TOPIC 1

THE SCOPE AND INFLUENCE

OF PROCUREMENT
Presented by Group 4
Lecturer: Tran Quang Anh Tuyet
 Our Team

Mã Gia Hân Nguyễn Thị Ngọc Ánh Đặng Tuyết Nhung Nguyễn Thanh Trúc
TABLE OF CONTENTS

1 HOW TO DEFINE PROCUREMENT 5 PROCUREMENT AND CHANGE

2 KRALJIC MATRIX 6 WORLD-CLASS PROCUREMENT

3 STRATEGIC ROLES OF PROCUREMENT 7 THE STATUS OF PROCUREMENT AND SUPPLY MANAGEMENT

4 THE STRATEGIC SCOPE OF PROCUREMENT

1.HOW TO DEFINE PROCUREMENT
Procurement is a business management
function focused on identifying, sourcing,
and overseeing external resources that an
organization requires to fulfill its strategic
goals.
Ensures the acquisition of goods, services,
or works from external suppliers under
optimal terms to maximize value for money,
while also meeting standards for quality,
timeliness, and efficiency.
Involves activities such as managing
supplier relationships, negotiating
contracts, mitigating risks, and aligning
procurement efforts with the company’s
broader objectives.
 PROCUREMENT PURCHASING
The term "purchasing"
As above, procurement is describes the particular
known as the process of tasks required to acquire
finding, evaluating, products and
choosing, and obtaining services. Order placement,
suitable products or delivery expediting, item
services from a third-party receipt, and payment
supplier through direct processing
purchase, competitive are all part of this tiny part
bidding, or tendering. of the larger procurement
process.
THE DIFFERENCES
Procurement Purchasing

End Goal: Determine the demands of the business and End Goal: Control business expenditures and purchase
execute the procurement to satisfy them products and services for the company

It is a strategic and Proactive process It is a reactive process

Considers an item's worth more important than its price Price is given more importance than value

End-to-end operations required to obtain all required

When to purchase products and services
products and services

Task involved: Need identification, sourcing, contract

Task involved: Purchasing, rushing, and paying
termination, and documentation

Focused on: Building enduring, mutually beneficial Focused on: Completing transactions quickly and without
relationships with suppliers undue regard for cultivating connections with vendors
2. KRALJIC MATRIX
The Kraljic Matrix is a strategic tool used
in procurement and supply chain
management to help companies
classify and manage their supplier
relationships and procurement
strategies. Developed by Peter Kraljic,
the matrix categorizes items or
commodities based on two main
dimensions: Supply risk -Horizontal
Axis and Profit impact - Vertical Axis
 THE MATRIX IS DIVIDED INTO
FOUR CATEGORIES BASED ON THESE DIMENSIONS:
NON-CRITICAL ITEMS: (LOW RISK, LOW PROFIT IMPACT)
Examples: Office supplies, low-cost packaging
materials, or cleaning products.
Strategy: Streamline processes to reduce
transaction costs, use standardization, and aim
for efficient purchasing with minimal time or
resource investment.

LEVERAGE ITEMS:(LOW RISK, HIGH PROFIT IMPACT)

Examples: High-volume raw materials (e.g., metals, basic chemicals) or
standardized components.
Strategy: Use buying power to negotiate favorable terms, consider volume
discounts, and explore competitive bidding. The goal is to maximize cost
savings due to high impact on profit but with low supply risk.
 THE MATRIX IS DIVIDED INTO
FOUR CATEGORIES BASED ON THESE DIMENSIONS:
BOTTLENECK ITEMS:(HIGH RISK, LOW PROFIT IMPACT)
Examples: Specialized spare parts, specific technical
support, or small suppliers for unique items.
Strategy: Ensure reliable supply, seek alternative suppliers,
and manage stock carefully. Although these items have a
lower impact on profit, their high supply risk means
shortages can disrupt operations.

STRATEGIC ITEMS: (HIGH RISK, HIGH PROFIT IMPACT)

Examples: Critical raw materials (e.g., rare metals in tech manufacturing),
specialized machinery, or key technology partnerships.
Strategy: Build long-term partnerships, focus on collaboration, joint
ventures, or even co-investment. These items are vital to the organization’s
operations and profit, so securing a stable supply and maintaining close
supplier relationships are essential.
3.STRATEGIC ROLES OF PROCUREMENT
1. Due Diligence
2. Risk management of the Supply chain
3. Relationship management
4. Continuous improvement of supplier
performance
5. The supplier’s investment in “right first
time”
6. The supplier’s investment in inventory
7. The supplier’s investment in procurement
expertise
DUE DILIGENCE
In the context of procurement, this means
taking into account the supplier's:
-Stability of finances, especially working
capital
-The essential personnel's availability and
proficiency
-The extent and dependence on
subcontracting
-The background of court cases and
litigation
-The experience of joint ventures
-The existence of a solid five-year company
strategy
-The insurance claims history
-The IT system's resilience
 RISK MANAGEMENT OF THE SUPPLY CHAIN
Every supply chain risk can be Risks that fit under category 1
divided into one of three groups: include, for example:
1. Those risks that can only be Effective business continuity
controlled by the supplier planning
2. Those hazards that can only be The ability to match program
controlled by the purchasing outputs with resource
organization allocation
3. Those risks that the purchasing Design, testing, and inspection
organization and the supplier Contractual relationships with
need to work together to subcontractors
control The availability of sufficient
working capital
Lifetime product assistance
RELATIONSHIP MANAGEMENT
Managing relationships with critical suppliers
calls for a variety of abilities, including:
Talking about long-term business
objectives
Conducting frequent, blame-free contract
reviews
Devoting to ongoing growth
The active involvement of both businesses'
top executives
The quick and accurate delivery of
contract management and business data
Discussions grounded in actual business
goals
 CONTINUOUS IMPROVEMENT OF
SUPPLIER PERFORMANCE
Role of procurement: Drive continuous improvement by suppliers.

