From my earlier post entitled “Good Procurement Decision-Making At The Basic Level,” you saw that there are some necessary skills to have to make good procurement decisions, even for basic buys. This post will cover the characteristics of a more advanced level, when the decisions are more challenging.
While the basic level focused on the cost items that were submitted (or should be submitted) by the supplier, the good procurement decision-maker at the advanced level will look beyond just those costs. The good procurement decision-maker at the advanced level will look at all costs associated with the acquisition, receipt, movement, storage, use, maintenance, and disposal of a product or service. This is known as Total Cost of Ownership Analysis.
Examples of the components of total cost of ownership that the procurement decision-maker will consider include energy usage, productivity impacts, and salvage value just to name a few. All of these components can vary from supplier to supplier and can result in the lowest priced product or service not being the lowest cost product or service. The good procurement decision-maker at the advanced level will be very adept at identifying and quantifying all of those cost components.
Unlike the basic level, the advanced level gives the procurement decision-maker more of a challenge with regard to supplier performance. The categories of products and services at this level are more specialized and, therefore, covering for failed supplier performance is more difficult. So, selecting the right supplier the first time is more critical.
The advanced procurement decision-maker collects many facts ranging from financial analyses of suppliers to supplier performance metrics gathered by her own company and other companies. Proof of adequate performance and long-term viability is of utmost importance.
The advanced procurement decision-maker actively and often collaborates with suppliers on achieving joint cost reductions. There is a strong relationship and communication protocol between the advanced procurement decision-maker and her strategic suppliers. They use meetings to brainstorm on better ways of doing business together and actually implement the best of those ideas for measurable improvements.
Stay tuned for my final installment in this series regarding good procurement decision-making at the expert level.