In the current moment of economic crisis that the world is experiencing, the purchasing area is going through several challenges.
These include the increasing pressure to reduce costs and optimize financial and operational performance, the increase in the complexity and volume of contracts to be managed, the need to automate processes related to this area and the emergence of new regulatory requirements.
These factors make it essential that procurement and contracting processes converge very closely. This statement, made by the Chartered Institute of Procurement and Supply, clarifies the relevance of this issue for organizations.
In addition, this scenario requires procurement professionals to increasingly develop certain soft skills (such as judgment, strategic thinking, analytical thinking, common sense, cultural and emotional intelligence) to manage demands related to contract management.
In this text, we will discuss the benefits of contract management in purchasing, in addition to presenting strategies on how to adopt it successfully in your company’s day-to-day.
The importance of contract management in purchasing
In short, the contract management process can be understood as the interaction between suppliers and buyers that guarantees the performance of obligations (by both parties) in a purchasing relationship.
There are five essential points that should be contemplated in this process, whether in the purchasing sector or any other department:
- Goods and services: accurately describe what will be provided by the supplier, which avoids misinterpretation;
- Prices and payment: define what are the costs of each product or service, how and when it will be paid and what are the penalties in case of delays;
- Confidentiality and proprietary information: decide who will own the intellectual property if something has been developed in partnership. In addition, in the case of information that cannot be disclosed, it is essential that there are confidentiality clauses to protect the company that owns it, in the best possible way, against leaks;
- Disclaimer: limit the other party’s ability to file a lawsuit and recover possible damages – see more details on this item at Incoterms 2020;
- Violations and breaches of contract: set conditions if either party decide to terminate the contract.
In addition, according to the Purchasing and Procurement Center article, the contract management process includes the following steps:
- Manage the delivery of services in order to ensure compliance with the deadlines set;
- Establish a fruitful relationship between suppliers and buyers;
- Manage the contract itself, ensuring that the clauses are in line with the negotiation and respected by all. Make sure that the purchasing activities follow what has been agreed upon;
- Seek improvements, consequently increasing efficiency and profitability;
- Implement changes when necessary, as in long-term contracts, changes regarding activities, requests and available products are common.
There are also strategies that can be adopted that help in the better management of purchasing contracts:
Using contract management software for organized archiving of information is a great option, since it allows having a single database of related documents. If this management is done by different areas (Purchasing and Legal), it is important to ensure coordination and communication between them.
Audits are crucial to improve supplier performance (punctuality, quality controls, pricing and payment schedules) and ensure the organization is acting in accordance with defined rules and regulations – see the benefits of compliance in purchasing.
Improve risk management
Delays in the delivery, late payments, mistaken inventory counts, among other risks, can be avoided if there is an efficient management of the contract with the supplier.
Practical tip for contract management: prepare checklists
Performing checklists is an efficient way to describe aspects and good practices related to contract management. The checklist can be divided into three columns, contemplating the activities to be performed, the stakeholders involved and the frequency to perform them (use the periodicity that makes more sense for your work routine: daily, biweekly, monthly, semiannually, annually, at the beginning or end of the contract).
In order to optimize the purchasing sector’s time and make the list of activities more organized, it is ideal that they be divided into four main blocks. See below the topics and some suggestions of tasks to be contemplated in the checklist:
1. Planning and Preparation
The definition of policies and procedures for contract management (e.g., establishing the responsibilities of the parties, assessing the need for staff training, creating an action plan, and listing possible risks).
2. Pre-contract period
Phase after the negotiation, in which the document is revised again in order to detect possible errors, which avoids risks for the company. In addition, at this stage it is important to ensure that the documents related to the contract are consistent and that all parties receive the updated versions.
3. Contract period
It refers to the moment when the contract is active. One should pay attention to its optimization and the detection of trends and opportunities for future contracts. It is important that the documents are in the management tools and their execution is monitored through performance indicators.
4. Post-contract period
Stage in which the contract is no longer active. It considers the tasks related to its closure and the elaboration of final evaluation reports.
In this article, we brought some aspects related to contract management in purchasing (its importance, strategies and practical tips to adopt it), which helps the procurement team to promote the operational and financial optimization of its sector.
The purchasing professional must be attentive to strategies that guarantee the best products and services for a fair price, with the fulfillment of the responsibilities formalized during the contracting process.
