Supply Location Model: Procurement Cost Control

The supply location model is an analysis tool from the two aspects of the amount of product purchased by the enterprise and its impact on the enterprise, the supply risk and the opportunity. It is an analysis tool for the procurement of enterprises to play a guiding role in determining requirements, obtaining and selecting quotations, and supplier evaluation.

From the perspective of the total cost of procurement ownership, this paper will use the supply location model to help explore the procurement cost control strategy from the perspective of the total cost of procurement ownership.

The supply positioning model uses matrix to classify the products: the horizontal axis is based on Pareto's 20/80 rule, which divides the amount of purchase expenditure; the vertical axis is

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And the comprehensive positioning and classification of influencing possibilities.

The supply positioning model divides the products that the enterprise wants to purchase into four major categories: daily, bottleneck, lever and key.

Procurement of everyday products belongs to low value procurement, and its chances, risks and impacts are relatively low. Therefore, based on the total cost of ownership, the cost to be purchased in such products depends on the cost of procurement management in explicit costs.

Procurement management costs include many aspects: supplier management costs, labor costs, information costs, office costs and other costs.

Therefore, the main consideration here is to reduce the cost of supplier management, and adopt some cost control strategies for the characteristics of daily products.

Procurement of bottleneck products belongs to low value procurement, but the chances, risks and impacts are relatively high.

The occurrence of risk means the rise of cost. This kind of cost is the hidden cost that we can not see in some of the reports.

Therefore, the focus of procurement cost control for such products is to control the risk and minimize the risk of supply.

The level of purchase expenditure is high, and its chances, risks and impacts are not likely to happen.

The key point of procurement cost control for such products is the change of product prices.

If we want to minimize the procurement cost of such products, we should focus on the market supply price and reduce the total cost of purchasing ownership by reducing the price and delivery cost.

Procurement of key products is high-value procurement. Opportunities, risks and impacts are likely to occur.

At this point, we must focus on the quality and continuity of the supply products.

Once the quality is a key factor, it will not only increase the purchasing cost, but also bring irreparable damage to the enterprise.

The cost of quality risk is implicit cost. We can not predict when and how large the loss will be. Therefore, early prevention will be a good preventive measure.