Procurement management starts with defining the needs of internal customers and ends up monitoring suppliers’ performance and relationship with them. In this process, there is a number of separate steps, including the description of needs, identification of potential sources, the choice of the source of supply and the determination of essential conditions, follow-up to ensure the supply conditions, receipt of goods, payment to the supplier, and monitoring. In this article we will have a look at two stages in the management of procurement - awareness and description of needs.
One of the goals is to help procurement services to anticipate the needs of internal customers. Procurement executive should not only seek the most standardized orders, but also to reduce the flow of so-called "urgent requests". In addition, given that the market conjuncture is observed by purchase service for different categories of goods, it is sometimes advisable to place forward orders to prevent the shortage of materials or worsening of commercial terms (for example, the rise in prices in local currency as a result of growth of exchange rate). Thus, purchase executives should inform their internal customers of any major changes concerning purchased groups of materials. Purchase service is often involved in the development of new products, because it’s got information that reduces certain types of costs or even avoids them, lets get to market faster and achieve higher competitiveness. Given that the greatest opportunities (about 70%) allowing to influence the value of the final product, appear at the stages in the awareness of the need and its description (creating the concept of the product and its development), a procurement specialist and the supplier can make a greater contribution than in the course of routine process of purchasing the necessary materials.
Department sending a request for a product or developing a specification for it, should reasonably articulate their demands to get exactly what they need.
There are several methods for describing requirements:
1. On the basis of the brand
2. "Or equivalent"
3. Based on specifications
3.1. Physical and chemical characteristics
3.2. Materials and methods of production
3.3. Indicators of performance or function
4. Based on technical drawings
5. With other methods:
5.1. Market category (commercial types)
6. Combination of methods
Brand based description. Description based on the needs of the brand shows the trust to the supplier. It is assumed that the supplier is trying to save the reputation of the trade mark. When the desired item is purchased on the basis of the brand and is acceptable when used as directed, the Procurement Executive gets the reason to expect that any other products with the same brand will fully comply with the original quality.
Conditions when the brand- based needs are desirable to describe:
- Secret manufacturing process, the product is protected by patents, specifications can not be given;
- Specifications can not be given accurately enough, as the production process involves vendor experience, skill or skills of employees, which are difficult to formalize
- Purchased amount is very low;
- Internal customers have a preference for a particular brand models (so-called "brand following" of internal customers).
The downside of this approach can be considered as high prices of the branded goods. Another reason "against" brand- based description is that excessively strong dependence on brands narrows the range of potential suppliers and puts the limit on the obvious advantages for internal clients such as lower prices or better quality of products offered by other suppliers.
In the next article we will review some other methods of description needs: specification- based description; "or equivalent"; description based on technical drawings. Using other methods will also be regarded: the commercial varieties based description, the description based on samples, individual standards or standard specifications.