Chapter 11: Strategic Leadership Chapter 9 Procurement management

Chapter 11: Strategic Leadership

Chapter 9

Procurement management


Procurement management

This chapter covers the following aspects:• The objectives of procurement management

• The strategic role of procurement management within a business

• Tiers of procurement management

• The nature and classification of purchased products

• Selecting and developing suppliers

• Procurement-related activities that enhance supply chain success

• Procurement cost management

• Electronic procurement


Five principal steps of procurement management

Step 1: Identifying a procurement need

Step 2: Supplier survey

Step 3: Investigation and assessment of suppliers

Step 4: Choice of supplier(s)

Step 5: Establishing relationships with suppliers

(Steps 2, 3 and 4 collectively form the supplier selection phase.)


The objectives of procurement management

• Improve competitive position

• Provide uninterrupted flow of goods/services

• Minimise inventory investment and loss of revenue

• Maintain and improve quality

• Find/develop best suppliers

• Standardise (where appropriate) inputs

• Aim for TCP

• Achieve co-operative, productive internal relationships

• Accomplish procurement objectives efficiently


Our definition of procurement management

Procurement management is that part of supply chain management that plans, implements and controls the efficient, effective acquisition of all raw materials, semi-finished goods, finished goods, services and information in order to support the core operations and ancillary activities of the organisation.


The strategic role of procurement within a business• Access to external markets• Intra-firm management relations

Tiers of procurement management:

• Strategic

• Tactical

• Operational


Strategic procurement management(long-term planning by top management)

• Ensure availability of inputs needed for successful, ongoing business.

• Ensure best business location.

• Decide on size and shape of procurement organisation.

• Lay down procedures for specification of needs.

• Select suppliers and develop long-standing relationships with them.


Tactical procurement management(middle-management level for the medium term)

• Conduct ongoing logistical analysis.

• Conduct informant networking.

• Study available inventory-control systems.

• Evaluate materials-flow systems and implement best one.

• Administer requisitions and bills of materials.

• Advise top management on contracts.

• Develop current and new suppliers.


Operational procurement management(short-term planning and execution, monitoring and control of procurement operations)• Conduct inventory analyses and stocktaking.

• Reduce inventories through scheduling.

• Maintain and improve relationships with suppliers.

• Assist suppliers by supplying technical and administrative support.

• Communicate operations schedules with suppliers and order on time.

• Pay supplier invoices on time (but not too early).

• Adhere to suppliers’ contract clauses.

• Co-ordinate incoming traffic.


The nature and classification of purchased productsProducts are divided into goods and services.

Goods comprise:

1. Raw materials

2. Semi-finished goods

3. Finished goods

Finished goods consist of:

1. Final goods (consumer goods)

2. Intermediate goods (producer goods)

Services are intangible products


Quality of physical products (goods)

• Performance

• Reliability

• Durability

• Conformance

• Features

• Aesthetics

• Serviceability


Service quality

• Suitability

• Accessibility/market area coverage

• Security

• Lead time

• Reliability

• Flexibility


Selecting and developing suppliersThe supplier selection process (the second, third and fourth steps in the procurement process) comprises:• Supplier survey

• Supplier investigation and assessment

• Supplier choice

• Establishing relationships with suppliers (the fifth step in the procurement

process)


Procurement-related activities that enhance supply chain success

• Just-in-time scheduling

• Value analyses

• Co-ordinating incoming traffic


Procurement cost management

• Expenditure-reduction programmes

• Speculative buying

• Forward buying

• Price-change management

• Volume contracts

• Stockless purchasing


Electronic procurement

• Electronic catalogues

• Electronic exchanges

• Electronic auctions (see Table 9.1)

• Vertical marketplaces (see Figure 9.1)

• Horizontal marketplaces (see Figure 9.1)

• Functional marketplaces

• Types of transactions


The benefits of e-procurement


Vertical and horizontal marketplaces

Documents

Chapter 11: Strategic Leadership Chapter 9 Procurement management