Procurement in hghgfhghinternational operations


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Procurement in hghgfhghinternational operations

  1. 1. Not long ago, purchase function was seen to be a desk job, monotonous paper work, dull andpassive and more of an administrative function. The purchase managements were the fall guyswhose only aim was to keep feeding shop floor and avoiding stock out situation.Today the situation has changed totally. Procurement function is considered to be a strategicinitiative and seen to be adding value to entire business process. Profile of the procurementmanagers has changed and expectations from these managers are different.Modern day procurement managers manage procurement and sourcing function both at strategicand operational levels. They are proactively engaged in building supplier networks, estimating,controlling and reducing costs besides performing other functions and ensuring service levels.Their job functions are increasing becoming cross functional together with supply chain andmanufacturing functions.Procurement process and paper work is today managed by the ERP systems which drive theprocurement business process.Procurement FunctionProcurement function as explained above is one part of the sourcing function. In an ERP enabledenvironment, procurement function consists of detailed indenting process, procurement budgetmanagement, purchase order release, shipment schedule planning with seller coupled withensuring compliance with documentation and system updating processes. All these processes aredriven by ERP.Procurement function deals not only with procurement of raw materials and components, butalso with capital equipments, project procurement, spare parts procurement for after market,managing rejections, defective returns, warranty replacement process with suppliers too.Vendor development is a key function in procurement. Sourcing and vendor development aresome of the skill sets required to be developed by Procurement team.Procurement function works closely with procurement logistics or inbound supply chain. Aprocurement professional needs to have operational knowledge of logistical activities in supplychain network, the various agencies, knowledge of policies, customs rules, Taxation,commercial, logistical and customs documentation besides knowledge of commercial trade rulesand terms.Procurement process and sourcing strategyThough interlinked closely, both procurement process and sourcing strategy are not one andsame.Sourcing strategy deals with planning, designing and building a reliable and competitive supplierbase, determining the strategy for procurement, defining pricing strategies and supply chainrequirements. The strategy involves integration of its objectives in line with or confirming to the
  2. 2. objectives of stake holders in operations, finance. Marketing and distribution. Lastly sourcingstrategy involves planning to competitive buying sources for its raw materials, components andservices along with alternative variables.Procurement Process as described above, deals with operational zing business process ofprocurement function and ensuring performance.Shift in Sourcing Strategic approachHaving realized that suppliers play a key important role in the supply chain network of thebusiness, there has been a change in the way organizations perceive and approach supplierrelationships.Several factors have contributed to the shifting of the perceive value of supplier partnerships.Complex business models at global scales coupled with market demands have necessitatedcompanies to set up manufacturing or assembly facilities closer to markets as well as in locationswhere conversion costs are relatively cheaper. This necessitates that the business be supported bya solid vendor base which is able to ensure supplies at all locations.Advancement in technology and R & D capability enhancement is leading to shorter product lifecycles. New versions and product innovation means products become obsolete faster. Besidesnew introductions of products depend upon speedy development of new design supplier partsand the suppliers having to keep pace with changing designs and requirements.Lean Manufacturing and cost per unit concept is demanding that the managers keep looking toreduce the procurement cost as well as procurement logistics cost. By developing a relationshipwith suppliers in a collaborative mode, buyers are able to get supplier companies to holdinventories for them at buyer location and postpone taking inventory ownership up to the pointof consumption. Today preferred suppliers follow the buyer into countries where buyer is settingup facilities and take on value added services including managing warehousing in the spirit ofcustomer relationship management.Therefore managements have realized the fact that to be able to develop global business model,they have to develop supplier partnerships and work with collaboration spirit and invest indeveloping the supplier capabilities as well as invest into building the relationship. Suppliermanagement is no longer transactional.Limited International Bidding Limited International Bidding (LIB) is essentially ICB by direct invitation without openadvertisement. It may be an appropriate method of procurement where (i) the contractvalues are small, or (ii) there is only a limited number of suppliers, or (iii) otherexceptional reasons may justify departure from full ICB procedures. Under LIB,Borrowers shall seek bids from a list of potential suppliers broad enough to assure
  3. 3. competitive prices, such list to include all suppliers when there are only a limitednumber. Domestic preferences are not applicable in the evaluation of bids under LIB. Inall respects other than advertisement and preferences, ICB procedures shall apply.Shopping (International and National)3.5 ... Shopping is a procurement method based on comparing price quotationsobtained from several suppliers, usually at least three, to assure competitive prices, andis an appropriate method for procuring readily available off-the-shelf goods or standardspecification commodities that are small in value. Requests for quotations shall indicatethe description and quantity of the goods, as well as desired delivery time and place.Quotations may be submitted by telex or facsimile. The evaluation of quotations shallfollow sound public or private sector practices of the purchaser. The terms of theaccepted offer shall be incorporated in a purchase order.International shopping shall solicit quotations from at least three suppliers in twodifferent countries. National shopping may be used where the desired goods areordinarily available from more than one source in the country of the Borrower atcompetitive prices.3.14 ... If the Bank guarantees the repayment of a loan made by another lender, thegoods and works financed by the said loan shall be procured with due attention toeconomy and efficiency and in accordance with procedures which meet therequirements of paragraph 1.5.Community Participation in Procurement3.15 ... Where, in the interest of project sustainability, or to achieve certain specificsocial objectives of the project, it is desirable in selected project components to (i) callfor the participation of local communities and/or nongovernmental organizations(NGOs), or (ii) increase the utilization of local know-how and materials, or (iii) employlabor-intensive and other appropriate technologies, the procurement procedures,specifications, and contract packaging shall be suitably adapted to reflect theseconsiderations, provided these are efficient. The procedures proposed shall be outlinedin the Staff Appraisal Report, the Presidents Report and the Loan Agreement.(next section: Appendices)______________________Footnotes(38). Contracts shall not be divided into smaller units in order to make them lessattractive for ICB procedures; any proposal to divide a contract into smaller packagesshall require the prior approval of the Bank.
  4. 4. (39). A government-owned construction unit that is not managerially and financiallyautonomous shall be considered a force account unit. "Force account" is otherwiseknown as "direct labor," "departmental forces," or "direct work."(40). The Consultant Guidelines shall apply for the selection of procurement andinspection agents. The cost or fee of the procurement or inspection agent is eligible forfinancing from the Bank loan, if so provided in the Loan Agreement, and provided theterms and conditions of selection and employment are acceptable to the Bank.(41). BOO: Build, Own, Operate; BOT: Build, Operate, Transfer; BOOT: Build, Own,Operate, Transfer.(42). For projects such as toll roads, tunnels, harbors, bridges, power stations, wastedisposal plants, and water distribution systems.