Chapter 11: Strategic Leadership Chapter 9 Procurement management

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership 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.)

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership 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.

Chapter 11: Strategic Leadership The strategic role of procurement within a business Access to external markets Intra-firm management relations Tiers of procurement management: Strategic Tactical Operational

Chapter 11: Strategic Leadership 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.

Chapter 11: Strategic Leadership 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.

Chapter 11: Strategic Leadership 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.

Chapter 11: Strategic Leadership The nature and classification of purchased products Products 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

Chapter 11: Strategic Leadership Quality of physical products (goods) Performance Reliability Durability Conformance Features Aesthetics Serviceability

Chapter 11: Strategic Leadership Service quality Suitability Accessibility/market area coverage Security Lead time Reliability Flexibility

Chapter 11: Strategic Leadership Selecting and developing suppliers The 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)

Chapter 11: Strategic Leadership Procurement-related activities that enhance supply chain success Just-in-time scheduling Value analyses Co-ordinating incoming traffic

Chapter 11: Strategic Leadership Procurement cost management Expenditure-reduction programmes Speculative buying Forward buying Price-change management Volume contracts Stockless purchasing

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership The benefits of e-procurement

Chapter 11: Strategic Leadership Vertical and horizontal marketplaces