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Introduces strategic procurement and explains how procurement decisions must align with corporate objectives. The speaker contrasts bottom-line savings with the broader goal of improving revenue and business performance.
Hi guys.Welcome to the program on strategic procurement.You might have heard the word strategic very often here.Strategic normally we say it's something to do with the long term.But when I use the word strategic procurement, not strategic sourcing, two are different things.Keep in mind.So when I say strategic procurement mean that means all your procurement decisions which you take as a company are aligned with the corporate objectives.So that's a major key thing around.So when I use the word strategic procurement, that mean the function is becoming strategic.So whatever decisions you take is aligned with the corporate objectives.So that is the basic thing around that be in in in spite basically tells us we're trying to improve the top and the bottom lines.Normally what we do in procurement, purchasing, supply management, well I've saved so much.That helps me on the bottom line.
But not necessarily on the top line.So when I say the top line mean increase of revenue, increase of sale.Some of you must be wondering what procurement has to do with the sale.Now the question come that you guys are controlling in manufacturing at least 70 to 75% of the complete spend.So whatever is the external spend of any companies, 70 to 75% manufacturing is through procurement.Our supply chain if you think of it around.Similarly if I talk about IT companies, services company, there also it is around 30%.30 to 35%.So you control a big chunk of money.So you could also that money does not mean that you spend the money and help them only on the bottom line.The company also expects you to improve the top line.That's what I will go into detail further.
Now the learning objective for today what we kept up is understanding the concept of strategic procurement.This is very very important around so that we understand the term itself.So what is strategic?As I said to you strategic is obviously long term.But decisions whatever you do in the whole supply chain, in the procurement chain everything is linked with the corporate objectives.So that corporate objective has to be built into your function.
Describes the evolution from traditional purchasing to modern procurement in globally outsourced, supply-dependent businesses. It also outlines the major disruptive forces shaping the function and the need to think like a CFO in supply chain.
Evolution of procurement.Obviously procurement is evolving a lot.If I go back three decades back or four decades back procurement was not a procurement per se, it was a purchasing, buying and companies were vertically integrated.Very little was coming from outside.The majority was being done within the company.It was vertically integrated.Today the companies are horizontally integrated.They mean lot of items are coming from outside.So all the top companies are becoming assemblers.So in short, supply is going to affect the fate of your product.If you think of an auto company, you think of a man of even pharma company, they're using contract manufacturers around.So that mean the fate of your product in terms of quality, delivery depends on supply.If supplier is innovative, your product will be innovative.So that whole thing has changed in the business model has changed.Evolution of procurement has changed around.
Which to me I if I look in a selfish way for procurement and supply chain it is into their benefit.That's why in the last decade you can see the function of procurement and supply chain is growing much faster.Key chain dimensions.Now what are the thing which are disrupting the whole procurement?Look at disruption makes us to change.If there's no disruption, I'm comfortable, my growth is there.Nothing to trouble me, I'm very stable.Why should I change?People are complacent.People change only when there's a disruption.So we'll talk of those dimension which are affecting today's.Procurement professional as CFO.Now this word is a very tricky word.Many of the procurement people even report to CFO.But think of it.When you control a big chunk of spend can you think of yourself as a CFO function in supply chain?I'm not CFO in the corporate level.
I'm saying CFO in supply chain.Let me what I say CFO means let's look at this way.If you are the CEO of a company every company is a financial entity at the end of the day.You might be doing R&D, you might be doing supply chain, you might be doing procurement, you might be doing anything.But the end of the day when you look at the top peak it's a financial entity.Company wants to make profit.There's a in, there's out and at the end of the day they want to show my profit line is good.Now can procurement who is spending 60 to 70% of the spend can think as a CFO?Change the matrix around.The matrix is not just showing saving, matrix is different.So I'll just explain a little bit more in detail.So the main thinking as a CFO in supply chain.
The day you start thinking as a CFO in supply chain or procurement chain your credibility in the organization, your image in the organization will change.Because today we are treated as support function.So if we want to move into the top the line of the ladder, we have to get into that.Procurement as a strategic asset.
So procurement is a strategic asset.
The next come procurement leadership.So the procurement leadership also, if you want to be the leaders, what type of approach you need to follow?One is as a CFO in supply chain.So that mean your approach, your methodology, your thinking has to change.You cannot be stuck in the old thinking of three decades back.So I'll walk through with you the tools which are important to make you the leader of the time.Tools to identify the values.So the focus is moving from price to values.Dimension the world class procurement.If I say it's a world class procurement we see majority of the companies around in procurement what exactly we means around?What does we need to look at it?The next we'll talk about is strategy, strategy, strategy.What strategy?With whom I should have a good relationship?With whom I should not care around?
