The future trends of procurement management
At least three drivers have been identified to have influenced and are influencing changes in procurement philosophies, processes and procedures today.
There are numerous definitions of globalisation and one such useful definition is:
The increasing interdependence across national and geographical boundaries of people, trade and commerce driven in large part by information technology and technology generally.
From the perspective of procurement management, an important aspect of globalisation is global sourcing, which may be defined as:
A process of manufacturing and/or purchasing of components in various parts of the world and then assembling them into a final product: an international division of labour in which activities are performed in countries where they can be done well at the lowest level.
Global sourcing is a wider term than ‘import purchasing’ or ‘international procurement’ as it involves strategic product life cycle decisions relating to long-term supplier relations based on such factors as purchase price and lead time reliability, supplier flexibility and political stability. Global procurement will be considered further in later units.
2. Information technology
As stated in the definition earlier on, globalisation is driven in large part by information technology. Information technology — comprised of computers, telecommunications and the Internet — has already had a significant effect on procurement processes and procedures. By sharing information and processing electronic transactions over the Internet, suppliers are being converted into e-suppliers.
E-business is a new source of sustainable competitive advantage. While e-commerce is the buying and selling of products and services over the internet, e-business is the strategic use of information and communication technology to interact with customers, prospective customers and partners through customer-centric multiple communication and distribution channels. When implemented successfully, e-business system is a means to improve customer service level while reducing costs through greater effectiveness and efficiency by aligning the organisation’s people, processes and technology into an integrated system.
3. The changing role of Procurement
Intense global competition has brought about the search for strategies that will yield sustainable competitive advantage. Many models and approaches have surfaced in recent times and competitive advantage is sought via reduced inventories, lower costs, Just-in-Time, Total Quality Management (TQM), supplier collaboration, time-based competition, lean and agile production and supply chain management. All these are a part of the procurement evolution.
As the level of attention paid to procurement management increases, the procurement tends to become strategic in emphasis, concentrating more upon such activities of long-term relationships, supplier development and total cost reduction rather than ordering and stock replenishing routines. Table 1.1 sums up the changing procurement roles: reactive and proactive procurement as adapted from your textbook.
Table 1.1 Changing procurement roles: reactive and proactive
Source: Adapted from page 13 of 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).
Besides the proactive procurement as stated above, the future trends of procurement are listed as below:
1. Procurement will be more customer focused and customer driven.
2. Proactive application of leading-edge concepts such as TQM, JIT, lean production and relationship management.
3. Tactical purchasing activities of ordering and expediting will be automated and selected low-value items, low-risk supply items, sub-materials and standard items are likely to be outsourced to full-service providers.
4. Upstream integration and partnership with suppliers will increase.
5. Purchasing ethics, purchasing social responsibility or green purchasing will become increasingly important.
6. Procurement strategy of fewer but larger suppliers.
7. Best practice benchmarking in order to stay competitive in the market.
The global impact of the procurement process for individual organisations is revolutionary in the new millennium. To become a competitive strategic weapon, procurement has to abandon the fragmented approaches of the past. Integrated procurement management activities are critical for the organisation’s success. Procurement actions must be in alignment with the business strategy and designed to reinforce the organisation’s competitive priority. Section 1.2 looks into the linkages between business strategy and procurement decisions, and how procurement can play a significant role in making an organisation competitive.
|Please read ‘Purchasing development’ on pages 24 – 31 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).
|Question to activity 1.3
||Suggested answer to activity 1.3