Soluparts offers the Annual Purchase Contract. With it, the client guarantees the prices quoted for one year – from the signature of the document – and only needs to send the purchase order of the desired part when it was necessary, increasing productivity, reducing costs and optimizing the time of the professional in the area.
Talk to our specialists and learn how to simplify contract management in purchasing: CHECK OUT THE ANNUAL CONTRACT
The supply chain plays a crucial role within a company, and for the proper functioning of the company, inventory management in the supply chain is a fundamental part. Many experts who discuss this topic reinforce this statement: for the Supply Chain Digital, portal, the clear adoption of actions that positively impact the process of requesting, organizing and using inventory is essential for the long-term growth of organizations.
In general terms, inventory management (or control) refers to the action of monitoring your organization’s assets and classifying them according to their weight, dimensions, quantity and location, in order to reduce costs to maintain an inventory, which helps the purchasing department know when to restock products and buy materials for their operations.
In this article, we will show examples and techniques to help you have a more efficient management of your spare parts inventory. Inventory control involves complex decision processes (what to buy, when to buy, cut excesses and meet demands), and by mastering them, waste and unnecessary expenses are eliminated.
The importance of stock management
As part of supply chains, inventory management helps organize and control supplier purchases.
Maintaining effective inventory management is important to ensure that you have enough of a certain indirect material to meet possible demands (e.g. maintaining a machine of your operation). If not done properly, your productivity will be impacted, which will compromise your competitive potential.
In addition, among the ways in which inventory management can help an organization, we can highlight:
- Avoiding dead stock: it reduces the chances that indirect materials can no longer be used (because they have become irrelevant or have been poorly stored, for example).
- Saving on storage costs: as in many cases it is a variable cost, that is, it changes according to the amount of materials stored, when you keep these materials, your costs go up.
- Helping with the cash flow: storage directly affects your sales and expenses, and consequently, how much money is in the purchasing department’s cash flow. In this way, an inventory management system helps you control these important variables.
Stock management techniques
There are different ways and techniques for stock management, which can be adapted to the reality of each company and avoid problems in the sector. We list some of them below, relevant to the storage of parts:
1. Standardize stock levels
Setting the minimum quantity of materials that must not be missing is essential. This can be done in conjunction with the areas that use these parts, considering delivery times, storage conditions and other variables that involve the acquisition and delivery of these materials.
2. First in, first out (FIFO)
The first material to enter the stock must be the first one to leave, which prevents it from expiring in the warehouse or becoming obsolete.
3. Relationship Management
A good relationship with your suppliers is essential to solve any possible problems – such as replacing something in a more agile way, returning a barely used part, negotiating order quantities – through an agile and clear negotiation.
4. Contingency plan
Problems happen, even when trying to avoid them. Therefore, one should prepare as much as possible, keeping in mind the questions: what are the possible risks we have (for example, the delay in sending an order) and how to react to them? What steps to take and how do they impact the business?
5. Regular Auditing
Even with technological systems for control, it is important to adopt the custom of physically checking which parts are stored (many organizations do this audit once a year). There are also options to perform spot checks or check cycles for each product.
6. Use strategic supply matrix
Prioritize the storage of materials according to their relevance in company operations. The following proportion of space used is suggested: 80% for the most important products (category A), 15% for less important products (category B) and 5% for obsolete products (category C).
Tip: see our Strategic Sourcing content and download our Strategic Sourcing matrix.
Even though it is a complex activity, predicting demands can help in stock control. Therefore, look for specific information (such as forecasts of spare parts demands with the maintenance area) and more general information about the company (sales in previous years, market trends, annual growth rate, among other data).
8. Last in, first out (LIFO)
It defines that the last material purchased is the first to be used. Ideal for cases of companies whose spare parts storage has a high turnover, avoiding additional expenses in storage and their devaluation.
9. Just in time
Keep the minimum reserve for the demand and replace it before the material leaves the warehouse. It demands a rigorous control and an accurate forecast, but it can be a good option for organizations with calculated launches, with a certain quantity in an exact period of the year. For purchasing materials that will be stocked, define an annual contract, which guarantees the prices quoted for one year, this will help to reduce costs and increase productivity.
10. Safety Stock
An emergency fund, i.e. an extra quantity of certain reserved material if the normal stock limit is reached. It is a good option to avoid problems such as interruption of supply from your supply chain, if your goods are damaged or other unforeseen circumstances.
