In recent months, global economic activity has undergone severe changes as a result of the Covid-19 pandemic.
Modern supply chains have also been impacted, so much so that for the World Economic Forum, this crisis revealed the fragility of the supply chain, in view of the difficulties faced by governments, businesses and consumers in obtaining basic products and materials due to the total lockdown policies implemented by many countries.
The report published by The Economist – Intelligence Unit (EIU) predicts significant changes for different sectors of the global economy and, consequently, for supply chains.
In this article, the main challenges raised by the authors of this material will be discussed, as well as forecasts from other experts in the field.
Challenges for global supply chains
The EIU claims that the global economy has become dependent on China since its inclusion in the World Trade Organization in 2001.
This is because companies have approached the Chinese market as a place for production, mainly because of its cheap labor and source of demand – ores, oil and agricultural products are some items that place China as Brazil’s largest trading partner, for example. In some trade sectors, the participation of this emerging country exceeds 50%.
However, it is expected that this scenario we know will probably change. Even some areas were already moving their operations to other Asian countries as a result of the increase in Chinese workers’ wages and the trade war between the country and the United States.
The pandemic will force other sectors to make the same decision, with the relocation of parts of their supply chains. What we will see is a network of chains less focused on China, more diverse, and a possible movement to be replicated in other regions of the world.
Supply chains are difficult to change, especially for some sectors (such as automotive), but the development of regional chains is a solution to face difficulties, making organizations less prone to possible collapse and crisis. Companies that already had this diversification were able to change production stages from one region to another during plant closures during the lockdown period.
Another concern will be the organization of production time and product assembly along the chain, in addition to the storage of final and intermediate goods in strategic locations of easy access – it is worth remembering that, even though it is very important, the reduction of expenses in production and transportation must be well thought out and planned, so as not to compromise the efficiency of the entire production chain process.
Post COVID-19 Supply Chain: possible answers
The time is still uncertain, but there are some possibilities that may ease the obstacles in supply chain, brought by the crisis caused by the new coronavirus.
1. Scenario planning
In a slowing global economy, with increasing risks in trade (reduced sales, closure of establishments, loss of jobs, changing consumer habits, etc.), scenario planning and the use of technological tools to accomplish it become more recurrent, in order for companies to deal with the impacts of the pandemic. The COVID-19 outbreak generated plant closures and supply disruptions, but the impact of this crisis on the global economy is not limited to these issues.
The Economist Intelligence Unit’s forecasts indicate that we should experience the largest recession since the 2008 financial crisis, with a slow recovery and a projected reduction in demand for goods and services by 2020. Thus, planning techniques are relevant to prevent impacts on supply chains, such as adapting goods to markets where consumption possibilities are higher or switching suppliers.
2. Digitization of business models
Companies are changing their business models to one that is more technological by necessity and opportunity. The online shopping habits created by consumers in 2020 are likely to endure, and it is important for companies to rethink their digital presence and map efficient ways to deliver products and services to their customers.
The report published by the World Trade Organization also discusses this issue, suggesting increased investment in virtual shopping platforms (e-commerce).
In addition, more and more data will be used in the production process, promoting an increase in the digitalization of supply chains, and making them more intelligent. However, these changes will bring challenges as countries have different information systems and customs control procedures.
Suppliers will also need to disclose their data, but this may generate privacy and competition problems.
3. From tactics to strategy
The adoption of a greater digital presence is a tactic in response to the current pandemic – and companies already aligned with the technological revolution proposed by Industry 4.0, are ahead. However, organizations will have to define a medium and long term strategic planning in face of the “new normal”.
For manufacturing and consumer goods companies (including small and medium enterprises), it will be an opportunity to participate in regional supply chains due to the restructuring that will occur in global networks.
It may also be a time for price models to be rethought, since the regionalization of supply chains and the increase of strategic stocks will lead to an increase in the final value of products, challenging competitiveness among competitors.
4. Bringing risk to the core of the business
The latest impact cited in the EIU report relates to concern about risk management, which should be maintained after this current period. Even before the pandemic, the global economy was surrounded by uncertainties and geopolitical issues were already influencing the scenario.
The US-China trade war, for example, shows how conflicts between actors impact the economic environment and can continue regardless of the results of the US elections in 2020 as a result of competition over technological domination.
Climate change will also have an impact, and it is crucial to manage risks in the face of threats to business operations.