Long-term contracts: Provide incentives for suppliers to improve

processes, improve quality, and reduce costs.

Continuous improvement in contracts: Clearly define standards, targets,

and KPIs to ensure long-term performance improvement.

Technology partnerships: Co-invest with suppliers in innovative

technology, with agreements on intellectual property rights and royalties.
 THE SUPPLIER’S INVESTMENT IN
“RIGHT FIRST TIME”
Suppliers possess or ought to possess expert knowledge about the goods
and services they provide

The provider can offer advice on maintenance assistance, testing and

inspection, lifecycle costs, and continuous improvement

The quality management qualities of the bidder should be carefully

examined
THE SUPPLIER’S INVESTMENT IN
INVENTORY
Buying organizations mistakenly assume
that the just-in-time idea may be
adopted, eliminating the need to stock
raw materials at no cost, if suppliers
agree. However:

Suppliers support this, but at a cost

Some suppliers support the concept

of consignment-based procurement,
which means you only pay if items are
consumed or sold
 THE SUPPLIER’S INVESTMENT IN
PROCUREMENT EXPERTISE
When evaluating suppliers, buyers
frequently forget to inquire about the
supplier's investment in procurement
knowledge.

This implies that buyers might not

give procurement top priority when it
comes to gaining a competitive edge
during their tendering process.
4. THE STRATEGIC SCOPE OF PROCUREMENT
4. THE STRATEGIC SCOPE OF PROCUREMENT

Table 1.2 Indicative areas of financial strategic considerations for procurement

4. THE STRATEGIC SCOPE OF PROCUREMENT

Table 1.3 Indicative areas of legal strategic considerations for procurement

4. THE STRATEGIC SCOPE OF PROCUREMENT

Table 1.4 Indicative areas of supply chain strategic considerations for procurement
4. THE STRATEGIC SCOPE OF PROCUREMENT

Table 1.5 Indicative areas of operational strategic considerations for procurement.

4. THE STRATEGIC SCOPE OF PROCUREMENT

Table 1.6 Indicative areas of technology strategic considerations for prprocureme.

4. THE STRATEGIC SCOPE OF PROCUREMENT

Table 1.7 Indicative areas related to managing obstacles to change considerations

for procurement.
5. PROCUREMENT AND CHANGE
5.1 The challenge to manage escalating costs in
purchasing goods and services
The escalating costs of goods and services pose a significant challenge for
businesses.
The volatile oil prices are driving up supply chain costs, while geopolitical tensions
in the EU, including terrorism, cultural conflicts, and displacement crises of people
from Africa, further exacerbate the situation.
These factors contribute to increased living costs, leading to demands for higher
wages.
The retail sector is particularly vulnerable to these pressures, as it faces rising
costs that cannot be easily passed on to consumers.
The financial services sector is experiencing difficulties, making capital more
expensive and less accessible, which impacts investment decisions and working
capital availability.
5. PROCUREMENT AND CHANGE
5.2 The public sector focus on driving out
inefficiencies in public expenditure
Witnessed significant transformations in public
expenditure management.
The large amounts of spend in central and
local government have often been tackled
through the aggregation of requirements.
While substantial progress has been made,
challenges remain in optimizing value for
money.
The procurement process, in particular,
requires a more integrated approach that
transcends departmental boundaries and
eliminates traditional silos.
5. PROCUREMENT AND CHANGE
5.3 The increasing trend to outsource manufacture
and services
There has been a rapidly growing trend to
outsource a wide range of manufacturing and
service delivery.

This trend has challenged procurement

departments to improve their management of
tender processes, due diligence, negotiation
with different cultures, managing and
overseeing complex outsourced contracts.

