Enjoy this as a part of your learning journey!

1. Dhanis Puspa Maharani, S.T., MSc
March 2016

2. Cost Easy
Booking
No Cash
Option
GPS
Tracking
Immediate
Response

3. Morale
Safety
Delivery
Quality
Cost

4. A study of financial, procurement and procure-to-pay professionals working in large
businesses, by e-invoicing provider Tradeshift, found that 92% of respondents believe
supplier collaboration is essential to driving value in the business (CIPS, 2015)

5. Source:
https://www.youtube.com/watch?v=wAzqbz7jM_o

6. The Role
of
Purchasing

7. The Evolution of Purchasing
Role ProcessDepartment Function
Sources PartnersVendors Suppliers
Focus ValuePrice Cost
Interacts with other
units & contributes
to competitive
advantage
Managed cross-
functional core
process jointly w/
stakeholders
Clerical
Provide cost saving
& improvement
ideas
Streamline supplier
bases for increased
productivity =>
mutual relationship
Suggesting
essentially reactive
inputs
Driving down cost Add value for
competitive
advantage
Squeeze vendor for
better price

8. The Role of Purchasing in Value Chains
Organization
Supplier Purchasing
Internal
Customer
External
Customer
Upstream Downstream
Purchasing’s linkages in value chain
• Understand &
serve their needs
• Advise
• Participate in
cross-functional
teams
• Inquire about
their requirement
• Offer suggestion
• Provide link of
supplier base
• Manage selection
& monitor
• Lead continuous
improvement of
supplier quality,
cost & cycle time
• Obtain suggestion
& involvement

9. 7 Steps of Sourcing Strategy

10. Cost Service
Time / Security
of Supply
Business
Needs
Quality Innovation
Flexibility
High quality measurement, robust and reliable solutions
Rely on local geographical presence to be able to receive
timely technical service
Obtain innovative solutions for unique product handling
needs, packaging designs, and line layouts
Business Needs Across Strategic Axes
Uniqueness
Commonality
Variety of products and packaging
requirements, line speeds, requires innovative
suppliers to challenges specs. Standard
solutions can be used in many cases
Need for Uniqueness Vs. Commonality
1 – Understand business needs

11. Leverage
Category
Strategic
Category
Non-Critical
Category
Bottleneck
Category
High
High
Low
Low
BusinessImpact
Supply Market Complexity
Category Positioning Matrix
Strategic Differentiator
Leverage volume, alliance
or preferred relationship
Non-Critical
Reduce time and effort
but get best price
Leverage
Use competition to get
best value
Risky Bottleneck Reduce
risk, simplify, grow volume
or exit
Get partnership to standardize a high quality set of products and
assure last innovation by building a transparent preferred price list
and R&D collaboration
2 – Category Positioning

12. Cross-
Functional
Participation
3 – Identify Potential Suppliers

13. Play leading roles in cross-functional teams :
• Sourcing teams – manage & select
suppliers
• Operations teams – execute sourcing
strategy & monitor performance
• New product teams – develop new
products
Today’s
Purchasers

14. Supplier Selection
Sources of Supplier Information
Published Internal Personal
Internet, catalogue, yellow
pages, etc
Supplier file, technical
personnel, etc
Professional colleague,
supplier sales personnel,
trade fair, etc
Selection Criteria
Preliminary Screening
Supplier Visits
Financial Information
Exploratory
Information
Questionnaires
Rejected Candidates
Candidate List
Detailed Study
Approved Supplier List

15. Which force is dominant in the market? Which is weakest?
H (“green”), M (“yellow”) or L (“red”) rating
What is customer’s bargaining power and its ability to drive benefit from opportunities?
H, M, L rating
Threat of New
Entrants
Power
of Customers
Threat of
Substitution
Rivalry of Existing
Companies
Power of
Feedstock
Suppliers
Focus on key suppliers to develop standard solutions that help us to leverage the competition and
improve TCO
Assess Supply Markets - Porter Five Forces

16. New Product Development
Marketing Research
Product Design
Production Planning
Materials Acquisition
Product Manufacturing
Product Information
STEPS
Marketing
Product Engineer
Product Engineer
Purchasing
Production
Marketing
Conventional
Production
Marketing
New Process Advanced Process
Cross-
functional
Team
Extended
Enterprise
Team
• Purchasing
• Internal
Customer
• Supplier
• Supplier’s
supplier
Static,
Reactive,
Tactical
Dynamic,
Proactive,
Strategic
roles of purchasing &
supplier have changed…

