For some time now, companies have been investing in creating a purchasing industry that uses resources such as automation technology and cloud computing for greater efficiency.
But has this area reached the level of maturity necessary to benefit from the transformation that is within the reach of purchasing in Industry 4.0? That’s what we’ll see next.
Digital maturity of the purchasing sector
In a recent study, Forrester Consult interviewed 417 purchasing leaders from North America and Europe to identify the degree of digital maturity in the area, noting that 65% of organizations said they were at an advanced stage in this regard.
However, the same survey showed that they are further away from a 4.0 Purchasing sector than they had imagined, with only 16% of companies at an advanced level of maturity – meaning they make intelligent use of the technological innovation available and are programmed to keep up with all the evolution that technological resources will bring in the coming years.
Another highlight of this study concerns the poor technological choices that companies have made. The result is that 82% of them have changed (or are thinking of changing) their digital provider, mainly due to the lack of integration between the implemented solutions (30%) and the difficulty of use of the tools by users (27%).
The conclusion of the researchers is that the vast majority of the companies interviewed still adopt a digital approach that simplifies processes and improves the efficiency of the purchasing sector, but this is not close to the transformation provided by Purchasing 4.0.
And the first step in this direction is up to the purchasing manager: to realistically assess the digital maturity in which the sector currently finds itself and, together with the Information Technology department, to outline the best strategy towards a planned and continuous transformation journey that will provide real competitive advantage for the company.
Organizations that do not adopt a smart approach to purchasing will risk losing space to the competition with digital knowledge, since the current business environment is one of extremely rapid change.
The Purchasing Team in Industry 4.0
Purchasing managers are still reticent about implementing new technologies, such as Artificial Intelligence, Robotic Automation or Blockchain in the industry routine.
This is the conclusion of a survey conducted by Deloitte – an American business consulting firm based in several countries around the world, including Brazil – pointing out that 51% of the managers interviewed are hesitant because they understand that their teams do not yet have enough resources to execute a digital purchasing strategy.
It is clear, therefore, that Purchasing 4.0 managers need to find new talent and also prepare the employees already hired, forming a multifunctional team with training to face the digital transformation.
Another essential factor to obtain the best possible performance from the purchasing team is to establish metrics that make it possible to evaluate all the collective and individual work. This analysis will allow us to know the team’s weak and strong points, investing in improvement actions.
And, of course, we must not forget that the purchasing manager himself must adapt to the new times, acquiring fundamental skills for the digital era.
Using modern tools correctly, the area will be able to capture, analyze and act from updated data in real time, creating agile connections with the entire organization, optimizing processes and increasing purchasing efficiency.
Purchasing 4.0 raises the sector’s value proposition
According to the German Henrik von Scheel, creator of the expression and fundamentals of Industry 4.0, we entered the second wave of Industry 4.0, characterized by the connection between advanced technologies and the use that humans can make of them, aiming at the improvement of organizational processes.
The purchasing sector has the opportunity to take advantage of this phase to increase its value proposition within the company, uniting its strategic knowledge about the market and its wide experience in purchasing with the opportunities brought by technological transformation.
This is the case, for example, with the use of bots. Considered a kind of assistant with Artificial Intelligence, it can provide updated information on purchasing processes and also generate automated demand. Through sensors placed in the stocked materials (making use of systems based on intelligence of things, IoT), the bot can identify the decrease in the stock of products and issue, autonomously, the purchase order before the item finishes and interferes in the organizational routine.
One of the great advantages of bots is that they can be implemented quickly, with little change in the process already used. That doesn’t eliminate the need for constant monitoring, by a properly trained professional, to ensure control over the resource – IT specialists recommend that the monitoring takes place on a daily basis, to ensure that the bots are running, and that there is a deeper performance assessment, on a monthly basis and whenever system changes occur.
Bots are already a reality in organizations, providing vendor management, purchase order creation, order and payment processing. But there is much to explore in this resource, and it is important that organizations reflect on operational details and impacts before the bots are deployed in the area.
