Understanding the Industrial Procurement Process For Vegetable Oils

Do you want Lucky Charms or Shredded Wheat?

When you buy a box of cereal for your family, the buying process is often made in a split second. But there’s actually a lot of analysis that goes on under the surface.

If you’re responsible for buying for your company, you have to make well thought-out decisions that bring value to the business. And choosing your bulk ingredients is no split second decision. It typically follows a very in-depth research and analysis process.

If you’re an experienced supply chain manager, you’re probably quite familiar with this process. But, if you’re new to purchasing or even the edible fats and oils category, we’d like to give you a quick run down.

Let’s go over the standard 5 steps that you will go through before buying edible oil ingredients in bulk.

An Introduction To The Procurement Process

To start us off, I thought this video from Procurious did a great job to overview the various steps in the procurement process.

It’s worth a watch, so if you don’t have time for it now, bookmark it for later.

Here’s their list of five steps in the procurement process that they outline:

1. Needs Identification and Analysis
2. Supply Market Profiling
3. Develop a Market Engagement Strategy
4. Execute a Market Engagement Strategy
5. Contract Implementation and Performance Management

We are going to review each of these and what the process looks like when you’re on the search specifically for edible oils in bulk.

Step 1: Needs Identification and Analysis

This stage is where you realize that you need to do some research. Perhaps R&D has tasked you to find a particular type of oil. Perhaps you’re on the look out to replace your current oil contract.

This stage requires that you talk with a lot of internal stakeholders to recognize the goals of the company. You’ll want to understand what kind of price point is reasonable, the specs that you’re looking to match and the minimum requirements for this ingredient search.

To move through this stage, start by asking yourself the following questions:

• What do you need to buy?
• Have you been tasked with finding a particular type of oil or grade?
• Have you received any product specifications or information to match?
• Did R&D choose that grade for a particular reason like a taste profile? If so, would an alternative oil work if it met that need?
• What are some wants that you have for this oil— a low price, the best consumer perception, high quality?
• What do you need now in terms of volumes and quality? Could that change in the future?
• How much are you looking to spend? Is there a max budget?

If you don’t get answers to all of your questions before moving onto step two, don’t worry. This research process simply opens up the doors and allows you to start asking the questions that you’ll need to answer eventually.

Step 2: Supply Market Profiling

Here’s where you’ll start to dig in to do some real market research and get some questions answered. In this stage, you’ll research possible suppliers, reach out to them to learn more about them and see how they can meet your needs.

You’ll learn about the availability of what you’re looking for. You’ll understand what suppliers are out there in the market, and see where you fit best in terms of size and capabilities. 

You should also learn a lot about the commodity market for the oil that you’re buying and understand how the pricing and availability can change over time.

In this stage, you’ll want to answer the following questions:

• What suppliers are out there? Who are the key players?
• Where are they located and how big are they?
• What type of suppliers are the best fit for my business?
• What is the supply and demand for this oil right now? What about in the future?
• What’s the commodity market like for this oil? How can that affect pricing?
• Is there a good time of year for me to buy or sign a contract?
• Are there any political, social or economic factors that can affect the supply of this product?

Step 3: Develop a Market Engagement Strategy

This part of the process takes some critical thinking and problem solving. This stage allows you to decide how you want to position yourself and how you’d like to move forward with the ingredient that you’ve been tasked to source.

It also allows you to address questions and issues that may have arisen in the last couple steps.

For example, if you’ve been tasked with finding olive oil but the price is too high for your goals, you’ll need to discuss some alternative options with your stakeholders. Can you afford the higher price? Is it worth the investment in quality? Would a different alternative oil work better? Can you go without this oil completely?

In this stage, you won’t ask many new questions, but you will try to find solutions to any conflicts of interest that have arisen in the research process. In essence, you’ll need to find a way to bridge the gap between your original needs and what is available given your market research.

You can opt to do things like:

• Work with your existing suppliers to source ingredients
• Opt for a different oil
• Decide not to use any oil
• Bundle all of your oil requirements together to save money
• After you’ve decided on the best plan of action, you’ll move towards making supply chain commitments.

Step 4: Execute a Market Engagement Strategy

In this stage, you’ll evaluate all of your options and make a final selection of a supplier. A part of this will involve negotiating with suppliers to come down to a final agreement. Is there any wiggle room in price? Any other questions or issues that you’d like to resolve?

This process requires much open communication and discussion to find a situation that will work well for both yourself and your supplier. It needs to be win-win.

By the end of this stage, you’ll end up with a supplier short list (those who almost made the cut) and you’ll select a final supplier.

If you are contracting your oils, you will sign and award the contract. If you are buying off the spot market, you will communicate with the supplier to advice them that you’d like to move forward with them and begin the steps to get set up in one another’s systems.

Before moving onto buying, make sure that you provide ample time to fill out your New Customer Profile and Credit Application, and that your supplier fills out any paperwork that you need on your end. Do this well ahead of when you’ll need to place your first order (1-2 months is a good timeline) so that you’re ready to go when you need to bring inventory in.

Step 5: Contract Implementation and Performance Management

After much hard work, you’ll officially begin bringing your edible oils in. This stage is ongoing— you’ll begin to get inventory delivered to your production facility and you’ll continually analyze your supplier’s performance.

This step is all about managing your supplier relationship, staying in good communication and getting value out of the relationship that you’ve established.

What else do you do when you're evaluating a new ingredient or supplier?  Tell us in the comments below.