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October 26, 2012
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Procurement Best Practices 9: Strive to Achieve Total Cost Management


Procurement Management DefinitionThe ultimate goal of any procurement planning strategy is to achieve cost savings across the entire supply spectrum. It can be said that a good procurement management definition is to take a hard look at everything a company purchases, look for opportunities to improve the system, streamline purchasing decisions and the buying process, improve relationships with vendors and continuously monitor vendor performance. As you can see, this requires a purchasing manager who is capable of implementing a long-term procurement management plan.

 Today’s purchasing manager must be familiar with all of the basics of procurement best practices in order to develop a total vision of how to implement a successful strategy. This may require developing strong relationships with leaders in other divisions such as marketing, finance, IT, warehouse operations and upper management. The manager should also work on developing a procurement management cost analysis so that this can be presented to others in the decision making chain. Often, these ideas need to be thoroughly explained to others so that they too can see the wisdom of creating a cross-functional team buying strategy. 

Total cost management or TCM cannot be obtained by simply focusing efforts on buying items that have a cheaper price tag. Discount pricing only works out well when you know that you’re getting something of high quality. It does a company no good to go for a great deal on those cheap widgets when they break apart after light use. A cheap widget can end up costing you a lot of money when it has to constantly be repaired or replaced. Therefore, it’s much better to follow a sensible plan that takes a look at which vendors are capable of producing quality, quantity, and great customer service while providing you with a fantastic deal.

Company savings can also be the result of developing strong vendor relations in which you both share responsibility for meeting mutual objectives and goals. Basically, the procurement plan should include options for creating strong incentives for vendors to help you save more money. For example, let the vendor know that you’ll order more quantity and sign a longer contract if they take measures to reduce their internal processing costs on your items. This is a win win for both parties. Total cost management can easily be achieved by incorporating a company-wide strategy that manages and monitors the purchasing process.