In this article, we are going to show how important is the role of an efficient purchase department and how to improve it. But first, it is important to identify what does the act of purchase mean…

What is the purchase?

The act of purchase is the result of several operational tasks executed in a chronological way. The procurement process can decompose into six essential phases: the definition of the needs, the research of suppliers, the launch of call for bidders, the analysis of the offers, the negotiation and the contractualisation. Every phase must be approached with rigor and methodology. Throughout this process, the buyer owes be attuned to his customers to understand their needs. He also has to follow and manage in an effective way the relations with his suppliers and anticipate the possible risks.

The needs:

Define the need means defining correctly the product or the service we want to buy, in adequacy with the needs of the company. Writing a booklet specifications allows to specify expectations for the future product or service bought. The booklet specifications can be drafted either in a detailed way, or in a functional way. In the first case, the suppliers can answer point by point to the various criteria contained in the specifications. In the second case, you call on to the supplier capacity to suggest solutions to a given problem.

The specifications booklet:

 Several sections can appear in the specifications: 

-          The context of the purchase allows the suppliers to have a clear vision of the stake.

-          A description of the characteristics of the product or service has to appear there.

-          The booklet specification also specifies the commercial conditions (cost, objective, payment terms, device, etc.) and indicates the criteria that the suppliers have to fulfill, this with the aim of managing better the risks.

More the terms of the specifications are precise and cover all the problems susceptible to arise more the risks are reduced.

The research for suppliers:
At this step of the procurement process, two options are possible:

-  In the first one, the suppliers who can meet the specifications are already a member of the panel of the company. In this case, they are known, estimated and the risks are mastered.

-  In the second option, the need evolved and it is necessary to look for new suppliers. In this case, it is necessary to use methods of sourcing and ratification of the new suppliers.

The sourcing takes place in three steps:
- In the first one, the research is characterized by the identification of a geographical zone to be explored, by the quality of the product or of the service from the definition of operational objectives and, finally, by the product (or the service) itself. All these aspects must be crossed and will allow the identification of the potential suppliers in a specific area. In other words, where can you find these suppliers?

-  Internet

- Show trade

- Recommendation

- Contact the supplier of your suppliers

- Social network such as Yeld, linkedin

- The second step is the collection of information. The potential suppliers are contacted and have to answer to request for information.

- The third stage is the realization of a mapping from all this information. This work can show itself extremely long and delicate but extremely useful to have a full vision of your competitors.
Once the suppliers were targeted, it is necessary to approve them before being able to consult them.

The Call for bidders:

The call for bidders are a strategic step in your process to identify new potential suppliers. This is your first contact with future potential partners. For this reason, it is important to well prepare it in order to send a strong image of professionalism to your future partners. Maybe with one of these suppliers you will build strong win-win relationship mutually profitable for both side. However, keep in mind be friendly with a supplier do not imply to neglect a solid preparation.  To prepare a call for bidders, there are few documents to supply:

- A letter of introduction which presents the context of the consultation and the objectives;
- The specifications of products or services
- The terms and the conditions of the establishment of a business relationship;
- A questionnaire to collect general information on the suppliers;
- Appendices, if necessary.
All these documents are to be sent to the suppliers, either by mail, or by e-mail.

The analysis of the offers:

Once the answers of the suppliers were received and validated, the buyer proceeds to the analysis multi-criteria of the offers received.
The analysis of the offers takes place generally in two phases:

- The first step consist to realize a first selection which is made on the basis of criteria having a character eliminating. It can involve a particular technical skill, specific industrial plants, geographical localization, etc. For example, if you are looking for a service provider for restoration only based in New York State, it is obvious you will push aside a service provider located in California. Then the suppliers who exceeded the first step imply they are able to propose solutions a priori corresponding to the specifications.

- The second step consists in making an analysis multi-criteria of the remaining offers, to make a final choice. This analysis must be formal and explicit because the supplier chosen will be communicated to the not selected suppliers in order to help them to get more competitive in the future.

Here below few criteria very important to negotiate with the suppliers before going ahead:

The qualities criteria:

The first criterion is the quality of the product or service bought. That imply of course, the specifications are always respected well and this is necessary to master perfectly the product or bought service. Moreover, keep in mind it is always an advantage to work with suppliers among whom management systems and practices quality are defined well. The certification on a standard is often looked for and considered as an asset because it demonstrates the capacity of the company to meet the needs of their customers in an optimal way.

The global cost of acquisition:
The second criterion is the global cost of acquisition and the commercial conditions. You have to master the cost structure of your future suppliers by asking for detailed calculations. Indeed, the structure of the cost is something complex by nature because it integrate so much criteria such as the delivery cost, the packaging, the labelling, etc… Then try to identify the details of their price in order to understand their compositions. It is common for the suppliers generally to upcharge of their services. Then having a better idea of the cost structure is always a plus. Do not hesitate to inquire with question such as how much does the delivery cost? The labelling? The part of the packaging in your final price … By this way you will be able to understand the cost structures and then not be abused by an unscrupulous supplier. At the beginning you will be probably lost with all the information, but after few negotiation you will have a good idea of the different cost. Moreover at least you will be able to reduce the cost or limit the upcharge by your knowledge. Finally the supplier has to propose a competitive price with regard to his competitors. The wanted payment terms should be acceptable and the incoterms (methods of the transaction) proposed should be advantageous according to the geographical situation. The global cost of acquisition must also be competitive.

The criterion of deadline is the third aspect:

The deadline has to be mastered and in compliance with the needs. Indeed, in order to limit the value of your stock you have to stretch out your scheduled delivery. The ability to your suppliers to meet the deadlines of delivery, of procurement and of putting into service are criteria-keys to select suppliers. The chosen supplier needs to have a logistic system allowing to deliver in time and, if necessary, to be capable of storing.
There is also other criteria which can be integrated such as the adaptability, the financial security and the sustainability of the company. Once the offers were analyzed on the basis of these criteria, some suppliers stand out and the buyer can commit the commercial negotiations with those who answer best these criteria.

The preparation of the negotiation can take place in three phases: collect information on the supplier, prepare technically the file and develop a strategy of negotiation.
Before suggesting a negotiation, it is advisable to collect information on the supplier, the product, the service and the weight of the purchase realizing.
For a new supplier, the principal points to be analyzed are the economic situation, its competitive positioning, its forecasts of activity and its means of production.
Concerning the product, it is necessary to analyze the main characteristics, the performances and its final positioning. It is also advisable to know the part of the purchases of the company in the turnover of the supplier.  It will allow to estimate the balance of power and to use it as a lever.

In a future article, we will develop a deeper understanding of the negotiations approach.