Other future prospects
The EIU report reinforces the discussion by experts in the field about the future of supply chains. In an article published on the Forbes magazine website, Michael Mandel, economic strategist at the Progressive Policy Institute, also advocates changes in supply chains, making them simpler and shorter in order to contribute to sustainable production. Mandel explains that when chains are more complex, it becomes more difficult to keep up with emissions of polluting gases, to cite just one difficulty.
On the other hand, The PwC consultancy states that changes in business models, focused on the circular economy (a concept based on education, reuse, recovery and recycling of materials, including passing items from one industry to another, aiming at extending their life cycle) and the creation of shared value and sustainability – when physical, intellectual and human resources are shared among several organizations – will promote changes in global supply chains, maximizing the use of resources and the lifetime of products and services to ensure, satisfy and align consumer expectations.
In this article, we show what to expect from post-Covid-19 supply chains, which will become more regional, digital and sustainable.
Thus, working with foreign suppliers remains a very important option and having a company specialized in indirect material procurement may be the best way to keep this practice secure.
Present in five countries and having contact with the main suppliers in the world, Soluparts will optimize your purchasing process. Talk to one of our experts to clarify your doubts.
In an increasingly competitive economy, and recently impacted by the effects of the COVID-19 pandemic, companies need to be aware of different ways to stand out from their competitors, by becoming more productive and efficient (even at an adverse time).
In this context, technology is an important ally to bring agility to processes and projects in the various areas of the organization, by optimizing activities and reducing excess costs.
In the procurement department, this is no different, since there are different methods and solutions to improve the conduction of the stages in this area (supplier management, payments, acquisition of products and services, among others), which generates benefits such as:
- Follow-up of requests, with the identification of their status;
- Access to previous orders, allowing you to look at the history to make a more appropriate future purchase;
- Increased profitability, with greater integration of information from different areas of the company;
- Independence for suppliers, who can enter their information directly into the systems, which brings more transparency to the hiring process.
Given such important benefits, we have thoroughly researched and compiled a list of the ten best software for the purchasing department, recommended by specialized magazines and websites (such as Supply Chain Digital, Software Advise, GetApp and Gartner).
They may be useful to your company – check them out!
TOP 10: software for the purchasing department
1.SAP Ariba: first in the list of software for purchasing department developed by Supply Chain Digital (May 2020 edition), it offers a series of solutions for companies of different sizes, in the areas of supplier management, sales, services for buyers, among others. Through this software, companies can digitalize and simplify their expense management processes, end-to-end, in an integrated cloud platform.
2.Oracle: an important name in the technology sector, Oracle has a solution for the management of direct and indirect expenses and its different stages (contracting, purchase and payment). Its platform also facilitates the relationship with suppliers, through interaction and document sharing devices. There is also the possibility of training and certification for the use of this software on the company’s website.
3.IBM Procurement Services: one of the world’s leading technology organizations, IBM has been developing innovations in the field since 1911, the year it was founded. Its purchasing and strategic sourcing services offer digital solutions linked to the entire process with the use of technology, analysis, cognitive insights and Design Thinking methodologies.
4.Blue Yonder: the company (formerly known as JDA Software) delivers to its customers a platform for the complete optimization of business (planning, execution and delivery of demands; among them, those related to purchase). With the use of Artificial Intelligence and Machine Learning, it provides the benefit of having an optimized and autonomous platform for decision-making in companies.
5.GEP SMART: a unified purchasing software platform that enables improved efficiency and performance by offering solutions for spend analysis, savings tracking, contract and supplier management and accounts payable. In 2019, it received the award for “Best Purchasing Technology” in the World Procurement Awards.
6.A1 Tracker Software: Unlike other software for the purchasing department presented, this one is specialized in contract management, with numerous resources (approval of documents, suppliers, audits, among others). In addition, the contract panels and forms allow users to run analytical reports and update renewals, import and export data and prioritize activities.
7.Promena e-Sourcing: this software offers an efficient platform to monitor purchasing and supplier management activities. Users can maintain all online purchasing processes such as managing purchase requisitions, requesting quotations, approvals and delivery steps. In addition, there is a tool to monitor possible risks in the supply chain and integration with Enterprise Resource Planning (ERP) processes is supported.
8.Procurify: It composes the purchasing department software group aimed at medium-sized companies, and it is also used by financial sectors to manage spending. We highlight the usability and friendly interface, providing an option to track, control and analyze the values used by the company, thus facilitating purchase workflows and centralizing financial data.
