Eskom Procurement Book 2015

PROCUREMENT AS A SUPPORT AND STRATEGIC FUNCTION WITHIN COMPANIES

good suppliers to the next level of excellence. In order to do this effectively, organisations must develop and implement supplier evaluation systems to identify poorly performing and best-performing suppliers. They can then look to eliminate or upgrade poorly performing suppliers and to develop stronger relationships with top performing suppliers. During the initial phases of rationalisation, a reduction in overall numbers of suppliers usually results. This is, however, not always the case for every family or group of purchased items. Several advantages typically arise from supply base rationalisation: • Use of world-class suppliers: Choosing and working with the best suppliers supports higher buyer-firm performance. Instead of working with multiple adequate suppliers, procurement can concentrate on closer working relationships with fewer, better-qualified, suppliers. The key benefits of doing business with world-class suppliers include: fewer quality issues; fewer delivery problems; insight into leading technology; opportunities for developing closer relationships and learning from one another; opportunities to lower product cost; and improving product performance through joint engineering and/or joint value analysis projects. • Use of full-service suppliers: The set of suppliers in an optimised supply base is often larger and more capable of offering a range of services. Some of the expected benefits of using full-service suppliers include: access to suppliers’ engineering and technical capabilities, design services, testing capabilities, tooling and production capabilities. The full-service approach relies on a supplier to provide, for example, an entire system of components, activities and services as well as to manage its own supply base. Apurchaser can also use a full-service supplier to perform, for example, complete design- to-build work. • Reduction of risk: The reduction of the supply base to fewer, better suppliers can reduce risk. This occurs through the reduced risk of: Poor quality; poor delivery performance; paying too high a price for purchased items and so on. Maintaining a large supply base can increase risk in these areas, more suppliers create the opportunity for increased performance variability or increased supply issues. • Lower supply base maintenance costs: Procurement groups and individuals within these groups interact with suppliers in many ways including contacting suppliers with regard to, e.g., design specifications, quality and other performance requirements, negotiation of contracts, performance problems and so on. Each of these activities costs procurement personnel time and money and increases the potential for miscommunication. When a firm uses a smaller number of better suppliers, supplier ‘maintenance’ costs tend to decrease over time.

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