11. New order point
Define the level at which the spare parts need to be replaced, considering the safety point, which corresponds to the ideal quantity of material stocked for the fulfillment of all commitments assumed by the organization, and the ideal time to receive the order, without running unforeseen risks (and always in dialogue with its suppliers).
In this article, we discussed the importance of maintaining efficient storage management in the supply chain in your organization, by helping in the adequate supply of indirect materials, which avoids shortages that can compromise operations or excesses that generate unforeseen expenses or waste.
To have this efficient management, in addition to the techniques already mentioned, it is essential to have adequate softwares and a computerized control system, combined with periodic physical counts – relevant to know what is in your inventory at any time, which allows to detect and update possible changes and define an action plan for requests.
The main tip is: in the most convenient format for your organization, keep the updated and organized data about your storage.
We also saw the importance of a good relationship with quality suppliers for an effective management. A late delivery can damage days of production, which creates unnecessary losses.
In this case, a good option is to count on a company like Soluparts, specialized in negotiating with the main suppliers in the world, and obtaining better commercial conditions in the purchase of indirect materials. Talk to one of our specialists for more information.
The process of purchasing indirect materials, which allows the continued existence of business, is essential to the functioning of an organization and requires proper management to avoid losses – this is because the lack of these materials may mean interruptions in production and delays in projects.
In this article, we will address the challenges one must overcome for a good management of indirect material procurement.
Purchasing indirect materials: challenges
The NelsonHall study, titled Improving and redefining the role of indirect procurement, revealed that only 47% of purchasing executives surveyed showed a high level of satisfaction with the purchase of indirect materials at their companies – and this percentage dropped to 45% when the management capacity of the indirect procurement team was analyzed.
According to the survey, the main challenges that contribute to these numbers are:
1- Strong demand for cost reduction
Often viewed as an area of expense, the purchasing sector is constantly charged to reduce organizational spending, which must be achieved without representing a loss of productivity for the company.
2- Difficulty managing suppliers
This stage of the purchasing process is considered one of the most complex, involving continuous research, often complex negotiations and, as a consequence, consuming a great deal of time in the procurement routine.
3- Lack of expertise
It is very complex to develop an indirect material procurement team that specializes in purchasing such varied and infrequently requested products. And this lack of knowledge can generate problems such as mistaken purchase of materials or inadequate negotiation.
Improving indirect purchasing management
Although there are obstacles to overcome, as already pointed out in Procurement Department 4.0: challenges and trends, it is necessary to see them as motivation to improve the work and management of indirect material purchasing.
Below are some suggestions for improving the way indirect procurement is managed.
1- Be a partner of the other sectors of the company
It’s necessary to get closer to other sectors, gaining their trust by understanding their main needs: what they are trying to achieve, what challenges they face in their routine, and how do acquisitions influence and collaborate in this regard?
Investing time and effort to really listen and deliver what they need will lead to the realization that indirect material procurement is an essential operation for all sectors of the organization to achieve good results.
It is also essential to collaborate to train the procurement team, with training and other resources that provide tools to improve the performance of all employees.
2- Use appropriate technology to identify and consolidate expenditures
The use of a holistic technology tool to track, identify and categorize the expenses of indirect material purchases will give the procurement manager the ability to add the needs of all sectors into fewer orders and, as a consequence, obtain benefits such as volume discounts and more favorable contracts.
To identify the level of digital maturity and the technologies most commonly used in the purchasing sector, check out our articles: The purchasing sector in Industry 4.0 and 4 technologies that will change global trade.
3- Control the stock effectively
The demand for indirect materials may occur due to unforeseen circumstances. But it is usually derived from predictive maintenance planning and the service life of equipment and parts.
Therefore, inventory control requires technical information on the condition of the equipment, as well as statistics that can project the need for indirect material purchases in the future. This must always be based on historical data, the criticality level of the operation and the difficulty of acquiring the items.
For this, stock management software can be used or RFID tags, intelligent sensors, among other options that we have already addressed in an article about the benefits of an intelligent supply chain – worth reading for more details!
4. Suppliers: essential for good indirect materials purchasing management
A healthy relationship with suppliers is essential to improve the management of indirect material purchases, which requires constant communication and analysis that transcends prices and deadlines, such as verification of risks that the supplier company may offer or legal requirements and social and environmental responsibility – among other factors.
This monitoring allows a clearer vision of the current conditions and the place that suppliers occupy in the market to always guarantee the best possible business and also to identify points for continuous improvement.
