Earlier, the industrial firms used to source directly from the raw material providers in large volumes. In the early 80s, the monopoly persisted due to the presence of one or two major players in the market. With the rise in business activities, driven by fresh new ideas, growth in small scale enterprises and suppliers with innovative solutions for services and goods persist in the market. A larger supplier base indicates higher screening and shortlisting of suppliers. This is one of the key challenges for buyers on how to decide and engage with the supplier to meet higher cost-efficiency.
Industrial firms face key challenges in the supplier selection, health and safety measures, and availability of raw materials, among other challenges. However, the selection of its value chain participants is driven by higher operational efficiency at optimised costs. This is the key challenge for a firm in the global market.
How Industrial Businesses Procure Services and Raw Materials and its Evolution
Sourcing services support business activities by helping procure raw material to aid the production of goods. Typically, service-based companies in the local area are engaged in the supply of raw materials, staffing manpower, industrial equipment’s repair and maintenance, and construction and civil works within the industrial plant.
In the early 90s, the conflicts between buyers and suppliers were higher due to lower legal restrictions and protection rights against the task delivered and the work required. Due to policy reformations and the presence of regulatory bodies, who act as a third party to resolve the conflicts if any, the supplier-buyer relationship has been strengthened by the legal framework. Thus, the requirement of contractual and payment terms, key performance indicators, and supplier assessments have increased to support the decision-making process of the buyer in the industry.
Key Challenges Faced by Industrial Firms:
Lower Plant Maintenance, High Chances of Incidents Industrial plant operations perform the periodical assessments of the equipment and machinery, as well as of the infrastructure of the building and complexes within the business unit. Any leakage or irregularity in the equipment or the infrastructure leads to heavy losses and increases the chances of incidents.
Inappropriate Selection of Supplier, Lower Operational Efficiency
- With the presence of a larger supplier base for construction management services in the Indian market, the selection of the supplier for raw materials and services has become difficult. Service offerings of each supplier vary, and the costs associated shift too.
Low Health and Safety Measures, High Chances of Incidents
- Due to higher restrictions on regulations to be followed in the industrial operations, higher safety measures need to be taken. So, contractors have to abide by the HSE safety measures.
High Market Fluctuations, Higher Impact on the Operational Costs
- The supply and demand of a product or a service are driven by societal concerns, economic growth/decline, political reforms, or technological developments.
Unavailability of Raw Materials and Labour, Higher Logistics Cost
- This situation persists where the sourcing of raw materials need additional transport or logistics when outsourced through different locations. The difficulty in such a situation increases in deploying manpower at remote places or sourcing raw materials in the absence of a local supplier.
The industrial firms anticipate that their business activities shall function at a higher operational efficiency, along with cost optimisation. Considering the cost components and key factors influencing the prices, the selection of suppliers through the RFI process is essential. Understanding the supplier’s service capability and financial stability in the market and the evaluation of the supplier’s performance becomes a key decision-making parameter for the Procurement Manager of an industrial firm.