Keep them distance off.So that strategy which come from Peter Kraljic model, I will walk through that.Next is digitalization, digitalization.One can't avoid it.We all digitize ourselves.We are connected today with Facebook, social medias.Can procurement also be digitized and connected with suppliers?We have a tower which connects every information.So that's the type of thing we're looking at around.Competencies needed to cope in chain.Now when we are talking of the strategic approach not the tactical approach, neither the operational approach you have to change.That's what we're looking at around.So if I broadly look around the objective is optimize the whole process to create significant business value.I'm not saying procurement value, the business value.Business value mean the value is suited, they need it at the top level.So that's what we were going to talk around.
Explains the shift from clerical, reactive purchasing to strategic procurement and supply management. The speaker clarifies key terms such as procurement, sourcing, and strategic procurement, emphasizing long-term alignment with business goals.
The evolution if we talk around procurement professional now known as supply management.The new term which is happening around since becoming a strategic.So some people call it supply management.ISM USA was the first one to start using the term supply management.In general purchasing entailed very clerical functions, technical functions, mechanical functions.And if I go to the government procurement around there are step, step one, step two, step three.You have to do step one step two.If you have not done any step, you are questioned by the auditors.Is procurement a step approach around?If procurement is a step approach, then do you need very high degrees around?If I join a function, I have to follow 10 steps.Get 10 quotations, take the lowest price, place an order, end of it.So that means it's a purely tactical, reactive.So reactive mean I get the requisitions, I see the guy I know how to work on it.
And I follow the mechanical procedures.I'm using the word intentionally mechanical procedures.Price was very important factors.And purchasing required very basic skills.You know very well if three decades back anybody would have told you, "Would you like to join a procurement?"No, no, that's very mundane function.And the today it's very impressive area, it has changed a lot.But this is where you and me all have to work together to change the role of procurement.To change the perception of procurement.Until we change the perception of procurement, we'll remain in the old paradigm.However, the increased globalization outsourcing has gone to change from 1990s.Changes are happening.India, we can see for the last two decades changes are happening around.Our suppliers are assuming a new role.Think of a company where all my items are mostly coming from the suppliers.I'm only fixing them together.
But, supplier innovation is built into my product.So, supplier is going to affect the future of my product.So, suppliers are very important to me.So, in short, when I say evolution, we are becoming from order taker in the good old days it was order taking only, nothing else.So, we are moving from order taker to strategic role.So, we are becoming strategic thinker.So, that's the way change is happening around.Now, the factors which are driving obviously is technology is one because very easily able to connect all of us.People coming with the better skills.Environment also.There's a lot of focus on environmental things around.Whatever carbon footprints we're leaving can be cut down this.Globalizations.We are not stuck with only one X place.I can buy my goods, parts, components from any part of the world to improve my end product better.
That's the way we look at it.The top 10 change dimension if I talk around which are disruptive is a risk.Sustainability, transparencies, analytics.People want to make a decision based on analytics.Not just saying, "Oh, my thoughts are like this.This is what I did 10 years back.This was the best model I can follow it."The concepts are changing.Which was very successful 10 years back may not be successful today.Integrations, innovations, collaborations, finance, people, all these are becoming my dimensions of change.So, in short, if I have to summarize all these changes, started with the price, three quotation, lowest price.I know in the public sector still we talk of that.Then we came to the total cost of ownership.Cost management.It's not the price.It's the total cost.If somebody is giving me a faster delivery, price is small, it helps me to cut down my inventory.
Inventory is also a cost to me.So, I have to see a bigger parameters around.So, it is not only the item what impact it has around.Strategic sourcing.I know many of you have already started it around.So, procurement has got two parts around.One is source to contract.Other one is P2P.Purchase to pay.So, the two components around strategic sourcing basically makes the long-term agreement with suppliers.It's again a process.P2P tries to comply with it.Then category management goes one step further.In a strategic sourcing, I'm going item by item, commodity by commodity.That's great.I'm buying commodity from X supplier.And my friend is also buying another commodity but from another same supplier.What do you think?That means both items are characteristically same.They should be put under one category.So, that means my leverage is better.So, one same supplier is giving to three procurement people.
So, we are not taking the benefit of leverage.But if all the three are put together into one category, then you have a leverage with the supplier.
The next come value management.So, the trend which is happening today is all about value, value, value.
So, in short, if I it's basically showing the same thing.We are becoming is from a support function into business partners around.
Understanding the procurement term.Let me just clarify because I use some very frequently, but some of you are very con- conversant, some not.I thought let me touch the base with you.When I say procurement is a process of getting the material you need.Sourcing is nothing but to find the suppliers, vetting the suppliers, evaluating the supplier.Then you say, "Guys, oh, they are a good supplier for this."And this is where I find enormously many of the companies they are stuck with the same supplier for many years.And nobody want to take a risk of getting out of that to another supplier.Strategic approach.It's a long-term focus.This is a based on basically the corporate dis- objectives around.So, it is not cut and dry as a technical approach.Technical sourcing, short-term, reactive.Strategic mean long-term which are seven steps which you always talk around.
