The classic definitions
Since you have studied the course of supply chain management in your previous semester, you would understand that procurement is a major subsystem of supply chain. Procurement involves many upstream activities within an integrated supply chain. Procurement has been well described as the glue that holds the expanded supply chain together. The terms procurement, purchasing and supply management, are often used interchangeably to refer to the integration of related functions to provide effective and efficient materials and services to an organisation. Some academics and practitioners limit these terms to the process of buying and store administration:
1. The recognition of need;
2. The translation of that need into a commercially equivalent description;
3. The search for potential suppliers;
4. The selection of a suitable source;
5. The agreement on order or contract details;
6. The delivery of the products or services;
7. The receiving and inspection;
8. The safe and accurate storage of materials in stock; and
9. The payment of suppliers.
This is not the perspective taken in this course. Procurement management is not only concerned with the standard steps in the buying process. There are further responsibilities for other components of the supply chain, such as managing logistics and managing customers’ and suppliers’ relationships. Maintaining ‘generous inventory levels to meet long-term customer demand, in a generally sheltered market environment in the past is also outdated. Inventory management is an obvious candidate for cost reduction in the current competitive global business environment.
With the idea that competition has made a quantum leap from the firm level to the supply chain level as the next stage of competitive evolution, it is clear that no definition can wholly incorporate the demands placed on these professionals’ set of skills. Situational diversities, such as strategic importance, contribution to profitability, supplier relationships and the recognition given to the position in a particular organisation, mean that any definition is open to criticism.
For instance, purchasing has been defined by some as:
To buy materials of the right quality, in the right quantity from the right source delivered to the right place at the right time at the right place.
However, what is ‘right’ is contingent on a particular organisation or situation. Moreover, in practice, some of the ‘rights’ are irreconcilable and a particular ‘right’ can only be obtained by trading off another. Thus, it may be possible to obtain the right quality but not at the right price.
Furthermore, the definition also implies that purchasing is:
1. Reactive rather than proactive — that is, purchasing is a service activity, buying what is instructed to buy rather than one that takes the initiative in helping to determine purchasing policies.
2. Transactional rather than relational — that is, purchasing is primarily concerned with the mechanics of order placing on a one-off basis rather than the establishment, where appropriate, of long-term, collaborative supply relationships.
3. Tactical rather than strategic — that is, purchasing is focused on short-term buying rather than on contributing to the achievement of long-term corporate goals.
The above definition is obviously outmoded in the business context today.
For the purpose of this course, the term ‘procurement’ will be used in place of the term purchasing and supply management, which implies the acquisition of goods and services in return for a monetary or equivalent payment. The term ‘procurement’, as it is used in the course, is the process of obtaining goods or services in any way, including borrowing, leasing and even force or pillage (Lyson and Farrington, 2006), in a wider context of supply management relevant to today’s business practices.
|Please read ‘the scope of purchasing’ on page 4 – 5 from your textbook Procurement Principles and Management, 10th edn, England: Prentice-Hall, Pearson Education Limited by Baily, P, Farmer, D, Crocker, B, Jessop, D and Jones, D (2008).