Chapter 1: Introduction to Procurement
The Evolution of the Supply Function
Pre-1939: Clerical only.
1940s: Supply assurance.
1950s-60s: Supply took on a managerial emphasis.
1970s-80s: Purchasing strategy became important.
1990s: Added to standard corporate strategy.
2000s-10s: Introduction of integrated supply networks & IT.
2020s: Emphasis on sustainability, globalization, technology innovations, and risk management.
Steps in the Procurement Process
- Recognize a need.
- Consider what good or service can be obtained to fill that need?
- Search for potential suppliers.
- Select a supplier (or opt to fulfill in-house).
- Agree on the order and contract details.
- Receive delivery of product(s)/service(s).
- Fulfill obligation to pay supplier(s).
Integrated Strategic Procurement and Sourcing Functions
Supply Basic Strategy
- Find the best value for cost, delivery, and quantity.
- Standardization.
- Concurrent engineering.
- Supply base optimization.
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Measurement & Monitoring
- Customer orientation.
- Focus on total value & cost.
- Benchmark using best in class.
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Supplier Relationship Management
- Engage in joint performance improvement efforts.
- Stay value-focused.
- Improve total cost & value.
- Regularly benchmark suppliers.
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Systems & Technology
- Integrate global databases and ERP systems.
- Historical performance data.
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The Non-Financial Value Benefits of the Purchasing Function.
These are the ways buyers can help the organization thrive, even if they don't contribute directly to the bottom line.
- Quality
- Service
- Reliability
- Timeliness
- Sustainability
- Efficiency
- Innovation
- Cash Flow
How Supply/Purchasing Contribute to the Organization
| Operationally |
Prevent trouble/issues. |
| Strategically |
Maximize opportunities. |
| Financially |
Directly: Bottom-line impact. |
Indirectly: Enhancing the performance of other departments. |
Challenges Facing the Supply Function
- Capturing value.
- Measuring and monitoring.
- Risk Management - financial, operational, and reputational.
- Managing growth and influence - within both the supply chain and the organization.
- Integration of new technologies.
- Contributing to the value of the organization - sometimes may require redefining what "value" means.