Some call six steps, some five, but the way we use it in our futures thinking around presentations some steps.And strategic procurement is aligning all the decisions with corporate objective.So, I hope gives you some of the clarity on the terms part because people should not be mixing up strategic procurement with strategic sourcing.The two are different things around.So, each term is very clear, I hope.
Focuses on procurement’s role in improving competitiveness, cash flow, and capital efficiency. The speaker shows how procurement decisions affect financial outcomes and why metrics must reflect business impact, not just savings.
Now, the key tenants if I look at the key belief of procurements.I'm just setting the base for strategic thinking.Supply is a forefront of the company to improve company.Now, what if I'm spending 70% of the company's spend?If I have to ensure the competitiveness, I'm the key person.And we can also get top line revenues also improved.If I can get my supplier with a better innovative ideas.So, in the end, my end product is better.Slim and extend the supplier risk.Managing the risk.Certainly there's if one somebody says no risk, you're dealing with suppliers.Risk could happen.Risk may not happen with your supplier, but the risk could happen with tier one, tier two, tier three supplier from where they buy it around.Procurement professionals.And this is where I was trying to explain in the beginning our CFOs of the supply chain.
Companies are financial entities in terms of performance and management.So, if you look at the top level,and if you want to move from support function to strategic function, we have to think in the same way.That means by viewing procurement as a financial ones.Now, some of you may be thinking, "Oh, we are not a financial ones."You are.You're spending money.So, procurement if you think as a financial ones, you can enhance the credibility and results.So, when I say view yourself as a financial one means your metrics has to be different than just saying lead time cut down, delivery done in time.Those metrics are out- outdated to me.It has to be changed in line with the financial one.Which top management can appreciate and they are linked with the corporate objectives.Now, take the initiative with opportunities and problems.Next is the biggest radical change which I see today is
radical shift is a digital transformation.So, let's talk about the financial role.Because I talked about the word financial role.You play a lot.Many of your metrics could be dependent on this.So, I think try to listen me clearly on this if any question come back.Cash flow impact.You guys affect cash flow.You're not only spender.Guys, okay, spend the money.I'm going my budget is so much.I have to spend.Your strategy has to be such a way Let me take the first line, the demand management.So, the demand management means if I'm able to get the right demand planning done properly, it cuts down my cash outflow.It cuts down my inventory and reducing inventory means my cash flow is better.Stock losses are less.Compliance management.Price leverage.We can leverage the price.If I'm able to leverage the price, my cash flow goes down.
If I'm doing on item basis and versus category basis, my leverage is better.So, all those things are helping you to cut down the cash flow.So, you have to use the same language with finance people speaks around.Not saying that, "Oh, I did a leverage around.I saved so much."That is not understood the top level.They want to see how much you reduce the cash flow.Similarly, increase the cash inflows around.If I do my cycle time less, I get better discounts around.If anything is selling surplus, something around is not lying for last many, many years around, I sell them off from the inventories.It increases my cash flows.Similarly, if I look at the last one on the capital investment side, many of you are dealing with CAPEX.See, if lease or versus buy, the model which is happening around today is if capital equipment has to be done, should I buy it or lease it?
Software.Should I have my own interest infrastructures or should I use clouds?So, if you use those things around, you're moving into a different world.Sale and lease back.Today I'm having an equipment then I say guys, I'm short of cash capital.You'll find many big companies have a cash crunch.You say guys, okay, this machine I'll lease it out.In the process you get the money back.But then you lease back.So you had bought the machine initially for $2 million and now you say guys I'm getting conscious of my cash flow.I give it to someone to work on it but then I lease it back.You pay in leases.So that again helps you to manage your capital.So if you look at the business impact major reduction in the ratios of purchased goods and sales reinforcement of the company's financial position So you are helping the company's objective to improve the financial position.
Instead of saying guys, oh I'm spending 70% of the company's budget great, you're a big guy.But are you helping in the financial position?Your thinking has to change.That's why I'm using the word strategic procurement.
Presents procurement as a strategic asset rather than a cost center or support function. It covers leadership, perception, cross-functional collaboration, and how procurement can create far greater value when it works with engineering and business teams.
Valuable strategic assets.Now if I say procurement is an asset, in the past many people have thought of us as cost center.Then people started saying guys, no, no, we are a profit center.We are saving so much.We are a profit center.The saving is more than our salaries.But now people are going one step further guys, we are strategic asset.We are a must for the organization to survive.Because many operations of the companies on the production of this they are going out and who controls it?Procurement or outsourcing.So you need an operation strategies to become lean and agile.Then outsourcing strategies those who are particularly coming from manufacturing.Even IT company also I've seen many of the things which they were doing earlier, they're passing on to many startups around.So there's also outsourcing in the IT company as well.There's a channel strategies in terms of distribution, service strategy and asset network.
If I got 25 30 contract manufacturers that's becoming my asset network.They may be using my assets.Or maybe they're on the lease basis.So you have the asset network.So when you get into that type of role it depends on you how you manage it.You're becoming a really strategic asset for the company.Leadership if I look at procurement.I thought this is also important around because we have to move into the strategic role you need different type of leadership.Not the functional leadership who can do the job, that's fine.But they have to think in a different way.Now many people have different perceptions around.Even many of you who are there in this program today you know how they perceive you.Do they perceive you as a support function?Do they perceive you as a just a transaction function?Following the steps around?
