Best practices for raw material procurement
Raw material procurement is a vital process that plays a critical role in the success of any manufacturing or production business. It can, however, be challenging for businesses to
manage it effectively. Procurement executives and purchase specialists in industries such as industrial equipment, automotive, and oil and gas sectors often struggle to find the best approach to procure raw materials. However, with the right strategy and effective procurement of raw materials businesses can optimise their supply chains, reduce costs, improve efficiency, and build stronger relationships with their suppliers.
The raw material procurement process involves identifying the raw materials required, sourcing them from suppliers, negotiating contracts, and managing inventory. However, with increased competition, businesses need to adopt best practices to stay ahead. On that note, we will discuss the standard best practices for raw material procurement in India. By adopting these practices, businesses can achieve better outcomes and compete effectively in the global marketplace.
7 Best practices for raw material procurement
1. Conduct a thorough need assessment
Before procuring raw materials, it is essential to conduct a thorough needs assessment to identify the materials and quantity required, and the timeline for procurement. This analysis can definitely help identify gaps in the supply chain and ensure that businesses procure the right materials at the right time. It can also help businesses to forecast their raw material requirements and plan for any contingencies.
A needs assessment can be conducted by reviewing production schedules, analysing inventory levels, and monitoring market trends. Businesses can also use data analytics and forecasting techniques to make informed procurement decisions.
2. Develop a robust supplier vetting process
Supplier vetting is a critical aspect of raw material procurement. Businesses must identify and vet suppliers carefully to ensure that they are reliable, financially stable, and can meet the business’s quality standards.
To develop a robust supplier vetting process, businesses can conduct due diligence on potential suppliers, review supplier performance data, and execute site visits. They can also evaluate suppliers based on various criteria, including quality, cost, delivery, and sustainability.
By developing a robust supplier vetting process, businesses can ensure that they work with the best suppliers and mitigate supply chain risks. In India, businesses can leverage online raw material platforms to find potential suppliers. These platforms offer various features like supplier ratings, reviews, etc., which can help businesses make informed procurement decisions.
3. Implement strategic sourcing techniques and negotiate contracts
Strategic sourcing involves evaluating suppliers based on multiple criteria, including quality, cost, and delivery. By using this approach, businesses can select the best suppliers and negotiate favourable contracts. Negotiating contracts can help you to secure better pricing, payment terms, and quality standards.
In addition, to implement strategic sourcing, businesses can conduct a thorough market analysis, identify potential suppliers, and evaluate them based on various criteria. They can also develop a sourcing strategy that considers the business’s long-term goals and objectives.
Strategic sourcing can help businesses to reduce procurement costs, improve supplier performance, and mitigate supply chain risks.
4. Use technology to streamline procurement processes
Technology can help businesses to streamline their raw material procurement processes and reduce costs. A procurement system can automate various procurement tasks, including supplier selection, contract management, and payment processing. By automating these tasks, businesses can reduce errors, increase efficiency, and save time and money.
To implement a procurement system, businesses can identify the right technology platform, customise it to their requirements, and integrate it with their existing systems. They can also train their staff to use the system effectively and monitor its performance regularly.
5. Optimise inventory management
Effective inventory management techniques such as Just-In-Time (JIT) and Material Requirements Planning (MRP) can help businesses to manage inventory effectively and reduce costs. JIT involves procuring materials only when they are needed, while MRP involves forecasting demand and planning production accordingly.
To optimise inventory management, businesses can implement JIT or MRP systems, monitor inventory levels regularly, and use data analytics to forecast demand accurately. They can also collaborate with suppliers to implement vendor-managed inventory (VMI) systems, which can help reduce inventory levels and improve delivery times.
6. Implement risk management strategies
Risk management is a critical aspect of raw material procurement. Businesses must have a risk management plan in place to address supply chain disruptions. It can involve identifying alternate suppliers, developing contingency plans, and monitoring supply chain risks regularly.
To implement a risk management plan, businesses can conduct a risk assessment, identify potential risks, and develop mitigation strategies. They can also collaborate with suppliers to develop joint risk management plans and monitor supplier performance regularly.
7. Monitor and analyse costs
Analysing costs can help businesses to identify cost-saving opportunities and make informed procurement decisions. To monitor and analyse costs, businesses can track procurement costs, review supplier performance data, and use data analytics to identify cost-saving opportunities.
They can also collaborate with suppliers to develop cost-saving initiatives, such as joint cost-reduction programs and value engineering projects.
By adopting these best practices, businesses can procure raw materials effectively and efficiently, allowing businesses to stay ahead of the competition. Effective raw material procurement not only ensures timely and cost-effective delivery of materials but also helps in maintaining the quality of the end product, thus leading to increased customer satisfaction.
To sum up
Raw material procurement is a crucial aspect and implementing best practices can help businesses achieve success in their operations. From identifying reliable suppliers to creating a strategic plan for procurement, there are several steps that businesses can take to streamline their procurement process and minimise costs.
It is vital for businesses to constantly evaluate and adapt their procurement practices in response to changing market conditions and supplier performance. In India, companies have successfully implemented these practices to achieve significant cost savings and efficiency improvements. For instance, Tata Steel implemented a strategic procurement plan that significantly reduced its procurement costs.
By adopting these best practices, businesses can ensure that they can always procure the raw materials they need in a timely and cost-effective manner.