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Characteristics of Indirect material purchasing management
Compared with direct materials purchasing, the procurement management of indirect materials has the following characteristics:
.A wide variety of categories
As long as it is a manufacturing company, it will basically involve: fixed asset production machine & equipment, infrastructure facilities, spare parts, Tooling, chemical oil products, PPE, office supplies, various services…
.Low repetitive demand frequency
According to the indirect material purchase data [ERP] statistical analysis results of many manufacturing enterprises: the items of indirect material for manufacturing enterprises range from 20,000 to 100,000.
However, more than 90% of the demand frequency is once a year, about 6% of the material's annual demand frequency is between 3 to 5 times, and only about 3% of the material is a regular demand;
But for fixed asset investment is huge: especially for manufacturing equipment and machines, testing equipment, infrastructure facilities, etc., the purchase amount of a single project can exceed 100 million…
.Generally Little attention and resources
Most local companies do not even have a professional indirect material procurement team. The procurement of large amounts of equipment and facility materials is basically the responsibility of the company's senior management, and the small amount of demand is by the user department or by office personnel Or purchasing agents for production materials;
Lack of systematic purchasing process guidance documents or procurement process just reference to direct material purchasing process:
Due to factors such as cognitive problems and low importance in the company, the indirect materials purcashing function in many companies lacks right procurement guidance process and documents, and some even directly copy direct materials purchasing process documents, which are serious in actual operations Violated the lean concept, generated a lot of waste and non-value-added activities, and affected normal production activities…
Let`s share a consulting project of Hay Think`s indirect material purchasing management. Since the consulting project involves a wide scope of activities, we will only show the section of indirect purchasing process consulting servicehere:
Customer: JSFF Automobile Precision Parts Corp.
Main business: Aluminum alloy precision auto parts: automotive heat exchange parts, automotive transmission parts, automobile engine parts and new energy auto parts…
Manufacturing sites: 5
The supplier of Valeo Group, Bosch Group, Schaeffler Group, BorgWarner Group, Calsonic Kansei Group, MAHLE Group, Magna Group, Siemens Group, Continental Group, ZF Friedrichshafen Group…
Main production machines & equipment: more than 200 sets of DMG MORI,Haas and Brother CNC machining centers
Annual sales volume: 1.2 billion RMB[2018]
The main categories for indirect material purchasing: machining tools, machine tool spare parts, precision cutting tools[diamond cutting tools], PPE,chemical fluids…
Hay Think conducted a systematic evaluation on the purchasing team of the client company according to the ProMA procurement management maturity professional evaluation system, and their procurement management maturity was only 28%;
The following are the evaluation results and the corresponding solutions provided:
SITUATION
.No strategic sourcing & procurement management system in place
.Purchasing department`s KPI is not related to the business plan and the strategy of the company
.No procurement demand management
.Inefficient purchasing organization
.Internal customers often purchase by themselves
.Lack of the concept of category management
.No systematic project procurement management
.Only know and apply less than 10 purchasing strategies and tools
.Conduct procurement negotiations without systematic preparation
.Unreasonable supplier management system and No SRM
.Pay little attention in Quality management
….
Lead to:
.Frequent compliance issues
.In lot of case, no enough quotations were obtained,the price is not transparent:No cost-drivers model
.Many emergency purchases
.Quality failure costs are too high
.The production capacity loss caused by quality problems and delayed delivery is huge, even affecting customer satisfaction,leading to loss of customers
….
TASK/TARGET
.Systematic introduction of Strategic Sourcing & Procurement Management system
.Team Excellence
.Category Excellence
.Supplier Excellence
….
ACTION/SOLUTION
Hay Think`s consulting team evaluates the customer`s procurement management activities and provides tailored made solutions. After in-depth communication with the customer`s senior management team, the following action plans are reached:
Introduce strategic sourcing & procurement management system:Team Excellence+Category Excellence+Supplier Excellence
Team Excellence
.Purchasing organizational transformation
.Associate the purchasing organization KPIs with the company's business plan and strategy
.Planning Matrix of buyer`s responsibilities and category
.Systematically evaluate and train the buyer's strategic sourcing and procurement skills[e.g. 60+ procurement strategies and tools,Sourcing strategy development process,strategic negotiation skills,project management,TCO,TPM,Framework Agreements…]According to CptM Competence Matrix
.Introduce Lean procurement management system and templates
.60+ Sourcing Strategies and Tools[15+Sourcing Strategies and Tools for bottleneck items]
Application principles：
.Sourcing strategies for MRO: Changes the Nature of Demand [Most of the MRO items belong to the bottleneck material category according to Kraljic Model/Kraljic Matrix]
.The 60+ sourcing strategies and tools of reduce costs and increase value mainly Focus on 20% high value items[80% purchasing value,80% items with lower value:quality and OTD are prioritized]
.Total Cost of Ownership (TCO) tool mainly applied in machine,equipment,facilities,tooling purchasing
The sourcing strategies and tools for MRO[Bottleneck material]
Bottleneck management
Supplier market intelligence
Intelligent deal structure/Smart contracting
Bundling across generations,across product lines,across sites
Functionality assessment
Complexity reduction and Standardization
Product benchmark
Reverse auctions[Dutch Auction,British auction online aution]
LCC sourcing
Cost-based price modeling
VMI
…
2.Category Excellence
.Systematic management the demand and requirements for specific category
.Deep learning product knowledge,know how for specific category
.Establish cost driver model for specific category
.Actively supply market innovation management:scouting,analysis[new materials,new technology,new process…]
.Assessment of Potential Innovative Solutions and provide Engineering support to internal customers
….
3.Supplier Excellence
.Introduce supplier management system:new supplier evaluation, supplier selection decision matrix, supplier performance appraisal, supplier development,Audit,supplier elimination…
.Approved Supplier List
.Supplier Relationship Management tool:Supplier Pyramid-Supplier Strategic Positioning
…
RESULT
.Significantly improve procurement compliance grade and procurement efficiency
.Nearly 30% cost saving in total procurement costs by launching new cost saving projects and apply procurement strategies and tools [Cost savings of 70 million RMB for the first year];
.Bundle demand and sign a framework contract for most high value and high frequency demand items
.Reduce tools and spare parts inventory by 60% [Implement Total Productive Maintenance (TPM)，Standardize and change the nature of demand];
.60% reduction in procurement quality failure costs;
.The circle time for converting PR into PO is reduced from an average of 14 days to 1 days;
.OTD rate up to 95%
.Equipment OEE increased by more than 40% [Implement Total Productive Maintenance (TPM)];
.The procurement compliance rate has increased to 98%;
.Customer satisfaction increased by 90%;
.Significant improvement in supplier relations;
.The maturity of the procurement team has increased by more than 50%
…