For many job shops that work on single orders, purchasing for jobs is a basic part of the process. Businesses need to address their clientele’s desire for specific items or parts for their operations in a quick and effective manner. In doing so, they can retain these customers for a period of months or even years. However, while purchasing is important, what truly matters is procurement. With a more global economy in play, it’s no longer reasonable to expect the closest sources of raw materials, equipment and other aspects needed for a job to be the most affordable. By developing an effective procurement strategy, businesses can stand to gain from having better control over their part of the supply chain.
Knowing the difference between procurement and purchasing
When some small manufacturers hear the word procurement, they often think that it’s just another word for purchasing. That’s not entirely true. As supply chain logistics experts Procurify explained, while procurement can mean purchasing goods, there are also other processes connected to it. This includes looking for suppliers, vetting them through contacting other customers for prior history, negotiating contracts with a particular vendor, then buying the materials. To put it more succinctly, procurement is all the processes that lead to buying raw materials, equipment and other necessary elements.
With this in mind, it becomes much clearer that job shops have a lot of work cut out for them. It’s essential to consider several different factors in the procurement of raw materials. For example, a supplier may not be local, and it may not even be based in this country. That means there’s issues of reliability that companies must reconcile when doing business with a material source, according to TradeReady. It may be cheaper to buy materials on the surface, but there’s a lot of different aspects that go into the total cost of metals bought from an international supplier, from transportation fees to tariffs to getting proper documentation to ensure the importation goes smoothly. Moreover, it’s best for a company to consider at least holding on to a safety supply of materials just in case something goes wrong in transit. All of this factors into the total cost of acquisition. It makes sense for a shop to pay attention to these things when they purchase material.
Understanding what procurement strategies mean
A procurement strategy is one that takes into account all the aspects that affect the supply of raw materials, parts and other inventory necessary to complete an order. Consider the seasonality of products as one such factor. There are many products that have their highest sales at certain points of the year due to their specific purpose. Purchasing for jobs has to consider when these orders occur, so companies can buy accordingly. At the same time, it must be done carefully, for any unused inventory will just sit there until it’s properly disposed of. That can get expensive over time due to the cost of storage in a warehouse.
There’s also matters of when a reliable supplier suddenly becomes unreliable. With material sources coming from anywhere in the world, there’s a greater risk of something disrupting the supply chain, from political and labor activities to sudden changes in the cost of supplies, to supply ships being lost at sea or commandeered by pirates. All of these facts mean a procurement strategy should include contingency plans. The most common one is have a secondary source for particular raw materials, especially one from a more reliable location. In this way, while it may be more expensive to do business with them, shops can procure materials and still get the job done.
Job shops looking to improve their operations should read about the Features and Benefits of Microsoft Dynamics NAV for Job Shops today.