Contract Manufacturing by Steven Zhou

Strategic procurement is the process of establishing the fastest supply channel of the business at the lowest Total Cost of Ownership (TCO) based on the market cycle of the product, rather than the simple transaction of obtaining the currently required raw materials at the lowest purchase price. Strategic procurement fully balances the internal and external advantages of the enterprise, with the purpose of reducing the overall supply chain cost, covering the entire procurement process, from the description of raw materials to the full management of payment. It includes the following important principles:

1.Total Cost of Ownership consideration

——The basic starting point of strategic procurement

The optimal cost is often misunderstood by many companies as the lowest price, which is wrong. The purchasing decision affects the subsequent raw material transportation, deployment, maintenance, replacement, and even the replacement of long-term products. Therefore, it must have a vision of overall cost considerations, and must design key cost links and other related long-term potentials in the entire procurement process. When evaluating the total cost, you may try to consider the following simplified method first:

Total cost of ownership = price + cost of use + management cost.

*price including current price, long term price…

Cost of use including: quality, transportation, warehousing…

Management cost including: supplier developing, negotiation, daily management, risk control,

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