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CHAPTER 4
PROCUREMENT AS A SUPPORT AND STRATEGIC FUNCTION WITHIN COMPANIES
and part numbers, they can have a disproportionate effect on product cost or
performance. Relationships with suppliers that provide critical items should be,
by design, collaborative. In fact, this is the quadrant where we see true supply
alliances.
Segmenting purchased items and services in this waymakes it easier to determine
which strategies and tactics need to be applied in different supply markets and
environments. Using the supply segmentation approach, procurement can see
clearly how various items/services impact the competitiveness and profitability of
the firm and, based on this, can determine the appropriate operational strategy
for dealing with each item from a procurement perspective [2].
4.4.3 DETERMINE BUSINESS AND PROCUREMENT REQUIREMENTS AND
CONDUCT A MARKET ANALYSIS
The next step is to conduct a commodity research analysis. The first action is to
conduct a spend analysis, which entails identifying what each business unit is
spending for an item or service. It is important to understand where the money
is being spent and with which suppliers. This analysis can reveal that different
business units are paying different prices for the same item. It can also reveal
where it is possible to consolidate spend for various items with fewer suppliers
and/or where excessive variety exists.
The analysis looks at the important characteristics of a supply market as well as
business unit requirements. The following steps are carried out in this analysis:
• Determine strategy.
• Identify past expenditures by commodity and supplier.
• Determine total expenditure for a commodity or service as a percentage of
the total for the business unit.
• Identify current suppliers and potential suppliers by commodity.
• Determine the marketplace pricing for commodities and services.
• Determine trends in pricing.
• Carry out supplier analysis.
• Identify strategies of market leaders.
• Determine current and future volumes requirements.
• Identify opportunities.
What should purchasers know about the markets from which they purchase?
For many years, organisations around the world have invested considerable
energies and resources to better understand the markets in which they operate.
Specifically, businesses have sought to know the potential aggregate demand
in the marketplace for the goods and services they offer; recognise those
events that are occurring that affect their market segment
vis-à-vis
new or lost
competitors as well as products; and understand who their customers are and
the nature of those customers.
The results of this analysis provide a sound basis for decision making. The