Making global procurement work
In the age of a globally integrated supply chain and with technology only making the world smaller, international procurement is no longer limited to large organisations with dedicated procurement teams and jet setting reps. It is something that needs to be done by all businesses, that want to be relevant and remain competitive.
So how do you make Global Procurement work for a small to medium business?
For TEAM the key to our success when identifying and engaging suppliers is to find the right model for the transaction. At TEAM even small fabrication projects drive us to engage the world for best supply and practices. Every time we assess a procurement exercise we follow this process:
1. Understand what needs to be bought
when is delivery required
how much is required
features/ requirements, technical specifications
quality requirements - testing, material certificates, compliance to certain standards
Whenever we procure an item that is not 'off the shelf' we prepare a detailed specifications outlining all expectations. It may also include detailed drawings. It is critical that the specification includes, the acceptance criteria: tolerances, Inspect and Test requirements and material certificates, etc.
2. Source from the Global market
Our preference is to source locally, where it makes sense. We take great pride in buying Australian. However the reality is for some items, sourcing them from overseas is mandated or required due to availability or price. When you are sourcing from the global market you need to know when you are going to direct source, and when to engage a third party. This primarily is a risk/reward decision. The majority of the time you will get it cheaper when you direct source but you hold all the risk.
My favourite is payment terms and warranty: 100% upfront payment or 100% payment at the dock. This basically guarantees you that if there is a problem you have a 100% chance of not solving it without spending more money.
For higher risk ventures, our experience has highlighted the benefits of engaging a specialist partner. For example, our Rotary Breaker Barrels required specialised consumable castings for the screens, ploughs and lifters. Our market research identified that there were two key international foundries who manufactured these items. To reduce our risk, we engaged an Australian manufacturer, who used their relationships, systems and processes to source what we needed from the Chinese market.
3. Decide if sourcing from overseas is the way forward
A lot of the items we procure from overseas cannot be economically 'air mailed'. That does not mean that you can not get big things overnight. We have used Antonov's on multiple occasions to bring components into Australia in a hurry.
If we know that an item can be sourced from overseas and it provides value for money, a decision needs to be taken. Key considerations for determining the way forward must analyse:
Lead time - if it is going to take 18 weeks to get here and we have 3 weeks to deliver the projects, it will definitely not be an option
Quarantine/Customs requirements - wooden crates cause nothing but issues.
Supplier risk - have we worked with the supplier before? if so, is it a trusted relationship? is the supplier well known and have a good reputation? are there contingencies?
4. Keeping up to date
One thing we have learnt over the years is that it is essential we know exactly where something is up to! For the procurement of items that have long lead times and specialised requirements, we request our suppliers to provide regular updates. This allows us to see any issues before they arise and allows a 2-way communication channel.