THE SCOPE OF PROCUREMENT
The scope of Procurement
A. To support the overall objectives of the organisation.
B. To supply the organisation with a flow of materials and services.
C. To ensure continuity of supply by maintaining effective relationships.
D. developing other sources of supply either as alternatives or to meet
emerging or planned needs.
E. To buy efficiently and wisely, obtaining by ethical means the best value
for every money.
F. To develop staff, policies, procedures and ensure achievement of these
The scope of Procurement
F. Maintain sound cooperative relationships with other departments.
• Providing information and advice as necessary to ensure the
effective operation of the organisation as a whole.
Efficiency ‐ ‘doing the right things’. Being able to perform a task
competently with the least amount of waste and in the shortest
amount of time.
Effectiveness ‐ ‘doing things right’. The degree to which tasks are
carried out and how associated problems are solved.
The scope of Procurement
More specific objectives:
a. To select the best suppliers in the market.
b. To help generate the effective development of new products.
c. To protect the company’s cost structure.
d. To maintain the correct quality/value balance.
e. To monitor supply market trends.
f. To negotiate effectively in order to work with suppliers who will seek mutual
benefit through economically superior performance.
g. To adopt environmentally responsible supply management.
TWENTY-FIRST-CENTURY PERSPECTIVES FOR
PROCUREMENT
summarised by Scheuing (1998) as follows:
• A vision of competitiveness
• Driven by customer requirement
• Emphasising value creation
• Bottom-line focus not price
• Enhance competitiveness by using supplier capabilities
• Global sourcing
• Strategic alliances with key partners
• Long-term contracts to establish relationships
• Emphasise continuous improvements
• Early involvement in new product developments
• Skilled professionals in procurement
TWENTY-FIRST-CENTURY PERSPECTIVES FOR
PROCUREMENT
In summary, firms need access to competitive and productive supply markets
if they are to be in business at all.
The trend is from tactical to strategic procurement, establishing collaborative
relationships with external resources and securing major business advantage
from procurement.
Many executives are now looking to procurement to engage in strategic
conversations about how supply chains can be improved to deliver the
greatest returns.
Procurement has been slow to evolve or has struggled to make an impact
IS PROCUREMENT A SERVICE ACTIVITY?
The thinking prevalent before was that:
procurement was a service function, often subordinated to production or engineering in the
manufacturing sector, or to finance in the service or public sectors.
The idea was that specialist supplies staff could do the bidding of the more strategic
elements of the organisation, and employ their skills at a secondary ‘support’ level.
There came a more general realisation that procurement might contribute more effectively
at a strategic as well as at an operational level.
The idea that procurement and supply was merely a support activity is somewhat being
discredited, with a developing recognition that procurement involvement in issues such as
the ‘make or buy’ decision or strategic commercial relationship which is giving the function a
central and strategic role in the competitive organisation.
IS PROCUREMENT A SERVICE
ACTIVITY?
Procurement has been transformed from a service function.
Aims were expressed in the price, quality and delivery equation.
It now contributes to sustainable competitive advantage by:
• reducing the cost of ownership.
• cycle-time reduction.
• improving time to market.
Simply to improve service levels or to cut costs is no longer enough.
Procurement Evolution
It was the business that decided which suppliers were core to the organisation.
Little more was expected of procurement than to battle some cost out of the
contract and then hand the relationship back to the business to manage.
Today, many executives are increasingly looking up to procurement to engage the
business in strategic conversations about how the supply chain can be optimised to
deliver the greatest returns.
Majority of procurement functions still do not have a strategic role.
This is a direct outcome of ineffective governance, policies and procedures.
As a result, those organisations are failing to make effective procurement decisions
Procurement Evolution
The perception that procurement is no longer a routine,
administrative ‘ordering’ activity is now widely, if not universally,
held.
Procurement is no longer just about ordering or buying, but has a
strategic role.
It is now concerned with the flow of materials from raw state to use
and disposal.
There are a number of reasons for this shift in importance and
recognition, and the main ones can be summarised as follows:
EXTERNAL ORGANISATIONAL FACTORS
Leading edge concepts
Organisations employing leading-edge approaches to the management of
materials are putting into practice integrative ideas, which are, at least in part,
based on a strategic and integrated role for procurement:
1. Best practice benchmarking 2. Total quality management
3. Just-in-time philosophies and lean production 4. Supply chain concepts;
5. Tiering and empowerment of suppliers; 6. Relationship management;
7. Customer focus.
EXTERNAL ORGANISATIONAL FACTORS
Fewer but larger suppliers
Concentration in the supply market has had a profound effect in recent
years.
