The industrial sector is made up of various business lines. At the crossroads between the field and operational activities, the Procurement function plays a key role. Purchase processing, sourcing and supplier relationship management, inventory management: industrial buyers have a direct impact on the company’s production rate and performance. In recent years, they have grown into a strategic role. As they monitor expenses, they give the company the opportunity to improve its margins. Thanks to their deep knowledge of the market, they contribute to improving production and innovation.
Procurement: an overview of a strategic function
The primary function of Procurement is to get the right function at the right price. By function, we mean equipment, raw materials, components, or spare parts. In other words, buyers are responsible for researching and acquiring the elements necessary for the smooth running of the production and assembly process. To achieve this objective, however, several issues need to be considered.
Factors to be considered for the successful procurement function
1. Cutting costs
Traditionally, the function is often associated with a more global ambition to reduce costs and improve the company’s margins. Its role is to combine reduced expenses and production line performance.
To do this, industrial buyers will calculate the actual price of a function, by several means:
- The cost price. It corresponds to all direct and indirect costs related to the manufacture and distribution of the product sold. The difference between turnover and cost matches the company’s profit. Also, costing is a key element in the performance calculation of an industry. Procurement can influence this by analyzing certain suppliers (margin rates, manufacturing times, etc.) when negotiating contracts.
- The market price. The point here is to compare the purchase price set by your own suppliers with that applied by the competition. To do this, buyers will be able to conduct market research.
- Raw material indexes. The price of oil, steel, plastic, and rubber can have a significant impact on the cost price. Buyers have an effective way to prevent fluctuations in these prices from affecting the company’s business and finances. When negotiating supply contracts, buyers may request that an indexation clause be included. This means that below a given rate, variations in raw material prices cannot have an impact on the selling price of industrial suppliers.
For the same purpose of optimizing expenses, Procurement teams also participate in inventory management. How much will be used by production? What are the sales forecasts? How much can I store without seeing my expenses go up? Operators must collaborate with the entire supply chain to determine the real needs of their players.
- Processing of purchase requests
For several years, companies have been moving away from paper-based procedures in favor of IT solutions. Supply chain actors use specialized software to communicate their needs in real-time. Maintenance teams, for example, can trigger a purchase request by connecting their ERP (Enterprise resource planning) and equipment. Mobility Work CMMS (computerized maintenance management system) contributes to improving maintenance by building bridges to the ERP.
Once the request has been made, it is entered in an account assignment order and validated. After that, the buyer associates a contract with a product reference. It matches a supplier, a price to the expressed need.
The whole package is then transmitted to the supplier by EDI (Electronic Data Interchange). In addition to minimizing the risk of error, it is a real-time saver. The information is processed almost in real-time.
- Sourcing industrial suppliers
The search for industrial suppliers is another important part of the business. When entering into a contract, the buyer is liable to the company. This is why there is a set of criteria to ensure supplier compliance.
Sourcing can be done in different ways:
- By invitation to tender for public companies;
- On dedicated exhibitions, in France and abroad;
- Thanks to its network of buyers;
- Through specialized platforms, such as Mobility Work hub.
Mobility Work Hub aims to offer industrial suppliers and maintenance experts a secure interface for connecting and exchanging. Suppliers and service providers share their official product catalog, making it available to technical teams. From their Mobility Work CMMS, they can consult the available products, and profiles and contact them directly.
Once the contact has been established, the buyers, alongside Finance, draw up the supplier’s financial health. Subject to confidentiality agreements, they will be able to consult certain documents such as income statement balance sheets or inquire about future investments.
Then the company involves an audit phase. Experts visit the industrial supplier to carry out product or development audits. This can take several days. If the conclusion of these audits raises certain non-compliant aspects, Procurement may request the implementation of action plans. At the end of a predefined period, if the results are conclusive, both parties may conclude the contract.
- Managing supplier relations
The Procurement function is one of the preferred contacts for industrial suppliers. It is, for example, the one who negotiates contracts. Both parties agree on prices or delivery conditions. During this process, the buyer also negotiates the end of life of the products. Depending on the company’s needs, they define together a purchasing schedule, on which the manufacturer can align its own production of consumables. This calendar cannot be interrupted overnight. In the event of a stop of marketing or modification of the final product, the customer undertakes to continue its acquisitions for a certain period of time. In most cases, the supply contract includes a clause defining the maximum quantity of stock that the company can buy from the manufacturer.
More and more, supplier relationships are becoming true partnerships. Some even engage in a logic of co-development. Listening to their customers, suppliers access field data on the use of their products by connecting to Mobility Work Hub. With the help of these users’ feedback, manufacturers adapt to changes in their market.
Mobility Work Hub is an interface for connecting industry players. By joining it, industrial suppliers share their product catalog with users of our next-gen CMMS. Mobility Work Hub offers them increased visibility with a qualified audience of maintenance experts and facilitates exchanges.
- Industrial Procurement, a multi-skilled function
Highly sought-after by large groups, the job of an industrial buyer is complex and involves several aspects. With the increasing outsourcing of services, buyers are on the rise today and specialized profiles are attracting recruiters. Depending on the size and activities of the company, Procurement may cover a more or less wide field of action.
The role of industrial buyers in the company
In the industrial sector, they work in direct contact with other actors in the supply chain. Internally, they collaborate in first place with Marketing, which assesses the market interest in products and regulates their marketing. Buyers also discuss with R&D and engineering departments issues such as improvement and innovation. Their interlocutors also include Production or Finance, for instance. Externally, they act as a link between the organization and suppliers or service providers.
In bigger companies, the Procurement function can be divided into a portfolio of products on which buyers are distributed. Although there is little exchange between products, there is a synergy between buyers of the same portfolio. Whether or not they operate in the same geographical area, they can collaborate on common issues. It is not unusual, for example, for them to share information about their suppliers.