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Project

Report

COST REDUCTION IN
PROCUREMENT FOR INCREASED
PROFITABILITY
Presented by : Mariamma Mathai
Roll number : 1304000215

Bu Company Profile
Founded in 1979
Air-Conditioning components, spare
parts,
tools, instrumentation, mechanical
and
electrical supplies
USA, Europe, Japan, Far East, Gulf
Cooperation Countries (GCC) and

Bu Objective of the project


Research the effectiveness of the
existing procurement process.
Find ways to lower cost of goods
procured without compromising on
quality and value of goods.
Give recommendation to streamline
procurement process to deliver savings
to procurement cost

Bu Executive Summary
1. Reducing Costs and
Improving Value for Money
2. Building a new work flows that
can reduce the administrative
cost and speed up the
process.
3. Ensuring Legal, Ethical and
Professional Standards.
4. Supporting innovation and
Ensuring Access to best
business practice

Definition
1. Purchaseplanning
(2) Standards determination
(3)Specificationsdevelopment
(4)Supplierresearchandselection

(5)Value analysis
(6)Financing
(7)Pricenegotiation
(8)Makingthe purchase
(9)Supplycontract administration
(10)Inventory controlandstores,
and

Bu Procurement steps
Identification of need.
Supplier Identification
Supplier Communication
Negotiation.
Supplier Liaison
Logistics Management

Bu Where to implement cost


reduction
Material procurement (COG, Inventory, Product
rationalization)
Logistics - inbound and outbound
Production ( process ,time and work study,
maintenance ,automation)
Human resource ( out sourcing )
Sales & marketing to focus on high potential
segments (customer segmentation)
Finance
Supply chain

Bu Research design
Purchasing as a Profit Center
Internal Controls in Procurement
cycle
Strategic Purchasing In Supplier
Relationship
The New Purchasing & Supply
Management Workplace
Negotiation in Purchasing
Develop Action Plan For Immediate
Implementation
Measurement of Result In Cost
Reduction

Procurement Risks
Unrealistic schedule and cost expectations for
vendors
Manufacturing capacity capabilities of vendors
Conflicts with current contracts and vendor
relationships
Configuration management for upgrades and
improvements of purchased technology
Potential delays in shipping and impacts on cost
and schedule
Questionable past performance of vendors
Potential that final product does not meet required
specifications
These risks are not all-inclusive and the standard
risk management process of identifying,
documenting, analyzing, mitigating and managing
risks will be used.

Procurement Constraints

Schedule:
Cost
Scope
Resources
Technology:
Government
regulations

rules

and

Procurement Process

Current procurement practices

10%

3%

Very good
Good

33%

Marks/ Grades
Mail
Fax
Phone
Electronic Mail
Online Orders
Plan / Scheduled orders
Order tracking
Access market place
Search low cost suppliers
Access online catalogs
Web orders via suppliers
web site
Total

Average

54%

Poor

Very good

Good

Average

Poor

6
3
6
5
5
5
5
3
7
5
3

1
6
1
1
4
4
2
4
2
3
5

1
0
1
2
0
0
2
2
0
1
1

1
0
1
1
0
0
0
0
0
0
0

53

33

10

Current procurement drivers


10%

3%

33%

Very good

54%

Good
Average
Poor

Marks/ Grades
Price reduction
Improve efficiency
Negotiated cost
Improve the visibility of the
requirement
Reduce administrative cost
Improve market intelligence
Reduce operational and
inventory cost
Enhance decision making
Handle customer complaints
Improve the visibility of supply
Enhance Inventory management
Shortened procurement cycle
time
Enhancing the service delivery
Management of information
report

Very good

Good

Average

Poor

3
3
4

6
5
4

0
1
1

0
0
0

4
6
4

3
2
3

2
1
2

0
0
0

5
4
4
3
5

3
4
4
6
3

1
1
1
0
1

0
0
0
0
0

3
5

6
4

0
0

0
0

Current procurement barriers


10%

3%

33%

Very good

54%

Good
Average
Poor

Marks/ Grades
Technology infrastructure
Financial resources
Procurement personals efficiency
Awareness & Training of procurement
programs
Company culture
Upper management support
Business process to support
procurement
Maturity of suppliers
Suppliers interest
Total