In our blog, we’ve already covered other technologies that are influencing purchasing in Industry 4.0. Therefore, to complement your knowledge on the subject, we recommend reading from:
Soluparts can also collaborate for greater efficiency in the purchasing area, offering benefits such as better prices and agility to its customers. Get to know Soluparts differentials and values and take the opportunity to quote with our experts.
Have you ever heard of Strategic Sourcing? This concept has become very widespread among professionals in the purchasing area and in the business environment.
Basically, this methodology intends to analyze the total cost for the aquisition of products or services through observation, mapping and analysis of the specifications of materials, service levels and suppliers.
Read down below so you can understand a little more about Strategic Sourcing and how it helps you to have a more strategic purchasing process.
What is Strategic Sourcing after all?
Issues such as political and economic volatility, technological transformation, among other factors, make the market increasingly competitive. For this reason, it is essential to adopt effective sourcing processes to maximize business performance and efficiency, which helps you stand out from the competition.
Directly linked to the financial health of a business, this strategy is based on evaluating all angles of the acquisition of a material or product, by identifying the impact generated on the organization’s finances. This method starts from the premise that even if the purchase is made to meet the needs of an industry, it is part of the overall strategy of the business.
The use of Strategic Sourcing allows a thorough analysis of all external and internal costs that influence the value of the end products – among them: logistics, storage and procurement. In this way, it is possible to obtain, among other advantages:
- Cost reduction in purchased products and services;
- Improvement in the delivery time of suppliers;
- Improvement of the negotiation capacity with suppliers and speeding up the acquisition flow.
- Standardization of processes according to the formalization of routines, which are now documented;
- Greater knowledge of the supplier market;
- Rationalization of the supplier base;
- Improvement in the internal and external relationship of the organizations’ purchasing department.
In a practical way, with Strategic Sourcing, purchasing organizations can stop focusing only on transactional aspects of purchasing, incorporating greater intelligence into the process as a whole, including the choice of suppliers.
This avoids problems such as buying the same category of materials/products from different suppliers, paying different amounts – which is not good for organizational costs.
How to incorporate Strategic Sourcing
Given the importance of strategy, the consulting firm AT Kearney developed and popularized seven steps in the Sourcing process:
1. Analysis of the product categories used by the business, spending patterns and processes and departments involved
Identifying areas of spending by categorizing them because of their criticality – this categorization will help prioritize the purchasing process. If necessary, other categorization criteria can be created (direct or indirect, international or domestic expenditures, for example).
2. Development of a strategy based on business objectives
The strategy must be based on the objectives of the company, establishing a communication flow in which all those interested in procurement have visibility into the purchasing process as a whole.
3. Market evaluation and creation of a supplier portfolio
In-depth analysis of current and future suppliers, checking their market position and assessing the risks and opportunities they offer.
4. Preparation and formalization of documents for proposal request
Inform suppliers, of expected performance expectations, in addition to the desired material data, allowing them to have a clear understanding of what the organization needs. After these arrangements, which must be repeated with each of the suppliers, the only thing left for you to do is wait for their offer and only then select the ideal supplier.
In fact, this process can be optimized by hiring a company specialized in spare parts, which is responsible for the quotation with the main suppliers in the world and which, among other advantages, still offers the manufacturer’s warranty- see the article and discover the practicality of this type of service.
5. Negotiation with selected suppliers based on careful analysis
It aims to get the best possible deal for the company. This is a very important and detailed step, so we suggest reading the article: Advanced Negotiation: prepare yourself for great results
6. Choice of suppliers and agreements signed
This is the bureaucratic step in which documents and contracts are written, that is, it represents the end of the purchasing process. But be aware: Strategic Sourcing does not end here, since the relationship with suppliers is constant, especially when they are responsible for delivering strategic resource to the organization.