Counting on specialists in the search for the best suppliers in the international market offers many benefits, such as optimization of the purchasing process and cost reduction. In addition, a company specialized in indirect material purchases also allows the manager to optimize his time, focusing on more strategic functions.
Soluparts, with offices in Germany, Brazil, United States, Hong Kong and Portugal, maintains contact with the world’s main suppliers. All you need to do is send us the specifications of the material (manufacturer and part number) and we will find the best conditions in the market, sending you a consolidated quotation to optimize your time.
Discover all the advantages that only a specialized team can offer your company. Request a quotation now!
The term Slowbalisation, created to describe the slowdown in international trade, is on the rise.
Since the early 1990s, when globalization began, it has driven economic growth. Today, however, global trade is slowing down and occurring in more regional terms.
What is the impact of this shrinkage on business and the supply chain? In this post, we will reflect on this topic. Check it out!
Why Slowbalisation is happening
In the 1990s, globalization gave rise to the idea of a flat world, where borders mattered little when it came to the flow of ideas, goods, services and capital.
Development in the technology, communication and transportation sectors reinforced this concept, suggesting a world increasingly connected.
But in recent years this movement has begun to slow down, giving rise to Slowbalisation. Why is that?
A conjunction of factors has led to this condition, among them, geopolitical changes. The advance of nationalist and protectionist governments, especially in the United States, has put globalization in the spotlight.
But that is not the only reason. The technological advance that has occurred in every corner of the planet has leveled products and services, making it easier for the final consumer to find what he or she needs in a place close to where they are located. This is because the same consumer, more aware and demanding, started to create a demand for customized products and faster deliveries.
Another determining factor for Slowbalisation is the high costs involved in purchasing raw materials. Especially fuel, which also interferes with the value of transporting goods.
Price fluctuations in the fuel market, in fact, constantly affect the logistics sector, generating inflation in the final price of products. They act as a kind of domino effect, where carriers increase their values in order to not suffer losses and purchasing companies pass on the same increase to the final price of products, in a compensation that affects the logistics chain.
And we must not forget that globalization has allowed emerging countries to become richer, being able to produce more and, of course, increase the consumption of their own goods – which leads us to conclude that it may have been a victim of their great success.
Slowbalisation X Supply Chain
During the 1990s and early 21st century, many companies defined their supply chains in the use of cheap labor, even if it was on the other side of the planet.
With the shift to just-in-time logistics, however, this type of decision changed, creating yet another reason for Slowbalisation.
The adoption of a model where stock is acquired as needed, operating at continuously low levels, helps to reduce costs and increase efficiency. However, it requires a very careful programming for the demand of products, avoiding shortage of materials – in our blog you find an article that shows what is the most beneficial for company finances in industry 4.0: buying products or services (CAPEX or OPEX)? It’s worth reading to find out!
Instead of large quantities of materials – purchased at lower prices in countries with lower labor costs – we now see came into play:
- local workforce, with greater qualification and knowledge of the production stages;
- technological solutions capable of planning and monitoring each stage of the production process, avoiding waste and interruptions due to lack of parts.
Indeed, regionalization relies on technological advances. The Industry 4.0 supply chain has become much smarter, incorporating data analysis, artificial intelligence and machine learning.
These capabilities generate increased visibility and control of the supply chain, allowing rapid identification of any failure that may affect it, making your operations more efficient and optimized.
And, for the future, it is quite reasonable to assume that new technologies will emerge to develop the supply chain according to the needs of different markets and decrease the dependency on products that today can only be found in more distant places. This is the case of the 3D printer, for example, among other innovative technologies we have already talked about in our blog – learn more about 4 technologies that will change global trade forever!
Reliable Supply Chain: essential in Slowbalisation
One of the main precautions to be taken with the supply chain in post-globalisation is to guarantee the availability of the materials needed for production.
This is already possible with the existing sophisticated technologies, which analyze the chain in real time, ensuring efficiency, agility and cost reduction – in this sense, know a proposal that unites reliability and speed at the time of purchasing your company.
But in the Slowbalisation era it is also essential to have an extended supply chain network. And the best way to guarantee this network is to count on the partnership of a company that can supply any item with the best price and term conditions.
Soluparts specializes in the acquisition of all types of industrial materials for maintenance, repairs and operations, facilitating the entire purchasing process.
Count on experienced professionals to make your supply chain much more efficient – even in times of Slowbalisation. Get a quote and surprise yourself with our service.
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