Executive Summary
This report is directed to the board of directors and regards procurement and supply. Over the years, the importance of procurement and supply function in business enterprises has continued to increase.
The report addresses key procurement and supply issues including opportunities for procurement and supply function to create savings or efficiencies or other sources of added value to an organization, improvement of the function, creation of collaboration with stakeholders to increase early engagement in the procurement process, and the need for organizational policies and procedures to implement effective procurement and supply.
As noted by Weele and Weele, one of the objectives of procurement is to ensure that business is carried out in an open and competitive manner (7). Another objective is to promote competitive purchasing to benefit a business enterprise. Procurement and supply function also enables organizations to maintain a good inventory of supplies and equipment as needed.
In addition, the procurement and supply function compels organizations to consider ethical and quality standards, create healthy relationships with suppliers, and discourage uncompetitive purchasing habits.
Introduction
Procurement and supply refers to the process of acquiring goods and services and ensuring that they end up in appropriate destinations. According to Asefeso, it is the desire of every business enterprise to see to it that goods or services are procured at the best cost possible in terms of quality, quantity, time, and location (4).
As explained by Asefeso, the history of procurement dates back to 1900 when it was regarded as an independent activity by a number of railroad companies (7). In the contemporary business world, procurement is widely recognized as vital requirement if success is to be realized.
Key terms in procurement and supply management according to Moser include purchasing, procurement, sourcing, supply management, supply network management, and supplier management (18). Kidd explains that this is because the procurement and supply function is still evolving (1). Sourcing includes activities that are critical in process of creating goods or services. A supply network may be viewed as a set of supply chains for a given business enterprise. The incorporation of the term network into the supply chain management gives it a much wider scope that aims to create greater gain and manage associated operating costs. According to Asefeso, procurement is defined as the process of acquiring goods and services (4). Crandall, Crandall and Chen simply regard purchasing as a term used to denote the process of procuring goods and services (255).
The Opportunities for Procurement and Supply Function to Create Savings or Efficiencies or Other Sources of Added Value
Procurement and supply is playing an increasingly important role in helping major corporations achieve their savings and profitability objectives. Based on a study by Anderson and Katz, what companies purchase has been increasing in importance, size, and complexity (1). According to Weele, the importance of procurement and supply chain management has been rising over the years (3).
For this reason, how companies buy and get goods and services delivered to destined locations has also changed and will continue to change considerably. In order to excel in a competitive business environment, it is absolutely necessary for business enterprises in the contemporary world to be strategic in exploiting existing opportunities so as to ensure that their buying activities achieve the goal of reducing costs across the supply chain and maximizing the value of goods and services for users.
As business enterprises change what they have to buy to keep their businesses afloat, it is equally important to ensure that the whole process of purchasing is undertaken in such a way that the savings can be made and growth can be realized. Arguably, an elaborate procurement and supply function can help in meeting this objective.
Drawing from a study by Evans and Dearborn, a very tight link exists between corporate objectives and procurement and supply management objectives (19). As pointed out by Newman, the strategic contribution of the procurement and supply management has a long term perspective that is mainly focused on meeting the objectives of a corporate organization and ensuring that customers are satisfied (1). The key objectives of corporate entities include process simplification, operational leadership, innovation and introduction of new products, expansion of the global market, and corporate social responsibility. Procurement and supply management helps to meet corporate objectives in various ways. By streamlining procurement and supply policies, processes, and procedures, it becomes possible to realize the corporate objective of process simplification.
Reduction in external spending through an efficient procurement and supply arrangement helps to realize the objective of operational leadership. It is also easy for an organization to innovate and introduce new products through an early involvement of suppliers. The corporate objective of global market expansion can be realized by devising a strategy that leads to the establishment of global networks of suppliers. Finally, Evans and Dearborn allege that the corporate objective of social responsibility is achievable by having diversified procurement and supply management programs (19).
To a large extent, procurement also serves as a common contact point for all departments within an organization. It is a central repository for all the necessary information related to the acquisition of goods and services. In addition, individuals who are involved in procurement happen to be very knowledgeable in various issues and are better placed to interact with others within their networks in a manner that can greatly benefit an organization. Procurement also helps in the management of supplier relationships and measurement of performance by specific suppliers. According to Kidd, other benefits of procurement include supply security, reduced risks and costs, increased efficiency and innovation (5).