7. Performance monitoring and supply plan optimization when needed
Effectively measuring supplier performance against the organization’s requirements and objectives is an ongoing job that will help you understand risks and plan strategies to minimize possible supply chain disruptions.
Among the forms of monitoring, it is possible to adopt the QBR (Quartely Business Review) technique, which, as the name says, consists of talking quarterly with the main suppliers of the company and discuss topics such as cost reduction and improvement of service.
Doing a satisfaction and quality control survey with the departments that requested the services of the purchasing sector is a good way to collect other data and evaluate the performance of suppliers, as well as identify whether the contract is being fulfilled. This data will be very useful for the QBR meeting and also for directing improvements and seeking the best solutions to anticipate and/or solve problems.
Making a detailed analysis of your suppliers using the Strategic Sourcing Kraljic Matrix (below) is another way to track supplier performance.
Strategic Sourcing Kraljic Matrix
After the 7 steps of Strategic Sourcing we recommend the formation of the so-called Kraljic Matrix – download here our spreadsheet that will help you design your Kraljic Matrix!
It is basically a chart divided internally into 4 quadrants – see the model below:
We have prepared a Kraljic Matrix model to help you map your suppliers! To download the material click here!
Analyzing the Criticality/Business Impact axis, we will see at the top the items of greater financial weight for the company, representing greater strategic importance for the business. At the bottom, we have the items with less financial weight and less relevance to the company.
Difficulty in Obtaining/Complexity of Market is the axis where, on the right, we have the materials inserted in a more complex market (few suppliers, influenced prices, monopolies, cartels, etc). On the left side, we see the products or services that are in a more competitive market, with several suppliers fighting for supply contracts.
Positioning each product on a chart like this helps purchasing professionals to have a broader view of the company’s needs and their respective financial impacts on the business.
Don’t forget to access here the material we prepared to help you with supplier mapping!
Therefore, the implementation of Strategic Sourcing in an organization requires collaboration and awareness of the importance of data collection. In addition to technology management, operational intelligence is required – see the article Essential skills for the 4.0 purchasing manager – and the use of platforms and systems, such as Business Intelligence, for example.
Take the opportunity to try Soluparts’ services, a specialist in indirect material procurement, that counts on the world’s leading suppliers. We negotiate the best prices and payment conditions to optimize your company’s purchasing process: request a quote with Soluparts!
The world is changing fast. The growth of the digital economy, changes in international production networks and the speed of transportation are changing the way we conduct foreign trade, making processes more inclusive and efficient. To stay in the market, you need to keep up with these new technologies and trends.
Globalization, transport and communication advancements make technologies and know-how cross borders much faster, increasing the growth and innovation potential of many emerging market companies. According to the International Monetary Fund, “between 2004 and 14, the knowledge flows of technology leaders may have generated, for an average sector of the country, about 0.7% of labor productivity growth per year. This is about 40% of the average productivity growth observed between 2004 and 2014.”
Cryptocurrency and the financial decentralization proposed by blockchain will definitely change the way foreign trade happens as people begin to include this technology in their daily lives. Since it has no central authority, the blockchain is a democratic and transparent system. Learn more about blockchain.
The chain is maintained by the so-called miners. By constantly watching what happens and what is updated on the system, each of them are able to identify and report malware or fraud, making them responsible for each other’s actions. The network can be accessed anywhere on the globe and every information added is copied as in a chain reaction so that it can no longer be edited. All of this global transaction management, tracking, compliance and non editable truth capabilities will surely change the financial transactions as we know.
Artificial Intelligence and Machine Learning
Artificial Intelligence and Machine Learning will automate all processes involved in international logistics, as is already the case in other sectors in developed countries such as medicine.
AI will be able to manage vessel and truck traffic at ports, track shipping worldwide, translate ecommerce search queries from one language to another, and respond with translated inventory, for example; The possibilities are endless. In short, this technology will streamline and optimize shipping routes and the entire system will be less prominent to error.