Very
good

Goo
Avera
d
ge
Poor
5
3
1
0
2
4
2
1
9
0
0
0
3
6
5

3
2
2

3
1
1

0
0
1

6
4
2
42

2
5
5
26

0
0
2
10

1
0
0
3

current procurement cycle is


result oriented
9%

6%
Very good
Good

26%

Marks/ Grades
Supply chain integration
Suppliers sources
Employee over head
Level of out sourcing
Efficiency of procurement
process
Staff development &
training

Average

58%

Very good

Poor

Good

Average

Poor

6
6
4
5

3
2
1
3

0
0
2
0

0
0
2
1

31

14

SWOT Analysis

mix

S
T
R

Strong efficient personals

Customer satisfaction

Efficient procurement process

E
N
G
T
H
OPP
ORT
UNI
TES

& cycle

Access to market information

and supplier price


Excellent company culture
Vendor commitment

Improving Productivity

Moving-up the value chain

Enhancing Competitiveness

Getting closer to the


customers

Good inventory and product

More training leads to


efficiency of the process &
team members

Handling customer complaints

Enhance asset utilization

Integrate Logistics &


Distribution

W
E
A
K
N
E
S
S

T
H
R
E
A
T
S

Technically not updated as per


suppliers level

Financial turnover

Negotiation cost is more

Administrative cost

Employee overhead cost

System not efficient enough

No Safety stock alerts

Product

price

needs

to

evaluated continuously

Technology infrastructure

Financial resources

Awareness and training programs


Demand & Supply needs not
system generated.
Maturity of supplier

be

Recommendations
1, Inventory
To reduce operational and inventory cost the need to eliminate
obsolete inventory and store the right mix, will enhance cash flow
and increase profit
Improve demand planning and identification of safety stock
levels

Action plan Improved purchase forecasting reports to be


implemented.
2, Systems
To improve the visibility of supply, improved systems and process
will help in demand forecasting and plan distribution.
The company needs to upgrade the system to generate order
tracking information, provide management information
reports like data on product segment profit ratio, debt to
asset ratio, inventory and working capital turn over. Asset
utilization and supply chain efficiency will reduce cost,
increase profits and reduce wastage.

Recommendations (Cont)
3, Supplier
To improve the commitment by external parties to think in terms of
long standing cooperation will facilitates reduction in cost of goods
and services.
By creating an environment of stability and progress will
open doors for vendors to invest more in terms of credit,
quality and value for money goods.

Action plan Emphasis on time payment .


4, Manpower
To enhance decision making, efforts need to be taken in hiring
efficient, professional and technical qualified staff which will enhance
decision making.
Training
in
advanced
procurement
systems,
time
management and continuous development of skills is needed
to optimize efficiency. Efficient manpower, fast purchase
confirmation, improved payment terms and additional
benefits like rebates, discounts, improved warranty period
through negotiation will reduce administrative cost.

Recommendations (Cont)
5, Market intelligence
To identify new niche markets and new alternative technology
through market intelligence will bring information on phasing out of
products which will help to ordering obsolete product and identify
new products.
Weekly meeting with sales and marketing team can provide market
information of new product mix, competitors strategies & supply
source and market price.

To handle customer complains steps to be taken to record customer


complain and actions taken to help in future remedial action.
Action plan To hold meeting fortnightly with sales and
marketing team and develop customer complain tracking
report .

Conclusion
The study of the procurement system and process in KAZEMA has
shown immense opportunities for progress and development exist.
With high inflation and tough competition for HVAC Spares in Kuwait,
reducing the cost of goods and increasing company profits is a huge
challenge.
With continual improvements in supply chain efficiency like profit
margin, asset turnover, debt to asset ratio by reducing working
capital, cost of goods sold and improved asset utilization will give
valuable results. The need to maintain inventory at the right mix
without compromising on customer service is very important. With
good upper management support, investing in latest procurement
systems will helps in on time purchase which will expedite inventory
and working capital rotation and reduce bad debts.

Result
The overall intend of this project is to bring in improvement in
procurement policies, process and systems which will lead to clear
understanding of best practices, modern sourcing tools and
techniques, effective tracking process, track variance is any,
measure saving which will give considerable motivation to
procurement team to continual develop skills and tools to ultimate
give savings in cost and increase profits