How the Profile of the Function Can Be Improved
The best way to improve the profile of procurement and supply function is to ensure that healthy relationships are built throughout the process. According to Sollish and Semanik, effective procurement requires reliance on sound business practices that maximize value to an organization through the acquisition of goods and services (1). A business enterprise can indulge in a number of activities in order to have an effective procurement and supply management function. First, it is important to ensure that any conflicts of interest that may interfere with the process are dealt with satisfactorily. A major concern is conflict of interest. Parties with an interest in the organization should be barred from supplying goods and services.
How Collaboration Can Be Created With Stakeholders to Increase Early Engagement in the Procurement Process
By and large, procurement is regarded as a useful strategy for improving the profitability of an organization. According to Vercillo, procurement and supply function is considered vital due to its impact on the bottom line (22). Certainly, procurement has an overall effect on the way business is carried out. Effective procurement will thus help to improve profitability, create savings and increase efficiency in an organization. As argued by Emeka, purchasing is accountable for a huge share of the revenue received by any business enterprise (24).
It thus follows that procurement impacts on the profitability of business enterprise. The proportion of costs accounted for by the procurements of goods and services is, however, dependent on the efficiency of an organization’s procurement and supply function. As noted by Ross, timely acquisition of inventory is fundamental to competitive advantage (251).
Despite the fact that the expectations of internal customers and those of external customers differ greatly, the eventual goal is to witness improved profitability. The priority for internal customers is to have a procurement system that helps to create efficiency, reduce risks and provide quality at reasonable costs. The priority of external customers on the other hand is to ensure that goods and services delivered to them are reasonably priced and of superior quality. To realize this, however, it is imperative for both internal and external customers to hold those responsible for the procurement and supply chain management accountable for their actions.
The Need for Organizational Policies and Procedures to Implement Effective Procurement and Supply
According to the United Kingdom’s National Audit Office, economy as well as social development can be realized by ensuring that money is used effectively throughout the procurement and supply management process (3). As noted by Costelloe, the procurement process must be managed effectively if real benefits are to be realized (2). The use of well documented policies and procedures is equally important for realizing an effective procurement and supply management function. Effective procurement requires reliance on sound business practices to improve profitability in an organization.
The need for properly formulated policies and procedures cannot be underscored. Among other things, it plays a very important role in reducing conflict and enhancing healthy business relationships.
Conclusion
As explained in this paper, procurement and supply chain management play an important role in the growth of any organization. It is obvious from the discussion that procurement and supply function of any organization has an impact on profitability. It is thus imperative for organizations to devise effective procurement systems.
References
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Asefeso, Ade. Lean Procurement and Supply Chain Management (Key to Reducing Costs and Improving Profitability), Swindon, UK: AA Global Sourcing Ltd, 2012. Print.
Costelloe, Noah. 2014. Five Things Getting the Basics Right in Procurement. Web.
Crandall, Richard, William Crandall, and Charlie Chen. Principles of Supply Chain Management, New York, NY: CRC Press, 2014. Print.
Emeka, Anyanwu 2015, Effective Purchasing and Supply Management and Corporate Profitability. Web.
Evans, John and Grant Dearborn 2013, Five Steps to Building a Successful Procurement Strategy. Web.
Kidd, Andrew 2013, The Definitions of ‘Procurement’ and ‘Supply Chain Management’. Web.
Moser, Roger. Strategic Purchasing and Supply Management: A Strategy-Based Selection of Suppliers, New York, NY: Springer Science & Business Media, 2007. Print.
National Audit Office 2013, Getting Value for Money from Procurement. Web.
Newman, David 2005, How is Procurement Strategically Important? Web.
Ross, David. Introduction to Supply Chain Management Technologies. New York: CRC Press, 2010. Print.
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Vercillo, Tony. Using your Supply Chain as a Competitive Weapon: A Practitioner’s Guide to Supply Chain Management. IFMC Inc., 2014. Print.
Weele, Arjan. Purchasing and Supply Chain Management: Analysis, Strategy, Planning and Practice, Hampshire, UK: Cengage Learning EMEA, 2009. Print.
Weele, Arjan and Arjan Weele. Purchasing & Supply Chain Management: Analysis, Strategy, Planning and Practice. Hampshire, UK: Cengage Learning EMEA, 2005. Print.