17. Business Needs and Priorities
OEE and Sigma operating performance improvements, greater speed to innovation, cost effective capital investment, greater flexibility.
Executive Summary Statement
Nowadays every single plant selects their inspection and detection partners considering min. quality limits. More demanding safety and quality
regulations and the trend to harmonize specs make critical to search for higher solutions. The Sourcing Strategy is to leverage EU/global scale
selecting three preferred suppliers to hold innovation with cost effective agreements that permit us to be the best in class vs. competitors and
client of choice for suppliers.
Sourcing
Objectives
Sourcing Strategies Tactics
Review and Alignment:
Procurement R&D Quality Engineering
Select the 3 right
preferred suppliers
to bring
innovation, reduce
cost through
harmonization and
global agreements
and improve
service
# 1 Concentrate business activity with 3
core inspection and detection suppliers and
minimize dilution of spend and garner
greater ongoing support from these
suppliers - become the “customer of
choice” for these suppliers
1. Maintain alignment with global engineering and R&D on the core group of
suppliers with which to share business plans and solicit bids .
2. Facilitate further spend concentration by using same core set of suppliers
3. Negotiate Value Packages with the core group of suppliers to reduce TCO.
(Get further discounts: from 5% to 15% in Eq. & 10% in services )
# 2 Maintain a strong competitive bidding
environment for capital project for with 3
preferred suppliers to swift and challenge
regional and technology innovation position
1. Facilitate bid evaluation process and selection of best bid by establishing a
common electronic bidding template for use across all BUs and regions
2. Bundle bid events, where feasible, across regions and across businesses
3. Supplier challenges and pilot trials to select the best supplier in each field
# 3 Follow up challenging suppliers for certain
applications: low cost, high innovative ideas
1. Develop robust and consistent supplier evaluation criteria and KPIs to
optimize and regularly monitor the selection of core and challenging
suppliers
4 - Execute Sourcing Strategy

18. Managing
Value
Chain
Costs

19. Cost Analysis
Definition Objectives
Systematic
examination of cost
components
• Determine the factors
affecting cost
• Assess the potential of cost
reduction

20. Ten Commandments of Cost Containment
1
When in doubt,
check it out
Asking cost breakdown to get
insight of supplier’s operation
2
Use life cycle cost
analysis
Examine the treacherous cost
of owning & using the product
3
Use value analysis
to eliminate the
unnecessary cost
By improved efficiency or
improved effectiveness
4
Urge suppliers to
reduce cost
continually
Encourage supplier for cost
reduction & share the savings
with customers
5
Challenge all
requests for price
increases
Ask supplier to justify &
substantiate any price increase

21. Value Analysis
Project Identification
Information Gathering
Follow Up
Implementation
Decision Making
Analysis
Speculation
The Value Analysis Process
Project Identification
Asking questions
Impact measurement
Of selected change
Selection of a particular action
Examine cost & performance impact
Creative approaches for better
performance
Can we
reduce cost
or improve
performance?
Change
material?
Change
material?
Eliminate
?
Substitute
?
Modify?
Combine?
Asking questions
Change
tolerance
?
Change
design?
Change
speci-
fication?
Change
process?

22. Ten Commandments of Cost Containment
6
Ask suppliers what
you can do to
contain cost
Suggest supplier ways in
which customer can help reduce
cost
7
Drive purchasing
cost savings to the
bottom line
Actively participate in
budgeting, commit to specific
saving level & deliver it
8
Don’t make hasty
outsourcing
decisions
Look before you leap
9
Focus your efforts
on the “critical
few” purchases
Find opportunities for
significant saving
10 Play hard, but fair
Treat suppliers as you would
like to be treated

23. Other Cost-Commandments Tools
IDENTIFICATION
OF COST DRIVER
Determine things that influence cost of goods & services
from external suppliers, including :
• Specifications & material
• Product or service design
• Policies & procedures
• Worker skill & training
• Employee attitude & turnover
• Tools & equipment
• Shipping & handling method
• Buying & shipping volumes
PROCESS
MAPPING
Reveal hidden costs of
unnecessary step & rework
Process Engineering
Goal :
Less consumption . More customer friendly . Less costly
REVERSE
ENGINEERING
Takes apart the competitive product to determine its
operation & costs (particularly if supplier unwilling to
provide cost information)
BENCHMARKING
Comparison of an organization’s costs to those of other
organizations as a factual basis for managing them
COST
MANAGEMENT
Aims to bring cost in line with the customer’s value
perceptions to strengthen competitiveness
by boosting efficiency or productivity, reducing cycle time,
and redesigning processes or products

24. Major contributor to
organizational
performance
SOURCING
To enhance
organization
competitiveness
Led by broadly
skilled professional
Using latest
business tools
CONCLUSION: PROCUREMENT

25. Historical
Purchaser
• Bureaucratic paper pusher
• Reactive, tactical, clerical
Professional
Purchaser
• Manage interactive
processes
• Reduce cycle time &
cost
• Improving quality
Evolving Role of Purchasing
evolving
Internal & external
partnering
World Class
Performance

26. Purchasing Professional
Possess Top 10 Skills
• Total cost analysis
• Negotiation strategies
• Supplier partnering
• Ethical conduct
• Supplier evaluation
• Quality techniques
• Purchasing strategy
• Price/cost analysis
• Electronic data interchange
• Interpersonal communication
PROFESSIONAL
PROFESSIONAL PURCHASER
High-performance Team
Groups of broadly skilled employees who jointly own & manage a process

27. The New Purchasing Professional
Think & act
strategically to
strengthen the
competitiveness
Purchase from
sources to bring
the best value
Implement a
comprehensive
purchasing
management
information system to
leverage organization
total spending
Discover leading
supplier by purchase
amount
Discover who buys what
from whom & how
across different units of
organization for ability
to aggregate purchase
Relationship
orientation
(partnering w/
selected suppliers for
long term)