9.Precoro: a spending and purchasing management software, helps reduce manual workflows and brings transparency to the purchasing process. Among its benefits, the following are highlighted: the ease of implementation of this software, performed in hours; the customization of its processes, meeting the different demands of customers; and the possibility of purchasing a free trial version.
10.ShippingEasy Software: Our latest purchasing department software tip is an inventory and shipping management solution suitable for small and medium-sized e-commerce companies. Key features include order tracking, label customization, integration with multiple vendor channels, rate comparison, and returns coordination. It is available for purchase with a monthly subscription.
As you can see, there are a number of software options for the purchasing department aimed at automating the processes of companies of various sizes and sectors, from the initial order to payment, thus improving the productivity of this important organizational area. It is necessary to analyze in depth the particular needs of your company so you can select the software that best meets your demands.
Follow Soluparts’ Blog to get up to date with relevant information related to the purchasing department – such as the contents of the articles we selected below:
Understanding how our brains work can simplify the way we negotiate or positively transform our interactions with other people.
The concept of the Triune Brain, developed in the 60’s, broadens our knowledge of this body, still so little understood, and offers the opportunity for development in the work environment, including for the purchasing professional – always involved in negotiations connected with several different interlocutors.
What is the Triune Brain, anyway?
The Triune Brain is a model formulated by neurosurgeon Paul D. MacLean based on the division of the human brain into three distinct regions, and organizing itself in a hierarchy based on its evolution. The regions are:
1. Primal or Reptilian Brain
As the name suggests, this brain part is also found in reptiles and controls the body’s vital functions, and is also responsible for our survival instincts. It warns us, for example, of our basic functions such as when we are hungry, cold, hot or thirsty.
Located in the brain stem, in the place where the spinal cord accesses the skull, the primitive (or inferior) brain governs our five primary feelings: anger, sadness, joy, disgust and surprise.
In a situation of danger the reptilian structure is awakened, releasing chemical substances to act instinctively, in defense of our self-preservation. When we lean our hand on a hot pot, for example, the automatic reaction is to push it away immediately – we act without thinking, something common when this brain is in charge.
But, besides primitive impulses, this brain is also related to habits and procedural memory, like getting into the car and starting to drive automatically, without having to think about every step that involves this action. The repetition leads to the recognition that the action is safe.
2. Limbic or Emotional Brain
Its location is exactly above the reptilian brain, that is, right in the middle of the Central Nervous System. The limbic (or middle) brain is the center of our emotions, memory and motivation.
By being activated it can raise the heart rate, increase oxygen consumption, preparing our body to fight or escape from some situation it perceives as dangerous. It can also trigger stress, one of the biggest problems faced in the workplace – whether at the office or working from home.
When we receive a disturbing message or see shocking news, for example, the limbic system is triggered, leading to an emotional experience before the occurrence.
3. Rational or Intelligent Brain
The intelligent brain is a younger cerebral part, constituted by the neocortex, and is responsible for all the conscious activities of superior order: language, reasoning, imagination, creativity, abstract thought, etc.
Located just behind the forehead, the rational (or superior) brain also concentrates a good part of our biographical and automatic memory – essential so that we can talk, write or calculate, among other actions. Responding to the perception of time and context, inhibition of inappropriate actions, generates understanding and empathy, and thus governs the way we conduct our interpersonal relationships and allows us to live in society.
That is, in any situation in which we use our reason the intelligent brain is activated, without involving other brain structures. A good example is when we face professional challenges, and seek the best solutions for each situation.
However, it is important to stress, the rational brain can go offline in threatening situations (real or imaginary), giving way to the limbic system, the first to respond when the goal is to maintain our security.
Triune Brain can improve purchasing negotiations
The concept of the Triune Brain can be used to improve the performance of the purchasing sector because, just as it is possible to develop essential skills for the professional to act in the digital age, it is also possible to better understand the functioning of this system to improve the work routine, as well as to obtain a better negotiation.
Well studied and applied, it can become a form of self-knowledge and be used to “map” better the people with whom we relate – in personal and professional life – even at the moment of negotiation.
As we have seen, our rational (or intelligent) brain is responsible for governing our behavior rationally, inhibiting the primitive impulses of our reptilian brain whenever they arise and prove inadequate.
If during a negotiation a primitive feeling arises, such as anger, for example, it is a sign that the reptilian brain is in command, giving flow to the irrational side.
It is worth remembering that we all carry emotional histories that can be unintentionally awakened by another person. Like the feeling of sadness or joy that comes to the surface, unconsciously, because of a gesture or perfume from someone present at the meeting – that is, many times the sensation awakened was not premeditated.