E.g. the production of pharmaceutical products is almost entirely in the
hands of a small number of large organisations.
This process of concentration through amalgamations, takeovers and
the failure of the smaller and less viable business units continues.
This poses challenges for procurement and supply, and ensures a
EXTERNAL ORGANISATIONAL FACTORS
Increasing environmental awareness
It is good business sense to be ‘green’, and to be seen to be responsible in
this respect.
Recycling
The specification of renewable raw materials.
Greater concern with the effects of waste and by-products.
Concern for the use of returnable packaging and many other related
concerns all have implications for procurement and are affecting perceptions
EXTERNAL ORGANISATIONAL FACTORS
Competitor activity
When attempting to develop new ideas, pressure is often placed on an
organisation to look at what levels of performance competitors and other
organisations are achieving.
The term ‘benchmarking’ is often given to this process, but benchmarking is
not simply copying good ideas.
Demonstration of the real benefits that a developed supply function confers
on the rest of an organisation has been a stimulant for other companies to
improve that function, and this in turn has raised the profile of procurement
EXTERNAL ORGANISATIONAL FACTORS
Increasing proportion of revenue spent externally
Organisations are spending a greater proportion of their income
externally and less on internal costs such as wages and overheads.
With the increased share of the expenditure comes an increasing
responsibility for procurement.
Labour and overheads are decreasing because of:
1. automation
2. more efficient work
EXTERNAL ORGANISATIONAL FACTORS
Externally provided resources are increasing because of:
1. greater specialisation on part of buying organisations
2. ‘outsourcing’ policies
3. focus on core competencies
4. development of specialised contractors
5. easier access to world supply market
6. complex technology restricting breadth of ‘make’ capabilities
EXTERNAL ORGANISATIONAL FACTORS
Innovation
Organisations must be able to develop new practices and products efficiently and
effectively.
This in turn requires significant improvements in the internal interface between
procurement on the one hand and production, marketing, finance etc. & with
external suppliers and customers.
As product life cycles get shorter, reaction times are being compressed.
Procurement must be prepared to help initiate new ideas and developments.
A good deal of attention is being paid today to ‘time to market’ initiatives.
New products cannot be developed and marketed rapidly without a proactive
INTERNAL ORGANISATIONAL FACTORS
Although there is considerable pressure from outside to develop
the procurement function, it is often internal influences that
initiate the changes.
These internal influences include the following factors:
The level and percentage of purchased goods and services.
The level of expenditure is of crucial importance and needs
close attention at policy level.
INTERNAL ORGANISATIONAL FACTORS
Structural changes
Moves towards materials management, logistics and supply chain
concepts have in turn helped to develop the procurement and
supply function.
In almost all cases, the amount of attention paid to procurement
and supply has risen.
EXTERNAL ORGANISATIONAL FACTORS
Performance measurement
There has been more emphasis in recent years on measurement.
Within organisations that measure the contribution of the
procurement and supply function, its status is usually affected in a
positive way.
Senior management have become aware of its contribution to cost
reduction and its strategic capabilities, and in consequence are far
more likely to promote its development.
PROACTIVE PROCUREMENT
As the level of attention paid to
procurement and supply increases, the
work tends to become more strategic in
emphasis
Proactive buying
procurement can add value
Reactive buying
procurement ( and suppliers) contribute to
purchasing is a cost centre
specification
purchasing receives specifications procurement avoids defective suppliers
purchasing rejects defective material procurement is a main management function
purchasing reports to finance or production procurement contributes to making markets
Buyers respond to market conditions Problems are a shared responsibility
Problems are supplier’s responsibility Total cost and value are key variables
Price is key variable Emphasis strategic
Emphasis on today Systems may be integrated with suppliers’ system
Systems independent of suppliers Buyers and suppliers contribute to specification
Negotiations win-win (or better)
Users or designers specify
Plenty of stock = waste
Negotiations win/lose
Plenty of suppliers = lost opportunities
Plenty of stock = security Information is valuable
Plenty of suppliers = security
