To achieve the target of functional purchasing department first of all you need to have your own purchasing strategy. We are offering you to create for you your long term purchasing strategy. In other words definition “Where we are and where we are going”. Every high credit purchasing department must have cleared what and how is doing. Strategy defines the frames which purchasing should work in. Strategy is specially the ideal supplier base, meaning the preferred number of suppliers taking into account all the risks and also the road to this ideal supplier base.
We would be happy to help to set up a direction of your procurement. As a first step it means to analyze your purchase spend. You need totally understand what you purchase. It means to know the total turnover, the turnover of particular commodities, the split between particular suppliers, to understand whether the spend is controlled by you or your customer. As well is necessary to know the number of unique part numbers. Once you are aware about this information you can make decision about the ideal supplier base. There are the rules saying what turnover should be split to how many suppliers. The thing is to split your purchase turnover to preferred strategic suppliers taking into account these rules. The idea is to prepare the leverage helping to sort the problems but on the other hand not to depend on the suppliers. As well it is necessary take into account the opposite. Your share on supplier’s turnover. There are also rules saying what is too risky customer share on supplier’s spend. If the supplier depends too much on you or their customer then the supplier could easily get into troubles in case of your or other customer problems. However to set up an ideal supplier base is the easiest thing. The challenge is to have the ideal supplier base.
To set up the realistic road to this point is the toughest thing of the strategic purchasing. To find the way for smart and beneficial resourcing of bottom 20% suppliers is work real professionals. People working on it must extremely creative and basically dedicated only to this work. The turnover split is only part of the aspects needed to take into the consideration. As well you need to understand the risk based on concrete delivered product. Based on this then we choose the right approach to the supplier. This is connected very much with backup source for your most crucial products. Usually it is always possible to have two sources for each crucial part. If you are not in such situation that two sources are for some reasons absolutely unrealistic then there is no excuse for not having it. This is what we call supplier base consolidation. Not sure if it makes sense to mention the advantages of streamline supplier base. Except the mentioned leverage its definitely creating the reasonable number of supplier which the department works with. As a subsequence functional lead time, workable communication, consolidated payment terms, engineering support, etc.