At such times the best way forward is to work on this sensation in a rational way, trying to understand why it has arisen and thinking about the harm it may offer if it is not mastered. And, of course, it must be replaced by a civilized and positive behavior, coming from the rational brain.
One way to achieve this effect is to go out for a drink of water or ask for the conversation to be postponed to another occasion – if it is possible to postpone – and especially to breathe deeply: this action better oxygenates the neocortex and helps it function.
In fact, it is always possible to make a choice: give in to the primitive impulses and desires of the reptilian brain or use the intelligent (or rational) brain to control them, and obtain the best results in personal and professional life, no matter how challenging the moment may be.
The three distinct brains, which emerged as we evolved and now coexist, do not operate independently: they influence each other. The balance between them will allow us to maintain harmonious relationships, regulate impulses and maintain the right behavior in the most varied situations – like the moment of an important negotiation in the purchasing department.
The concept of the Trine Brain comes to add to other information that can turn the game when negotiating – an essential task for the purchasing department. And exactly because it’s so important, we suggest reading our content on negotiation. Access and improve your techniques:
Competitive strategy, or Strategic Force, is a concept that allows the identification of the competitiveness and profitable potential of a business.
Since 1979, with the publication of an article entitled “How Competitive Forces Shape Strategy” by Michael E. Porter, the definition has been explored in the business world.
Read below and learn more about this concept and its application in Procurement 4.0.
What is Strategic Force?
Professor at the renowned Harvard Business School, in the areas of Administration and Economics, Michael Porter, who is also the author of several books on competitiveness strategies, developed the concept he called Strategic Force.
According to him, there are five competitive forces that determine the potential profitability of an industry or sector of activity. For Porter, the state of competition in a sector depends on five basic forces, as outlined below:
With this model, describing strengths in sectors and identifying competitive strengths becomes easier for purchasing and supply chain professionals. Let’s look at the most important points of Michael Porter’s five strengths:
Strength 1 – Intensity of competitive rivalry
Competition allows professionals in the purchasing and supply chain industries to analyze the speed of growth in the industry.
That is why it is important to use strategies to accompany the growth of competitors, without leaving aside the evolution of the product in the market. To analyze the strength of the competition, try to answer the following questions:
- How many competitors does your company have?
- Who are these competitors?
- What is the quality of the products and services they offer?
- Comparing the competitor’s products with yours, what are the competitor’s strengths and weaknesses?
This information will allow you to identify the level of rivalry and develop a plan that includes price and marketing campaigns, for example. If the competition is very intense, discounts and advertising should be more aggressive, but with little competitive rivalry, your brand is likely to have more space and higher profits.
Strength 2 – Threat of new participants
It refers to the likelihood that your customers will find a different way to get the products and/or services you offer.
Imagine a company that offers a unique solution for automating an important process, with a wide portfolio of customers. If, over time, your customers find it more advantageous to outsource the services than to purchase the tool, there will be a real threat to the profitability of the organization.
That’s why it’s so important to be able to monitor new market participants, and understand their innovation processes and technology to improve their products and services.
Strength 3 – Threat of substitute products or services
Evaluate constantly: can your position be affected by the ability of other companies to enter your market? Is it easy to get a position in your industry? What is the cost for this – high, low, medium?
It is essential to have the ability to do this analysis, and identify ways to diversify or optimize the product/service that is already offered. Thus, it is possible to remain in alignment with market demands, without giving gaps for “substitute products” to be inserted in the market by rival companies.
Strength 4 – Consumer bargaining power
The questions to identify the bargaining level of your buyers are: How many customers does my company have and how big are their orders? Would it be difficult for them to stop acquiring my products and services and seek a competitor? Is the strength my customers have enough to influence my company and products?
The answers to these questions will determine whether or not your customers have the strength to lower their prices or change the products/services offered.
Strength 5 – bargaining power of suppliers
In this last strength, the power of suppliers and the possibility of increasing prices are considered. Try answering: Who and how many are your suppliers? Is what they offer something exclusive? How much would it cost to change suppliers?
Of course, the fewer suppliers you have and the more dependent your company is on them, the greater the risk you run of higher prices being charged – which could affect your profit margin.
On this issue, we suggest reading this article which shows the benefits offered by companies specialized in the purchase of indirect materials, among them, the ability to interact quickly with suppliers around the world, which helps you obtain better prices in negotiations.