Procurement as a function is not immune from

outsourcing actions. Further emphasizing its
strategic importance.
5. PROCUREMENT AND CHANGE
5.4 The recognition that procurement is
a significant contributor to corporate efficiency

Procurement has evolved from a transactional

function to a strategic one.
Procurement can contribute to corporate efficiency.
An example is long-range business planning by
providing insights into future costs, material
availability, supply chain developments , and trends
in service delivery.
5. PROCUREMENT AND CHANGE
5.5 The positive impact of global sourcing

The retail sector, with its expertise in global

sourcing and long-standing supply chain
management, is well-positioned to adapt
to fashion trends and seasonal demands.
International airlines also leverage global
sourcing to procure equipment and
services.
Global sourcing presents organizational
challenges, often leading to the
establishment of buying and supply
organizations in regions like the Far East.
5. PROCUREMENT AND CHANGE
5.6 The enhanced use of information technology and
e-procurement
The adoption of information technology
and e-procurement is revolutionizing
the procurement function.
By eliminating paper-based processes
and facilitating secure online
transactions, e-procurement is
streamlining operations and aiming to
transform the global economy.
While e-procurement is still in its relative
infancy, it holds the potential to
revolutionize tendering, knowledge
storage and gathering strategies.
5. PROCUREMENT AND CHANGE
5.7 The redressing of procurement power

Many suppliers have gained significant

market power, impacting pricing,
output allocation, and other restrictive
practices.
Procurement professionals must work
to counter this power by forming
buying clubs and collaborating with
other organizations.
Public sector initiatives in forming
consortia have shown promise in this
regard.
5. PROCUREMENT AND CHANGE
5.8 The challenge to outdated traditional practices

Outdated procurement practices must be

challenged to embrace a more strategic approach.
A movement from transactional operations to
strategic activities would be desirable in many
organizations.
Transparency and information sharing are essential
to build trust with stakeholders.
Procurement professionals should actively seek to
involve themselves in the entire procurement cycle,
even in sectors like construction where traditional
practices may limit their involvement.
6.WORLD-CLASS PROCUREMENT
The advent of advanced technologies and
growing emphasis on sustainability have
redefined procurement's role in businesses,
requiring a shift from traditional methods to
strategies that boost efficiency and align
with organizational goals, positioning
procurement as a key driver of competitive
advantage in today’s volatile environment.
THE SIX PILLARS FOR BUILDING A WORLD-
CLASS PROCUREMENT FUNCTION
TECHNOLOGY ENABLEMENT OPERATING MODEL EVOLUTION

DATA AND ANALYTICS BUSINESS PARTNERING

MODERN CLOUD ARCHITECTURE TALENT MANAGEMENT

 DATA AND ANALYTICS
The need for faster, precise
data-driven decisions is
prompting organizations to
TECHNOLOGY ENABLEMENT rethink analytics strategies
and tools.
The integration of procurement
technology focuses on improving
transactional processes using
upstream and downstream tools

MODERN CLOUD ARCHITECTURE

OPERATING MODEL EVOLUTION World-class procurement
transformation requires
Successful operating integrating or retiring
models in the future will legacy systems, adopting
depend on strategic emerging technologies,
decisions regarding the migrating to the cloud,
scope, modality, and and unifying data sources.
placement of work

BUSINESS PARTNERING
TALENT MANAGEMENT Procurement teams face
Aligning skills with growing expectations to
evolving business needs is enhance risk
no longer a top 10 priority management, support
in The Hackett Group’s digital transformation,
report but remains the top and meet ESG objectives
improvement initiative.
THE ROLE OF
PROCUREMENT AND SUPPLY MANAGEMENT
PROCUREMENT AND SUPPLY MANAGEMENT: A STRATEGIC FUNCTION
Key strategic function in organizations.
Contributes to cost optimization, sustainability, and risk management.

MAIN RESPONSIBILITIES
Supplier Relationship Management:
Build strong supplier relationships for quality and reliability.
Risk Management:
Identify and mitigate supply chain risks.
Cost Optimization:
Reduce costs while maintaining quality.
Sustainability & Ethical Sourcing:
Ensure sourcing aligns with ethical and sustainable standards.
CURRENT CHALLENGES IN PSM
NAVIGATING PSM CHALLENGES

SUPPLY CHAIN DISRUPTION

Address vulnerabilities exposed by global
events (e.g., COVID-19)

INFLATION AND COST PRESSURE

Manage rising costs of raw materials and
logistics

TECHNOLOGICAL ADVANCEMENT
Adapt and implement new technologies to
stay competitive

COMPLIANCE WITH REGULATIONS

Stay flexible to meet evolving regulatory
demands
TOYOTA OVERVIEW
Toyota Japan Company, Vietnam Engine and
Agricultural Machinery Corporation (VEAM),
and KUO Company (Asia) formed Toyota
Vietnam Company (TMV) as a joint venture on
September 5, 1995

Average production output of more than

47,000 units annually, TMV has maintained its
dominant position in the Vietnamese vehicle
market

In terms of dealers, Toyota employs up to 1,492

individuals and has 86 dealers spread over 48
provinces and cities
Procurement is not just a support function but also a
strategic element that helps an organization
achieve its long-term goals, optimize resources and
maintain competitiveness. Applying new technology,
effectively managing supplier relationships, and
enhancing team capabilities are the keys to
achieving world-class procurement.
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