There is still a lot of debate regarding the real impact 3D printing will have in international trade. Maybe in the short term, the impact would be close to none, since the reality of mass manufacturing is rather complex. But in a few decades, when 3D printing becomes cheap, faster its mass adoption would decrease 25% in the global trade according to studies.
An increasing number of people worldwide is using mobile payments systems such as Alipay in their daily life. World Bank Global Inclusion Database affirms that the access to bank accounts increased by 20% between 2011 and 2014 thanks to mobile phones, especially in emerging economies. Soon enough, companies will start using these systems for their international purchases as well.
We can also mention technologies such as Optical Character Recognition (OCR), used to read container numbers, Radio Frequency Identification (RFID) and QR codes to identify and trace shipments in the improvement of reliability and efficiency of global trade. From basic digitization of trade documents to the technologies cited above will make the opportunities of innovation in international trade endless and many challenges will be overcome.
These innovations will most likely develop faster than the regulations for the industry. In terms of agreements and regulations, the International Chamber of Commerce have been keeping an eye on the changes to adjust incoterms for example, but industries and governments also need to start accepting the big impact of technology and start thinking about options to regulate this market. Some national governments are already responding to this transformations, working on increasing the benefits and to mitigate adverse effects.
“As with every technology and solution, there will be bad actors who deliberately try to cheat or find some way to circumvent the system. Governments need to reward individuals and companies that participate and use the systems as intended and, conversely, need to react swiftly and harshly to those that seek to circumvent the system. “ says David Mounts to Forbes.
The World Trade Report 2018 also points out to some downsides of the technology on world commerce. As said in the report: “while technological advance and trade-opening continue to yield enormous benefits for economies overall, they can also adversely affect specific groups and regions – a problem which a number of countries are currently struggling to address”.
Soluparts is an international trading company specialized in purchasing and delivering all types of industrial materials (MRO – Maintenance, Repair, Operations). Our dynamic team and modern systems enables us to offer a fast and reliable service to all our clients. See below what makes us unique.
1- We are agile
Our branches in the US, Germany, Brazil, Portugal and Hong Kong allow us to optimize and leverage materials purchasing and sales logistics, providing our customers with the best supply chain service in the industry: fast, reliable and modern.
2- We connect you to the 5 continents
Soluparts helps you reduce the number of international suppliers, since we have branches in the most competitive markets in the world. Your quotation will reach the most relevant manufacturers on the five continents, and you as our customer will only need the paperwork and time spent on one quotation. Our relationships and connections allow us to find any brand and product you need.
3- Manufacturer warranty
We offer the same warranty as the manufacturer. Should any mishap occur, our customer contacts us directly and we will solve the problem.
4- Experience and trust
Companies in various industries work and trust Soluparts. They know we always achieve expressive results. We have competitive and reliable suppliers in every segment and by decreasing your numbers of registered suppliers you also decrease risks of dealing with many different manufacturers..
We also rigorously check all incoming and outgoing products from our warehouses, ensuring that items shipped to the customer meet their requirements, reducing unnecessary expenses on returns.
5- We are facilitators
We help our customers purchase spare parts and effectively reduce prices, delivery time and bureaucracy. Our customer gathers all their demands in a single quotation request and we will take care of all contact with the various manufacturers, as well as in selecting the best prices and conditions in the market. This reduces ours client’s time in searching and comparing quotes with multiple suppliers. We also do cargo consolidation reducing costs and delivery time, ensuring the best terms.
6- Premium customer service
We have a multicultural and international team, prepared to help you in the best way and in several languages. Each of our consultants knows the needs of each client closely. They are experienced professionals with unlimited access to over 15,000 brands, with the daily mission of offering you the best prices and best market conditions.
Our logistics and purchasing departments are highly efficient, maintaining direct contact with our customers’ logistics departments to ensure all export documents and procedures are following their requirements.