Strategic Force in Procurement 4.0
The Global SciQuest 2017 Survey, conducted by Cision PR Newswire with over 500 purchasing professionals, revealed that the sector is evolving and is increasingly important to organizational strategy. Among the information obtained by the survey, we highlight:
- 25% of the professionals believe that purchasing is a profit center in their companies;
- 72% said they are accessing data to have greater visibility of the supplier and thus conduct their business decisions;
- 67% of purchasing professionals said they expect greater recognition for the sector, as there is a requirement for purchasing to offer savings and value to their organizations.
And if the scope of the work is evolving to become increasingly strategic, the concept born at Harvard shows itself to be extremely advantageous for the 4.0 purchasing department.
The analysis and application of Michael Porter’s theory in the sector allows it, among other benefits, to examine the current status of the sector, pinpoint its strengths and competitive forces; identify and minimize risks related to suppliers; observe and understand the market, including competition.
Methods that extend the intelligence of the procurement industry are indeed welcome. Among them the optimization of the purchasing process, through the services of a company specialized in acquiring indirect materials.
This is the case of Soluparts, which has access to over 15,000 brands around the world and therefore offers the best commercial conditions and greater security in the purchase of indirect materials for your company.
Try our services: request a quote!
Answer quickly: how many times have you left a meeting with a client or supplier with the feeling that the agreement reached was not ideal for your business? If this happened more times than you would like to admit, the time has come to meet BATNA, an advanced negotiation method developed by Harvard Business School that will change this outlook. Learn more!
What is BATNA, anyway?
Developed by professors Bruce Patton, Roger Fisher and Willian L. Ury, the BATNA method was first described in the bestseller “Getting to Yes”, launched in 1981 and considered by executives around the world as one of the most important negotiation guides in the corporate environment.
BATNA (Best Alternative to a Negotiated Agreement), in general terms defines its “plan B”, or what needs to be done to get around an unfavorable situation and reach the best possible result, if there is no chance of reaching the agreement initially imagined for the negotiation.
Why is it important to have a well-defined BATNA?
Arriving at a negotiation with a customer or supplier without a clear notion of your BATNA can bring serious harm to your business.
This is because ignoring this advanced negotiation technique increases exponentially the chances that you expose the company to unnecessary financial risk, either by rejecting an agreement that should have been accepted or, on the contrary, by signing a contract that should have been rejected due to the anxiety of closing a deal.
To prevent this from happening, it is essential to go to the meeting with a clear vision not only of your aspirations regarding the results of what is being negotiated – that is, what you consider your best result – but also of the limit of concessions you can make and, above which, you will need to reject an offer.
Advanced negotiation: how to evaluate my BATNA?
The definition of your business’ BATNA goes through 3 fundamental stages:
1. Evaluate your options
Gather your team, evaluate the situation that will be negotiated and think about all possible scenarios: which points will be easily negotiated, which items can lead to an impasse, which ones will hardly be accepted by the other side?
Then build the possible solutions, because it is important to have a clear notion of your alternatives beyond what was initially thought.
Making an honest assessment of the possible options in case you don’t achieve the expected terms, besides taking a huge pressure off that moment, prevents you from making decisions on an emotional basis and that may represent little advantageous solutions for your business. [link to article Using emotion for better trading after publication]
2. Establish your BATNA
With the available options in mind, it is possible to establish your BATNA, that is, the one that would be your best option if it is not possible to obtain the performance initially expected.
When establishing your BATNA, it is important to also consider the other side of the negotiation and think about the BATNA of your interlocutor. In other words, you may wonder if, in case the client or supplier does not close the contract with you, what would be his best option?
Obviously, it is important not to answer this question based on assumptions about the other side. One of the fundamental premises of this advanced negotiation technique is to do an in-depth research about your interlocutor and the scenario in which they are inserted, so that your BATNA can be established on a safer basis.
Pro Tip: In addition to information about the other party, it is essential to update in relation to the global market. Therefore, we indicate 3 important readings on the subject:
- How Slowbalisation affects the Supply Chain
- The second wave of Industry 4.0
- Incoterms 2020 – for buyers.
3. Calculate your reserve value
With BATNA established, you can also define your reserve value, that is, the limit where the negotiation is no longer interesting for your company and that it is not possible to cross.
This is the value that defines the deal breaker, the issue (or a set of issues) that one of the parties to a transaction considers essential to its interests and, therefore, cannot be abdicated. These points are usually left until the end of discussions, when other items are already advanced.