They tell you the supplier, they tell you everything.So what is the value addition you are doing in terms of specs, in terms of getting a good deal through negotiations?
Organization hierarchy.Is procurement sitting on the top of it?Do you have identity?If procurement doesn't have any identity, obviously there's no perception.You won't be able to attract the best talent.If you want to attract the talent, your perception has to change.You have to be at a different levels.Style of the functional leader.The person who's leader and whom they report it makes a big difference.The style mean the guy thinks of the finance guy as a CFO of the supply chain.General approach of the procurement as a function.Representations at the top table.Approach to engaging with businesses.Is procurement chief engaging with inside and outside stakeholders?So how do we impress them?Guys, there's a need to change the specs here.There's a change this one around.If you do this, saving will be better.So that means you have to engage with them and they have to consider you as a perception wise that you are a value adder.
You're not just to follow the mechanical steps to take care of audit, nothing more than that.So if you look in the past, the focus has been in terms of cost cutting value rather than value adding and in bringing better qualities around.So we have to get changed to that part around.What can we do is around?First thing is and I've done I think whichever company I visit every month, two three company I visit around, I tell them guys, what are your business objectives around?What are your objectives around?Do they align together?Does every person in your staff knows about them?So that thinking has to be mindset has to change.Now procurement needs to be seen as a source of innovation rather than a block.Why I'm using this word because one company I visited around this people think of guys, these people are using the same supplier for the last 5 years.
New technology has come up in the market, market, new suppliers have come up around.New informations have come up but these people are still stuck with the same one.So I would say then you're not becoming the source of innovation, you're becoming a blocker for them.Now need to present a more balanced view of outcomes.Now start thinking in different terms.So your KPIs have to change.
And if you're looking at the price, look at the total TCO.
So procure, if I have to think of as a leader, procure promote procurement as a function and a profession.So when I use the word profession mean you need a specialized knowledge.Not that everybody can do the job.So profession means it's required a specialized knowledge around.Now let's look at aligning part.The very first thing to become strategic.If we want to strategize with the corporate objectives I must know the vision, the mission of the company.Vision mean where we want to go.What are the current mission purpose around?So based on that every company has a goals and objectives around.Now from the goals and objective everybody has a strategies around.Now based on the strategies are we able to make our own procurement strategies around?Now procurement strategy has to merge with that part around.That's what we look for.But this is another thing around.
So far we have procurement function as a very silo function.Now this is a study done by our headquarters.Now this shows just doing a silo how much saving you can bring.But if you're cross functional, you can have a better savings.And then you have to lead as a procurement person but then the function has to be cross functional.Look at the three of broad headings around.Leverage buying power.Obviously leverage when it comes, there are three colors around, sourcing managers, cross functional and engineering.Some price is built at the design stage, we all know.So that means 10% can be attributed to the people who are designing the product.And the way specs are written down.Sourcing manager is contributing 15%.But the cross functional team is adding extra 5%.I'm talking in the very first heading, the leverage part.Where we do renegotiate the contract bundle the volumes and change the suppliers.
Change sometime because sometime we feel there's no other supplier.I've been troubled if I change the supplier.So sometimes there's a need to change.And change mean possibly they have to change the specs also.And that is only possible if engineering people and the cross functional team supports you.This broad heading second one is leverage the product chain.Can I change the product?New markets, new materials have come up around in the market which can serve the same function more effectively.So if you look at the saving which is going to come 25% will come through the cross functional.As a sourcing manager, your role is only 10%.So optimize the processes, the procedures which are made as to be lean.Your contribution if you think as a silo is 10%.Cross functional is 15 and through the engineering and the internal customer is 5%.
Total if you look around saving if I'm working procurement as a silo function, my saving is only 35.But if I'm having a cross functional approach it adds extra 45.So that means you're only doing 1/3 today.If you want to move from 35 to 100% part, then you have to become cross functional and you have to become very good business partner with your engineering also.So this is where it needs a different thinking at the leadership level and at the operational level.That's why the word is called strategic procurement.
Reviews practical tools such as spend visibility, collaborative sourcing, simplified P2P, and supplier performance management. The speaker also discusses maturity levels, supplier innovation, and the need for better information management and KPIs.
Now here we're talking of the tools which adds values.The very first one is spend, spend, spend.The visibility of the spend.What are you spending?With whom you're spending?Whatever items you're buying around, what is the lead time and all those things around.So that is the one which will help you to improve the effectiveness.If I'm doing some analytics, that improves my efficiencies.Then so sustainability is there on some issues.So spend is the very first one.Spend cube, spend this.If you are able to do that, you're able to impact on effectiveness, efficiency, and sustainability.The next is collaborative and advanced sourcing.Collaborative with the suppliers.