How can we assist you? Do you face any other issues that we do not address in this text? We have experience in solving foreign trade issues and will be able to help you with what you need. Never again will a part be missing from your factory!
On September 20, 2019, the International Chamber of Commerce, ICC, published the latest Incoterms update.
The International Chamber of Commerce has been publishing Incoterms rules for over 80 years, reviewing them every 10 years to keep up with new market technologies and innovations, to better represent new business practices, facilitating and making negotiations more accessible.
Incoterms, known worldwide and translated into 30 languages, define the responsibilities of the exporter and importer at each stage of the import / export process, transferring the ownership of the material.
They provide importers, exporters, attorneys, carriers, insurers and students from the international arena with rules and guidelines that reflect the latest developments in the business environment, aligning different levels of insurance coverage, including transportation arrangements, such as modal, safety-related requirements, transportation obligations and costs, among other points.
According to ICC Secretary General John W.H. Denton:
The Incoterms 2020 rules make business work for everyone, facilitating trillions of dollars in global trade annually. Because they help importers and exporters around the world understand their responsibilities and avoid costly misunderstandings, the rules form the language of international sales transactions and help build trust in our valuable global trading system.
The updated Incoterms 2020 list contains the rules for 11 Incoterms. They have already been published and will be effective on January 1, 2020. Therefore, their use is suggested from that date. If importers / exporters wish to consider the Incoterms 2010, this should be added to the documents (eg EXW Incoterm 2010)
Here is the updated list:
1- EXW – Ex Works – At the source, at the given location. It represents the minimum obligation for the exporter.
2- FCA – Free Carrier – Free at the carrier at the specified place of delivery. It is now accepted for sea transportation provided it is in container. In addition, BL will now be released on board and terminal shipping will be accepted.
3- FAS – Free Alongside Ship – Free by the ship at the specified port of embarkation. Incoterm used for loose cargo, ie it is not required to be in a container.
4- FOB – Free On Board – Free On Board at the given port of embarkation. It can also be used in cabotage.
5- CPT – Carriage Paid To – Transportation Paid To Destination
6- CIP – Carriage And Insurance Paid To – Paid transportation and insurance to specified destination. It is now possible to negotiate insurance. In the incoterms of 2010, insurance was 10% of the value of the merchandise, now it can be any value, 20%, 45%, 60,%, and so on.
7- CFR – Cost And Freight – Cost and freight at the designated port of destination. Commonly referred to as FOB + Freight and can only be used for sea and cabotage shipments.
8- CIF – Cost Insurance And Freight – Cost, insurance and freight at the designated port of destination. Like insurance, freight cost can now be negotiated, not exempting the exporter from providing it, which remains mandatory. .
9- DAP – Delivered At Place – Delivered to the given destination location. Exporter fulfills the obligation to deliver the unloaded goods to the place of destination.
10- DPU – Delivered At Place Unloaded – Delivered to the specified destination landing location. It forces the exporter to unload cargo at the importer’s destination.
11- DDP – Delivered Duty Paid – Delivered duty paid at the specified destination. Unloading can be negotiated, which does not guarantee that it will be accepted, but the goods must be cleared for importation at the designated place.
How does the purchasing process work in your business?
In general, purchases occur very similarly in most small, medium or large businesses. This is because the procedure is quite similar, and what changes is mainly the size and volume of orders, depending on the performance of each company. Check below the steps of the purchasing cycle that are often repeated out there, and how each should work – in theory.
The purchasing process in theory
1. Purchase requisition analysis
This is the first moment of the cycle. Here, the purchasing department receives a requisition, a document that expresses the need that another department or employee has for a product. Upon receiving it, the purchasing manager must review the actual need for that purchase, as well as the specifications, quantities and delivery date required. With this information in hand, the purchasing department moves on to the next step.