In simple words, you can establish the exact moment when you need to leave the negotiating table, since advancing would mean signing a contract that is disadvantageous to your company.
It is important to understand, however, that defining your reserve value in a negotiation is quite different from setting a target. This is because, as you already know, the first is the minimum acceptable value for that to be a viable deal, while the second is the value you are willing to arrive at for the transaction to be considered a success.
Would you like to better understand what BATNA is and how it can help you improve your performance in dealing with customers and suppliers? Then take the opportunity to read other articles on advanced negotiation techniques on our blog and learn more about the subject!
After reading, if you would like to continue the conversation, we are at your service!
The concept of Compliance, already known in the corporate scenario, aims to adapt companies to legal and ethical rules that guarantee values such as transparency in business relations and procedures. It is also very effective to detect and treat possible frauds, deviations or non-conformities that may happen in the company.
But what about compliance in the purchasing department? What are its benefits? That is the subject of this article
Fraud in the purchasing sector
Among other responsibilities, it is up to the industry to judge the best proposals for the supply of materials, as well as to choose which suppliers will be hired.
By moving varying amounts of money, these negotiations can open up gaps for unofficial agreements – where the choice falls on the supplier that offers some kind of benefit. To investigate this scenario, Price Waterhouse Coopers (PWC) conducted a Global Survey on Economic Crimes – Brazil.
According to the study by the consulting and auditing services company, 44% of the companies that were victims of economic crimes in Brazil suffered fraud in the purchasing process. The survey also found that 69% of the victims detected fraud during the selection of the supplier, 63% in their hiring and 56% in the invitation to participate in bidding processes.
In addition, the survey pointed out the “opportunity” as the main factor to contribute to the criminal practice, since people who commit fraud usually know very well the existing regulations and know how to cheat them, which makes essential the existence of clear policies and training programs focused on ethics.
Continuing with the data, 64% of criminal attacks are committed by people who work in the company’s purchasing department. “When the fraudster is inside the company, his profile is balanced between middle management and team members, both slices with 39%. Members of the executive management account for only 17% of cases,” the survey found.
These data are ratified by Cláudio Marcelo Rodrigues Cordeiro, in his work “Internal and operational auditing: fundamentals, concepts and practical applications”, published in 2013. According to Cordeiro, fraud can occur when basic conditions such as intention, opportunity, insufficient internal control, weakness of an ethical policy associated with a weak code of conduct and risk inherent to the activity coexist.
Importance of Compliance in the Purchasing Department
The lack of compliance of the company’s performance both with the legislation and with its internal policies of good practices, regulations and codes of conduct may result in serious damages such as damage to the image of the company and its reputation in the market, compromise of the company’s results and, in more serious cases, criminal proceedings.
According to the author of the book “Compliance in Brazil: Consolidation and Perspectives (2008)”, Vanessa Alessi Manzi, four fundamental preventive and detective controls are required in a Compliance program:
- Establish a code of ethics for the organization;
- Develop professionals in the capacity to deal with ethical dilemmas;
- Create channels for identifying unethical conduct;
- Enabling the discussion of ethical dilemmas.
The author emphasizes that Compliance programs are not able to fully prevent illicit acts from occurring. However, risk management allows identifying, assessing, monitoring, recommending and reporting risks and combating them quickly.
Compliance in the purchasing department
Below are some practices that will help maintain compliance in the purchasing industry.
1- Creating a Compliance Program
The study by Price Waterhouse Coopers (PWC) pointed out that the most effective means of combating fraud is the prevention and mitigation of in-process risks and methods. In other words, the existence of a Compliance program in the purchasing department, establishing a code of conduct, training programs that involve ethical values and disseminate the established standards is essential. In addition to a channel for employees to report what they are seeing wrong, without having to identify themselves.
The main topics for creating a Compliance program in procurement are:
- Comply with existing laws, regulations and standards;
- Create a set of standards of conduct and ethical principles that are known to employees;
- Have clear and precise internal procedures and rules – to be obeyed by the entire team;
- Create reports that generate information and make the purchasing process transparent throughout the organization;
- Assist external and internal auditors offering all the items requested in an agile manner.
2- Frequent Audits
In addition to preventive controls and fraud detection, periodic audits are also a good tool within the Compliance culture in the purchasing department. These audits can:
- Avoid exchanging inappropriate favors or gifts between purchasing professionals and suppliers;
- Ensure proper control by preventing laws from being circumvented – even unconsciously;
- Verify that what is established in the contract is being duly fulfilled by the supplier;
- Observe if the business partners also follow compliance principles.