So suppliers and we work together.We have a common objective.
So there also I get improvement in efficiency and sustainability.P2P is my process.So P2P process is simplified, particularly the payment.Like if I can go with the invoice, it can help me.And last but not the least is performance management.This is the one I feel a lot of companies are lacking.We do the performance management of the procurement staff.Yes.But are we doing for the supplier?Do we have targets for them?Do we have a KPIs for the supplier?Are we briefing them where do they stand?So that part, if you're not doing it, sustainability is not for you.Today supplier is doing a great job.And same supplier you're using for 4 or 5 years, they become relaxed, easy going.They also know you can't do without them.Sustainability is a question mark.So the quality and the price today what you're getting innovative products over the time of the product life cycle, it goes down.
So if you want the sustainability, you have to keep them on the toe.Or you have to develop them.So the broad process as I said to you at the beginning, there are two parts, sourcing.Trying to find suppliers.And there's the word we use the money on the table.Where you're making a long term agreements.Then there's a buying component, P2P.You're complying with that.That's the broad view around.This is the talk some maturity levels.Level one, level two, level three, level five.So those of you who are trying to see in house what level we are.Average I would say in Indian companies are within three, 3.5.That's the average.So there's a long way to go to become five out of five maturity level.Strategic sourcing, SRMs is becoming very critical.If supplier is becoming my innovation center, think of company like Apple.
Supplier is my innovation center.So certainly SRM becomes very critical.So you have three pillars around strategic sourcing, procurement operations, vendor management.That's where I do the my SRM as well.And contract management.But here is the world class procurement.When we look around the maturity, we look at these headings around.Do they have a strategy?And strategy must change.It can't be static.The world is changing too fast.It's not the world of '70s and '80s.Neither of '90s.The people who are the millennium, they know very well things are changing very fast.So strategy if somebody say we designed 10 years back to me is outdated.To me is a dinosaur.Change it with the time.Then we have strategic sourcing part.Procurement process.Whatever process you have.Is it agile?Is it lean?Are you too complex?In one company I went around from requisitions to making a PO, it takes 3 weeks.
What do you expect from the supplier?Your own processes are outdated.Then it comes the supplier management.If supplier is the innovation centers, how do I manage them then?In terms of performance, in terms of other things as well.Information management.Information mean in terms of data.Data is my gold today.Analyzing the gold.You guys in procurement are creating tons of data.Now the data has to be squeezed around to come with the information.That has to be squeezed further, analyzed further to come with intelligence.So without the intelligence doing procurement is one thing.So you need information management.So now sometimes people think it is not my job, it's an IT job.No, it's part of your function.Your people have to be savvy, technical savvy, business savvy.Organization structures.Good old days was all vertical pyramids.X reports to Y, Y reports to Z till it reaches the top level.
It's becoming horizontal nowadays.Some items are becoming decentralized.I remember the time in '70s and '80s, the concept was decentralized.Empower them.Now we think guys know we need to leverage it.So some critical items are leveraged at a central place.So strategic sourcing is done at a central place.Transactional procurement is done at a decentralized level.So that's the type of model which is happening around.And then the next is performance management.How are the performance going on?What are the KPIs?For the suppliers, their performance level.Including the balance score cards.Are we really measuring it?How are they affecting my score card at the corporate level?So we have to link with the corporate level.That's what I mean to say.This shows you the cycle.You can see so many activities goes around.And this is what we need to impress on our top bosses around.
Guys, procurement is not just shopping.So if you look at the pillar, this cycle itself, strategic sourcing, contract management, requisitioning, purchasing and spot buying, payments.But behind each one, you have got other activities around.Like contract management goes negotiations, executing the contract, managing the contract.So all those things are there around.So this shows you a lot of activities goes behind it.
Introduces Peter Kraljic’s matrix as the foundation for procurement strategy and supplier segmentation. The chapter explains how different item types require different approaches, including rationalization, development, collaboration, and market intelligence.
Now this is where I want to get into the strategies of procurement.And there's no better person than Peter Kraljic.In 1983, go back.See how many years back.Peter Kraljic said, "Guys, how can each procurement be same?It depends on the value what I spend on it.It depends on the risk what I do with it."So depending on my profit impact, depending on the risk, depending on the values, I need a different approach.So he came with the concept of 80/20.So with the 80/20, he divided the whole procurement into first vertical So low values comes you can say the value wise 20%.But the number of contracts may be 80%.Then on the right side, I've got 80% of my spend, but 20% of my contracts around.Then I have got the risk depending on risk and impact, depending on how many suppliers are there around.
If I have got tons of supplier, I don't care for one.I say, "Guys, get to hell.I'll change the suppliers."So this is where it comes around.You get the non-critical items.Low values.Low risk.Bottleneck, again low values, but high risk around.So risk is shown on the bottom line X axis.But the spend is shown on the Y axis.So that means leverage item is a high spend, but the risk is less.I choices.Strategic items are the one high risk, high values.So I would say all your procurement strategies revolves around these four boxes.I know some people have even modified further into 8 by 8 matrix, which is more like a chess of procurement.But this is good enough to understand how can we divide.And you can't do this without spend management.So you need to have spend cubes, you need to have the risk management and draw this.
