As its title suggests, this framework depicts hierarchically the building blocks within which the discipline of procurement and supply chain management takes place. At the lower level ( Buying Management ), a sourcing cycle is initially triggered to facilitate the sourcing of a product or service. Typical Sourcing Management practices consist of a number of steps from set up and gathering requirements to supplier selection and contract negotiations. The end of the sourcing cycle is followed by the Contract Management cycle, in which the contract is administered through its lifetime, from authorisation and signature to termination or renewal. During the lifetime of a contract, requisitions trigger the Procurement-to-Pay Management process in order for products and services to be ordered and processed and the suppliers paid.
Figure 2: BUYING MANAGEMENT PROCESS
Contract Management
Procurement-to-Pay Management
Sourcing Management
Whether it is a quick, one-off exercise or a long-term and concurrent process, the buying management process is necessary for the acquisition of all products and services. This is the operational side of procurement and supply chain. If products and services are not procured in-house, they will need to be bought by third parties, which are the focus on the second of State of Flux’s Procurement Building Blocks. Depending on the importance of the supplier, different Supplier Management strategies are employed. Tactical suppliers may potentially go through the Buying Management process once and never be used again. At the other end of the spectrum, strategic suppliers, which are vital to the success of an organisation, will therefore be closely managed with a view to collaboratively maximise the potential value for both parties. Figure 3 depicts a typical supplier segmentation model.
Figure 3: SUPPLIER SEGMENTATION
STRATEGIC Type: High criticality, high collaborative value opportunities Approach: Supplier Relationship Management (SRM) + SPM + CM
STRATEGIC
PREFERRED Type: High criticality, low collaborative value opportunities Approach: Supplier Performance Management (SPM) + CM
PREFERRED
APPROVED
Type: Medium criticality, low collaborative value opportunities Approach: Contract Management (CM) + MBE
APPROVED
TACTICAL
Type: Low criticality, easily switched
Approach: Management by Exception (MBE)
TACTICAL
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