During the audit the entire acquisition process is evaluated. The user’s request (requirement, quantity and urgency), vendor selection, quotation, negotiation, order closing, physical receipt, storage. In addition to greater transparency, the audit allows improvement in the work of the sector.
3- Process standardization
This is a way to reduce loopholes for illicit acts that harm the company. Standardization will also allow the analysis of the strengths and weaknesses of the procurement process, identifying actions that lead to the continuous improvement of the Compliance process in the purchasing department – thus, the company will always be up to date with the changes that have occurred in the current legal norms.
The standardization of processes requires the structuring and documentation of activities in an archive that will be made available to the procurement team, who will be able to consult it in case they have any doubts or questions.
4- Partnership with suppliers who practice compliance
Make sure your suppliers meet specific ethical and transparency requirements and are qualified to maintain a business relationship with your organization. This verification process should be constant, also evaluating performance, and the supplier companies that prove more reliable should have priority in future negotiations.
This verification can be done with the monitoring of each of the suppliers in meetings, via social networks or verifying the mission and values of the company, for example.
The implementation of a Compliance program minimizes the possibility of illicit acts in the purchasing department and, in case of such occurrences, fights them more quickly.
In this process, good supplier management is essential. And the most practical way is to have a company specialized in spare parts.
Experienced in purchasing industrial materials – and with offices in Brazil, Germany, Portugal, Hong Kong and the United States – Soluparts has access to thousands of international products and suppliers.
Experience the advantages of having a team specialized in indirect purchases, by requesting a quotation right now!
Having emerged in the 1990s, the concept of sustainable purchasing is relatively new.
What started with the option to purchase ecologically correct products grew and involved social responsibility, overcoming the idea that the purchasing department only purchases recyclable products, involving social and economic impacts, in addition to environmental ones. Learn more!
Sustainable purchasing: Protect society and your brand
Also known as green purchasing, the term sustainable purchasing refers to the policy of considering social and environmental factors when choosing a supplier by the purchasing department, and looking beyond price.
In this type of procurement, materials need to meet corporate needs, but other factors are also considered, such as:
- Longer life of the purchased item: take into account the durability of the material, from the extraction of the raw material to the end of its useful cycle – step by step, from “cradle to grave”;
- Greater electrical and hydraulic efficiency in the production and use of the material: suppliers that maintain effective programs to mitigate water and energy use in their production processes;
- Less use of natural resources: evaluate practices aimed at environmental preservation, such as: conscious exploration and controlled management of natural wealth or reduction of greenhouse gases generated in their factories;
- Less waste generation: management focused on avoiding waste of raw materials or reducing paper consumption are practical examples of how to reduce waste;
- Possibility of recycling or reuse: selective garbage collection or the transformation of waste into inputs or new products reduce disposal – and may even generate revenue for the organization.
It is good to stress that consumers are increasingly choosing companies that prioritise social and ecological responsibility. And in times of technological advances and social networks, they follow companies closely, even using the Internet to express their dissatisfaction with organizational actions they consider unethical – which can negatively affect the brand image.
Obstacles and advantages of sustainable purchasing
It is undeniable that there are barriers to the adoption of sustainable purchasing practices in companies, but they should not be seen as a deterrent for this type of purchasing to take place and generate advantages for the purchasing company and society in general.
The list below points out the main obstacles a company should overcome and shows how this concept benefits organizations.
Sustainable Purchasing Barriers
The main difficulties in implementing a sustainability program are:
- Break the traditional behavior of the purchasing department, focused on lower costs;
- Search for and find sustainable suppliers;
- Ensure that suppliers who claim to be sustainable are indeed sustainable;
- Compare the cost-benefit offered by the traditional supplier with the sustainable one;
- Include factors such as social and ecological responsibility in supplier selection criteria.
To overcome these obstacles the purchasing team needs to gather information that proves the benefits of sustainable purchasing for the organization. It must also count on a wide range of suppliers that meet the requirements of a sustainable process effectively and with the best values.
Sustainable Purchasing Advantages
Companies around the world are already investing in the development of sustainable purchasing. Besides the ethical issue, benefits lead to this option – see the main ones:
- Increase in revenue: sustainable companies can innovate and create new products, increase the price of green label products and services, get income from recycling;
- Risk reduction: working only with suppliers that also value ethics and social and ecological responsibility, the chance of problems with what was agreed in the contract decreases, as well as the risks of having their brand hit by negative practices (such as child labor);
- Easier to be in Compliance: the adoption of sustainable practices, helps the company to be in compliance with the government regulations in force;
- Competitive advantage: compared to other companies in the industry that do not adopt sustainable procurement, the organization creates a competitive advantage, gaining improved consumer insight and improving brand image – according to the World Economic Forum, sustainable companies can have a 15 to 30% increase in brand value!