So once you know this, so that means you need different approach.Non-critical items, low value, low risk.I should standardize the product.I should use e-catalogs around.Strategic item, there are very few suppliers.They can make and mar my future of the company.So that means they're very important to me.They're innovative companies, short term.But does not mean that you have to close down your eyes.You have to think of finding new supplier as well.Try to bring strategic item into leverage group.Pull them down.But that's only possible once you find more supplier sources.And leverage is the one where I've got a high spend, but the risk is not much.Choices are there.And if I have the choices, I would love to do e-auction, guys.Reverse auction.I will hammer on it.Get my best prices, best deal.That's what we talk about.
So this is where it comes to converting the same thing into the So one area is becoming supplier rationalization.Other area would be the supplier development.And supplier collaboration's part and the last is supplier management part.
The strategy with supplier I think is already clear so I don't need to spend time on this.So keep in mind this two by two matrix will remember help you everything in terms of strategy, in terms of relationship, in terms of your methodologies.I would say all your procurement procedures should revolve around this.Now online auction when I said the word called reverse auction I think is a wonderful tool.I know one company they're even using for services to hire even the lawyers.Some of you may be laughing how can services be procured?If you're able to define the requirement the output very clearly whether goods or services and you're going to shortlist the supplier, you can do it.So it's wonderful time it cuts down the time and you can but the only good important thing is people should not be having connections around.
Sometimes supplier may exploit you if they know each other.So that I think one has to be careful.That's all but it's a wonderful tool.Many companies are getting into this.Supplier also has objective.Keep in mind when you deal with suppliers they also have objective.In some pockets they want to work with you.Some people the profitability areas, some place growth areas.They have also objectives around.So you guys have to see your approach keeping in mind the other side as well.Next come the market intelligence.This is where the major breakthrough can come in strategic The market intelligence in keeping in mind who are the key suppliers in the world.And each one what technology at each one has got over the others.Who's the most likely to make my next breakthrough for me?Who has the capacity etc.Where are roadblocks around?
If there possible likely block or block roadblocks around, how can I help them?So the market intelligence is important around.And keep in mind market is also changing is very dynamic.It also has some political component.Today your relationship of X country with Y country is wonderful.And depending on the trade balance, taxes are low.While the other trade balance is very bad, taxes may be on the high side.Or there could be other sanctions around.So that politics part also is there around.You have to understand the market intelligence and the politics.When are you doing supplier evaluation is also very critical.At the end of the day the suppliers are very key for you.So you have to check the quality part.You have to check the logistics part.Commercial aspects around.When I say logistics mean let's say I'm looking for copper.
There are many places but the one or two are there in Africa around.If I'm going to get from Zambia and other places around, how do I get it?What logistic cost is going to be there around?So you have to look at all those parameters before you say this supplier I'm going to work with.Commercial aspects, the risk part, all those factors are there.Now this is where the evaluation method which all of you are very well clear.I don't need to spend time on this.Initial screening is there, evaluation is there, oral presentation by the supplier if needed.Evaluation of course proposals and best and final offer ranking them.Now this is where it comes up.
Covers strategic sourcing steps, category management, statement of work design, and negotiation planning. It also explains how procurement should use market intelligence, supplier evaluation, and contract tools to manage risk and improve outcomes.
If I draw the same Peter Krstic model, the item which are low values, low risk, lowest price and I can go with again here e-catalogs around, make my life easier like Amazon experience.But if my expenditure is more, risk is less, I'll go with the TCO and I could do my reverse auction there.I will do the weighted scoring only in the other one which are highly strategic area is around where my risk is very high.Now strategic sourcing which is the one of the one wonderful tool I would say in terms of as a part of strategic procurement, there are seven steps.The very first step is again starts with understanding the business objectives.You're trying to do the whole profiling part to the spend part, segmentation part.So you segment into two by two matrix.Marketplace options around the market intelligence.Develop appropriate sourcing strategies around.
Select the future ex- and then finally manage the supplier.That's what the seven steps are there around.Now there are risk and benefit of strategic sourcing I think is very clear what I explained to you.Category management goes one step further.So here I'm looking at a category the item of similar natures which come from the same similar supplier.So that mean my leverage goes better.So I think as a category manager and then I also manage the SRM very well.So category managers if you are, you're more like a mini CEO of that category.So that's the way I would because it's a very powerful function nowadays.Because then you're looking at the profit and loss of your category beginning to end.So this again explains you the whole story.Strategic sourcing is a sourcing and a contracting process within the contract category management.
If I look around e-commerce company they work on a category basis.Many of the manufacturing company also works on a category they are doing machine component, they are doing fabrication component, they are doing casting so they have all this.Similarly in the pharma also I see the category.While other places I don't see much of category they go with items around.
