As poise in procurement departments climbed, companies counted on them to take on even more exciting projects. Now, procurement chiefs are being asked to accept a host of new responsibilities: decrease supply chain complication; speed products to market; stimulate supplier modernization; enhance operational safety; and even consider the social and environmental impact of the supplier in sourcing decisions. And they are experiencing diminishing returns with yesterday’s best procurement strategies, such as optimizing supply structures, e-auctions, and finding suppliers in low-cost countries.
· Articulate Vision, mission & goals.
· Scan Environment.
· Develop Strategic priorities and plan.
· Evaluate and learn.
· Articulate procurement Vision, mission & goals.
· Situation analysis.
· Develop procurement strategy.
· Implement procurement strategy.
· Continuous improvement.
· Managing Supplier relationship.
· Ordering Cycle.
Fig 1.1 Strategic Procurement Cycle (Christopher M, Et al ,2014)
Construction industry a complex and conventional sector that has a friction for changes when challenged with the risks associated with procurement (Cheng, Li, Love, & Irani, 2001). Every single construction project involves a wide range of stakeholders and activities which creates high market risk and process disintegration. The vital characteristics of this sector are complexity and uncertainty as the project execution is carried on a temporary site by a temporary organization of different stakeholders (owners, architects, constructors and labour force) that are dissolved after completion of projects, which leads to opportunity to focus on short term-relationships (Fearne & Fowler, 2006).And also due to complexity of sector procurement strategy is key for success of project which is required for complementing supply chain and operational needs like material availability, their lead time as each item is required for successful completion of the project.
In procurement strategy, Kraljic matrix for segmentation of procurement strategy has become the standard (Lamming & Harrison, 2001) (Gelderman, 2003). Kraljics matrix approach considers the strategic impact (internal) and supply risk (external) which allows management to get a good acuity on the bargain power and consequently choosing the best strategy and reducing risk (Kraljic, 1983).
Based on the Kraljic Matrix the following segmentation of construction procurement can be made:
Concrete is a strategic material in construction business as it has the major impact on the operational level and entire business and medium- high supply risk. It is most crucial material and there are few suppliers due the high-quality and strict legal adherence. The option is choosing more than one specification of concrete at the start of the construction allowing flexibility. It is advisable to establish a strategic partnership with concrete suppliers to ensure supply and thereby reducing the supply risk.
Stone due is often obtained from some specific supplier in the region, although it is mostly used for aesthetics thus the amount spent is quite high which makes it a clear bottleneck material. Wooden furniture suffers from the same problem as stone due its characters. These two materials have high supply risk because these items are chosen by architects and designers in initial phase of the project. Alternative of these materials are cumbersome and costly. The mitigation strategy is to insist.
Scaffold platforms are medium -scarcely available as there are few suppliers and are in specific region this one material with highest risk making it a bottleneck. Borewell drilling and geological engineering is a highly expertized activity and is one of the first process of the construction project, the further project progress depends on the success which makes it a bottleneck. There should be an alternative supply source to reduce the supply risk.
Non-critical items like the rental of general transport equipment which contain all transport services. That has a wide range of supply, extremely standardized service allows low costs and low supply risks. High standardization makes procurement of these non-critical items, such as paints or specific off road, earth moving equipment that are available globally.
Labours represents all non-specialists, it is a clear leverage as the market is quite huge and they are important to construction, where a huge cost is spent due to the large number of people employed. Items like steel and construction aggregate are leverage materials mostly because of the standardization and supplier availability. These materials are cost driven and can be bought through biddings.