Adopting Sustainable Purchasing Practices
In times of Industry 4.0, the purchasing department has been undergoing many transformations, which demonstrate its capacity to adapt and adopt new practices, such as the proposals for sustainable purchasing.
We list down below a simple step by step to make the purchasing process sustainable.
1- Definition of a sustainability policy
It is up to the organizational management to decide if this will be the direction of the company. If so, the guidelines and requirements for social-environmental responsibility that will guide all corporate actions must be developed. A good idea is to create a sustainability committee with people from various sectors, and the purchasing sector at the center of this team.
2- Review of Purchasing Planning
Reevaluate the purchase planning, considering the possibility of renting, reusing or sharing resources – with this practice, it is possible to avoid the production of a new product/material, saving natural resources.
The decision should be made by analyzing whether the asset is for temporary use and how often it will be used (today and in the future) – it helps in this reflection, to know the difference and indication of Opex and Capex in your business.
3- Setting criteria and selecting suppliers
The purchasing department should establish criteria consistent with the organizational sustainability policy, for approval of new suppliers and evaluation of existing ones.
One of the most important and complex parts, since every supplier (new or already approved) will need to be submitted to a careful analysis that evaluates commercial aspects and also: social and environmental practices adopted, reputation in the market, risks it offers to the environment, etc.
4- Supplier management
In sustainable purchasing, professionals in the area need to monitor suppliers, making sure they are respecting good social-environmental practices informed during the selection process. This monitoring will ensure greater transparency to the sustainable purchasing process, allowing the whole process to be evaluated and improvements implemented.
How to know if a supplier is sustainable
The selection of suppliers has always been one of the most important steps in the procurement sector.
Creating a spreadsheet with the main items to be evaluated in each supplier – always guided by the social-environmental policies of your organization – is a way to facilitate the process of qualifying your suppliers – see the spreadsheet we prepared to help you in this task.
There are several questions for analysis. We highlight some that should be verified with each supplier company:
- Biodiversity: in this regard, among other items, the company must be assessed whether it has an Environmental Policy, uses recycled packaging (whether paper or wood, do they have a forestry certification?), has received an environmental fine in recent years, respects all care with the environment (within its premises and surroundings), etc;
- Working conditions: if it has a social-environmental education and accident prevention program, if the employees receive benefits and work legally, among other aspects;
- Hydraulic and electrical efficiency: how it is monitored and what actions are taken to reduce consumption;
- Social Responsibility: if you have or collaborate with social projects, hire local labor, encourage employees to do volunteer work, have actions aimed at the health of the employee, family, local community and/or original people, are some examples;
- Digital Security: how you take care of the digital protection of your environment, if you are in compliance with LGPD;
- Reputation: how the company is seen in the market – social networks is a great source of research.
Although social aspects are more difficult to measure, progress is already being made with the establishment of standards such as SA8000. It provides for the company’s actions in the social field, just as ISO 14001 deals with environmental management – and as supplier companies meet these requirements, they can attach them to documentation proving their social and environmental commitment.
Changing the culture of the company and the purchasing department, moving towards sustainable purchasing is a complex but increasingly urgent job, in view of the behavior change of consumers who, in general, prefer a conscious organization – even if they pay a little more for products and services.
Corroborating this statement, Roberto Azevedo, a Brazilian diplomat who was in charge of the World Trade Organization (WTO) for seven years, says that the world’s major investment funds do not just analyze organizational accounting. They also consider criteria such as social, corporate and environmental responsibility of companies. “This kind of evaluation is a trend that is evolving,” Azevedo says.
Implementing the concept of sustainable procurement is a job that requires great commitment from procurement professionals, but you can simplify it by downloading our supplier qualification spreadsheet according to criteria such as sustainability and social responsibility.
With the support of Soluparts, which specializes in indirect material procurement with offices around the world and access to the main suppliers on the planet, it is possible to optimize the purchasing process in your company, leaving time for the manager to devote to other tasks – talk to our experts and learn how!
And your company? Is it prepared for sustainable purchasing? We’ll prepare a Quiz for you to find out. Click and start now – it’s fast and convenient!