2. Selection of suppliers
At this stage, an extensive search is conducted to raise possible suppliers for the required purchase. Here, the purchasing department must check all the suppliers already approved, that is, that already have active service contracts. In case of a first purchase, it is necessary to search for new suppliers and to check prices and conditions of payment, delivery and support. It is the role of the purchasing department to find the supplier that offers the best conditions, and that does not necessarily mean the lowest price. After the choice of supplier, the purchase order is issued.
3. Issue of the purchase order
The purchase order is issued, sent to the supplier and to the accounting department, in addition to the ordering department and also the one that will receive the shipment. From now on, it is necessary that the purchasing department accompany the process, ensuring that delivery is made within the given time. If any problems occur, by following the process closely the purchasing department can get around the situation more easily and quickly.
4. Delivery of the order
When receiving the goods, it is necessary to inspect and verify that the requested specifications are in order, as well as the right quantity and the conditions of delivery – if there are no defects or damages caused by transport. If everything is in order, the good is forwarded to the requesting department or to the company stock, and the purchase order and a receipt report should be forwarded for billing to the accounting department.
Purchasing process in practice
By following these steps, everything should work in order, right?
Wrong. Remember that at the beginning we said that these steps are the way things should work? Yeah. Each of these steps has its risks, and however closely the procedures are followed, the entire operation can be compromised by a slight oversight or slip. And, in the business’ daily flow, problems in the process are more common than we would like, especially in large companies dealing with many requisitions and deliveries simultaneously.
There are simpler and safer ways to perform each of these steps, to ensure that they occur correctly, and to make your purchasing process really effective. Check them out:
1. Purchase requisition analysis
By establishing protocols and properly training employees, the chances of errors in completing and submitting a purchase requisition are noticeably reduced. Requisition data are critical to the supplier search procedure and purchase decision, and mis-filed or erroneous information can undermine the entire process. It is interesting to invest in ways to automate this step of the purchasing cycle, reducing paperwork and making the activity of submitting a request more optimized and simplified.
2. Selection of suppliers and Issue of purchase order
Here’s a golden hint! A purchasing department in a large company handles hundreds of purchase requisitions per week, which ask for the most different types of goods, which will come from several different suppliers. The person responsible for the requisitions should analyze each of them individually, categorize them, search for specific suppliers for each of the reported needs, search for the best prices in the national and even international market… It is already tiring to read, isn’t it? That’s where the danger is!
To facilitate this part of the process, there are companies that specialize in the purchase of materials for maintenance and replacement parts, that go after the best suppliers around the world and find the best prices and conditions to meet your needs. So you can focus multiple orders in one place, reducing the number of different purchase orders, making the process more organized.
Closing partnerships with this type of company is very valuable to your business, since it reduces the workload of the purchasing department, streamlines the routines and allows the process to be conducted in a more coordinated manner. It’s a typical example of a win-win situation!
And by optimizing routines, purchasing managers are given more time to deal with other procedures, such as better organization of the purchasing documentation, which has a direct impact on the control of each supplier’s deliveries and deadlines.
3. Delivery of the product
With less paperwork to handle, it’s easier for the purchasing manager to track supplier deadlines and deliveries, paying more attention to this step of the process. As a result, the risk of problems going unnoticed decreases, closing the purchasing cycle with a golden key!
It’s also important to say that most of those companies we cited in the last topic manage to also take care of the transportation, making everything easier for you and your business!
How to purchase effectively
In this article we showed you how the purchase cycle should work in every company, the problems usually found in each step and how one can ensure that the process runs without many disturbance. Here, you’ve learnt that the primary concern must be to easy the parts than can be eased, by optimizing routines and getting rid of unnecessary paperwork.
Companies that participate in the purchasing process with you, searching for new suppliers worldwide and ensuring the best conditions for your business’ needs are the best way to turn the purchasing cycle into a well handled and guided process. By doing that, you leave the purchasing department free, to worry about other steps that are as essential to your company’s success as the purchases are.
How do you manage the purchases at your company? Do you think your process runs effectively? Tell us in the comments below!
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