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SCRC Article Library: Role of Procurement within an Organization: Procurement : A Tutorial

Role of Procurement within an Organization: Procurement : A Tutorial

Published on: Jan, 26, 2011

by: Robert Handfield, PhD

Role of Procurement within an Organization

Overview

Key Procurement Objectives:
OBJECTIVE 1 – Support Operational Requirements
OBJECTIVE 2 – Manage the Procurement Process and the Supply Base Efficiently and Effectively
OBJECTIVE 3 – Develop Strong Relationships with Other Functional Groups
OBJECTIVE 4 – Develop Integrated Purchasing Strategies That Support Organizational Strategies, Goals and objectives
Case Study

Overview

The objectives of a world-class procurement organization move far beyond the traditional belief that procurement’s primary role is to obtain goods and services in response to internal needs. To understand how this role is changing, we must understand what purchasing is all about, starting with the primary objectives of a world-class purchasing organization.

OBJECTIVE 1: Support Operational Requirements

Supporting this flow requires purchasing to:

  • Understand business requirements
  • Buy products and services
    • At the right price
    • From the right source
    • At the right specification that meets users needs
    • In the right quantity
    • For delivery at the right time
    • To the right internal customer

Internal customers of purchasing include:

  • Manufacturing
  • Physical distribution centers
  • Engineering and technical groups
  • Research and development
  • Information technology
  • Transportation and other services

OBJECTIVE 2: Manage the Procurement Process and the Supply Base Efficiently and Effectively

To manage the procurement process and supply base efficiently and effectively procurement must follow the following key steps:

  • Identify opportunities
  • Manage internal operations
  • Achieve objectives

Identify opportunities where the procurement team adds true value:

  • Evaluation and selection of suppliers
    • All purchases should go through the approved procurement processes
    • Engineering and other functional inputs are part of this process
    • Sales personnel should not be allowed to enter contractual agreements without procurement’s involvement
    • Increasing use of sourcing teams
  • Review of specifications or statement of work
    • Review the requirements for the material or service being provided
    • May be able to suggest alternative standardized materials that can save the organization money
    • Periodic review of requisitions can allow greater leveraging of requirements
  • Acting as the primary contact with supplier

  • Determining the method of awarding contracts

  • Managing the supply base
    • Current suppliers are competitive
    • Identification of new potential suppliers and develop relationships
    • Improvement and development of non-competitive existing suppliers

Manage its internal operations efficiently and effectively, including:

  • Management of procurement staff
  • Developing and maintenance of policies and processes
  • Introducing and leveraging appropriate technology and systems
  • Defining procurement strategy and structure
  • Developing plans and measures
  • Providing procurement leadership to the organization
  • Providing professional training and growth opportunities for employees

Achieve this objective through :

  • Leadership of procurement for the organization
  • Sourcing management
  • Ownership and accountability for sourcing processes
  • Communication of purpose, process and pay off
  • Collaboration and partnering
  • Teamwork

OBJECTIVE 3: Develop Strong Relationships with Other Functional Groups

OBJECTIVE 4: Support Organizational Goals and Objectives

Develop integrated purchasing strategies that support organizational strategies.

Effective purchasing strategies involve:

  • Monitoring supply markets and trends (e.g., material price increases, shortages, changes in suppliers) and interpreting the impact of these trends on company strategies
  • Identifying the critical materials and services required to support company strategies in key performance areas, particularly during new product development
  • Developing supply options and contingency plans that support company plans
  • Supporting the organization’s need for a diverse and globally competitive supply base

Case Study

Read Case Study 1 and consider the following questions:

  • What initially appears to be the problem? What really is the problem(s) in this case?
  • How easy is it to switch suppliers? What could complicate a firm’s ability to switch to a new supplier?
  • What does it mean to get to the root cause of a problem?
  • What is the role of purchasing in helping to coordinate communication between different parts of the organization, and the external supply base? Did communication fall apart here? Why?

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