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CHAPTER 1
PRINCIPLES OF SUPPLY CHAIN AND PROCUREMENT MANAGEMENT
must identify and exploit all opportunities available to it. Inputs provided by the
procurement function include:
• The raw materials, intermediate goods, services and information needed in
the production of goods and services. In the case of Eskom, coal and water
are the inputs necessary for generating electricity.
• The finished goods, services and information required for resale or for
operational purposes.
• The capital goods, moving assets, consumables, services and information
needed to equip and support the operation of the business [20].
1.5.1 ROLES AND ACTIVITIES PERFORMED BY THE PROCUREMENT
FUNCTION
There are various roles and activities performed at different levels of management
within the procurement function. The purchasing function seeks to obtain the
highest-quality goods and services at the lowest possible cost at the right time
and place. Therefore its roles and activities are as follows:
• Procurement carries out an ongoing analysis of price and cost trends. Since
the cost of purchasing represents the largest share of organisational costs, it
is therefore the role of procurement to analyse the price and cost of sourcing
products and services to ensure that they are sourced at the lowest possible
cost.
• Top management within the function develops and sets policies for soliciting
and evaluating the proposals, quotes and suppliers.
• Procurement determines the needs and specifications of organisational
customers.
• The function estimates the future needs of the organisation, which are then
communicated to suppliers.
• Procurement must ensure that material and/or services sourced meet the
required minimum quality standards so that the end product or service will
meet expectations at an acceptable cost.
• Procurement is expected to measure supplier performance on an ongoing
basis.
• Procurement draws up contracts and negotiates mutually acceptable terms
with suppliers.
• Procurement is expected to conduct market research in order to identify new
suppliers and the needs of organisational customers.
• Procurement expedites the delivery of shipments, where necessary, and to
exercise inventory control.
• Procurement is responsible for finding or developing best-in-class suppliers.
The success of procurement depends on its ability to align supply-based
decisions with the organisation’s strategic priorities; and to identify or develop
suppliers, analyse their capabilities, select appropriate suppliers and work
with suppliers to obtain continuous improvement.
• Procurement is responsible for keeping inventory at an optimum level to
reduce the cost involved in maintaining large inventories. Some organisations