Statement of work which I find is very sometimes not well done particularly those who are dealing with services.If you're dealing with services, SOW should be very well defined.To me it's more of a specification of services.Requirements and specs.History of the project why you're doing this.What deliverable you're looking for the outputs you're looking around.What are the milestones, schedules, requisitions and performance tool.I remember the client time when I used to work in the US we have developed many templates on this.So we used to work on it.So I think this is a necessity in every company around.Instead of everybody giving to you here is my terms of reference, here is my statement of work.No, there should be standard template.And that should be appearing in your SOP.That's the way I would say.This one also is very important when you want to see in terms of negotiation are you powerful or supplier is powerful.
So this is where the Michael Porter five forces very critical.I think very important around.
So basically what we're looking at the threat of new entrants.What new substitutes are coming around?Let's say now I'm working in the automobile Now new entrants are coming with electric vehicles.How does it affect me?My suppliers who are supplying to existing suppliers all the time, manufacturers.Now their demand is going down in those product lines.So you can try to see which one is becoming powerful and they're changing evolving all the time.So bargaining power of the customers, bargaining power of the supplier.So I think it's a wonderful tool which everybody should know it before you get into negotiation.So effective negotiation also you should try to do broad steps around, develop your negotiation goals.I've seen people go down.They just want to go and get 5% discount end of it.That should not be the objectives around.You have to set down the negotiation goal what exactly you want to see.
You want to achieve the lead time.Even if I cut down the price but the lead time goes up, you're losing because your inventory is going up.So setting the negotiation goals, you need to have team, you need to prepare yourself, analyzing the phase of the negotiations.Again negotiation strategies are there, tactics are there and that's the way it is.So I think one needs to in a proper professional way to achieve strategic purpose.Incoterms with 2020 I'm sure many of you who are importing it or those who are buying locally also, there's a need to use Incoterms.So Incoterms can be used.I know the word starts IN is international but this can be used for both domestic and international shipment.So if there's a need to cut down your risk when shipment is moving or the local transportation is going, is insurance fully covered or not?
Perchance it may happen once in a blue moon then you are questioned your credibility part.So I think one needs to understand Incoterm what to use even for domestic procurement.Contract management is another pillar if I see under the name of strategic procurement.The broadly is the risk part, scheduling part, contractor invoices, negotiating them and managing the contract.It's a combination of contract administration and management everything.So basically you very well know purchase order was done.That's only half battle.The major battle starts when you come to the ground level, when you start working on it.Supplier starts crying, "Oh, I have under quoted this.I can't do this."The guy stops work around.Some other reasons comes up around.Price shoots up.The guy wants to renegotiate.This is very critical.And particularly in the public sector, we have seen when contract get delayed, the whole price system changes double the price.
Risk mitigation process around.Identify the sources of risk.Assess all the overall impact.Risk reduction.Mitigating the risk.I'm not saying that you want to make a zero risk.The zero risk is don't do anything.That's a zero risk.If you're doing something, somebody's going to question you, certainly.So, you have to mitigate the risk.I'm saying that around, there's nothing like a zero risk.Except if you don't do the job, then yes, there's a zero risk.Even if I get out of the house, I can meet with an accident.The risk is there.Be careful.If you don't want to have a risk, then sit at home.Don't go anywhere.Zero risk around.There's a golden triangle around.This is beautiful one.When we talk of strategic procurement, you should be able to help the growth of the company.This is why I was saying at the top top line, not the bottom line alone.
Margins.Cut down the cost.Saving is important.I'm not saying that.So, growth helps you the top line.Margin helps you to the bottom line.And then, once you achieve this, I've got a lovely supplier, a lovely team, everything is great.But, over the time, everybody become lazy.They take it for granted.All your competitors have come with a much better technologies.So, sustainability is key issue around.So, the golden triangle is talk of growth, talk of margins, talk of sustainability.And the bottom line in this one is customer centric procurement.What customer wants.Today, customer is more digital.10 years back, they were not.So, their expectations are different.They want on the press of a button every information.So, that means you need to work in a different fashion.You have to improve the collaboration part with suppliers.You need suppliers which are innovative.
You need to optimize the cost also.So, you can imagine this triangle gives you wonderful ideas around on the growth, sustainability, and margin.
Explores the impact of digital transformation on procurement, including Industry 4.0, AI, big data, IoT, robotics, drones, and blockchain. The speaker distinguishes digitization from transformation and explains how connected technologies reshape procurement work.
This also gives you one more the framework.The mean procurement chief of procurement team has to be more like an entrepreneur.In this triangle, you can see around various forces are working.External environments.The risk is there.Yes.And then, there's customers, suppliers.Technological revolution is happening around.So, all these forces are working with you.Now, how do you manage them?Technically, each is an event.Now, everybody is using RPA, let's say, robotic process automation.What does it mean for you?Somebody using IoT.What does it mean for you?Somebody using this.And more and more people are using it to this.So, then now, what is the impact of that?And how do you manage the events around?As you are buying something, crude oil from X country.Now, today the relations are bad.What do you do with that?So, that means you have to manage those events which happens.
Events could be in technology side.Events could be in external side.Events could be the risk has gone up somewhere.Custom duty has gone up around.So, that's the way you need to look at it.So, this is a wonderful entrepreneurial approach around.So, procurement is not the good old fashion just buying and showing saving.You have to become entrepreneurial approach.Digital transformation certainly very important around.Everybody is talking of industry 4.0.If you look at all the industrial revolution of 1 2 3 4, certainly one we lost it in 18th century.We were under the control of British.19th century, again there's another one came when electricity came.Again, we lost the revolution part.The country which was exporting 25 30% of the GDP came down to 1% or 2%.So, third revolution came in 1969 when computers came.India took the benefit of it and we are doing well, I would say.
But, now when we come to the fourth revolution, we're talking of connected world, connected with machines, connected with that.So, that part, I think we have to take the benefit of it.We talk of automations.Man to man, machine to machine.All are being connected connected.So, the methodology of manufacturing is changing now.3D printers have come around.So, the whole approach is changing.Are we ready for that?If you're not ready, then we lose this revolution also again.We're left behind.
So, the digital technology which has come up in the market and some of them are very relevant for supply chain, for procurement, for logistics.Artificial intelligence certainly very critical.If I'm collecting so much data, data has to be analyzed.And data becomes my intelligence only when artificial intelligence does the screening.Autonomous vehicles.Certainly, I'm not talking on the road side, but within the office, warehouse, there are hazardous places.I cannot put people on the hazardous place.I could have autonomous vehicle in the warehouses to move the item from one place to another.Big data analytics.3D printers.If I'm dealing with the spare parts, and spare part has to come from 10,000 miles away and cost me too much.My actually equipment is down.Can I do with the 3D printers spare parts around?People can make even the prototype with 3D printing.IoT's.And along with IoT, if I've got a sensors, I can track trace every information.
And IoT become my tool for big datas.Robots, drones.I think many people are working on this subject around on the drone side.Particularly in the warehouses.If all my items are with RFID codes, and the drones can check my inventory level anytime correctness.Social media certainly we use it for marketing.And the blockchain.Now, all other technologies are helping you to digitalize.But, this one, the blockchain by nature is digital.That means this is having a decentralized database, while others are all centralized database.Easy to hack them.While this one is a decentralized, chance of hackings are very less.Digital transformations, again I want to clarify digitization could be that you scan something.Oh, I'm digitizing it.Other one is you're not scanning it.It is becoming by nature.Comes in your system.Invoice come into the system.So, that is what you call it is.
And transformation means it is not only your function.All other functions which are connected with you.Are they becoming digital?That's the way we call the transformation of the companies around.
Summarizes the five roles needed for success in strategic procurement: entrepreneur, change manager, negotiator, politician, and technician. The speaker closes by highlighting competency development and inviting viewers to suggest future webinar topics.
Now, this is where I want to talk the five hats to success.If we want to move into strategic procurement, the very first hat is entrepreneur.Good old days are gone.Everybody has to be entrepreneur.Whatever activities you do, think as an entrepreneur.Second is a change manager.Can you think of a change in your organizations?Because people don't want change.If they don't want to change, then how do you motivate them to change?And the third is negotiator.And you have to be politician also.Keep in mind.I know it's a dirty word, politician, but can't help it.So, you have to learn the politics also around.Because many of the things you're buying worldwide, you have to understand what could affect this.Technicians.In addition to all of this, you have to know the ground level also.So, you have to have a skill of sourcing management, category management, SRM, P2P.
So, until you have the skill, other will be just blah blah.So, you have to be good technician, you have to be good politician, entrepreneur, change management, and negotiator.So, this is all very critical five hats to become successful in the digital world.Now, when we're talking of this whole thing around, the functional skill which I look around, you need to be very good on business strategies.I'm not getting into the soft skill, which you got some idea from the previous slide.Category management, sourcing management, negotiations, contractual risk, SRM, cost management.Now, based on this, we are doing lot of project with many companies, I would say, of on develop identifying the gaps in the competence.So, we have our headquarters also got mastery model.So, we are also doing competency assessment for many.So, based on the competency, then we do the training.It is not training standard training around.
So, we design the training for them.Well, friend, with this I want to thank you for the patient hearing.Now, before we get down to the question, I just want to I I know this will be available to you later.Which of the following modules you wish us to cover in your future webinar?So, I will have because I can't cover 20 into onesurvey question.So, I put down smart logistics one.Effective contract management, supply relationship management, leadership, risk management, effective negotiation, supplier management, warehousing, category management, blockchain 101, S&OP, all those things are on.So, this is a big list around because our role is to promote professionalism in your function.So, our interest is to carry on every week, whenever possible, one webinar.And we want to get the list from you what uh you want us to cover.So, I will have one survey with only five subjects, not all this list.
But