24 / 252
12
CHAPTER 1
PRINCIPLES OF SUPPLY CHAIN AND PROCUREMENT MANAGEMENT
hold large inventories to ensure uninterrupted material flows but this can
lead to increased costs and the tying up of capital that could be used more
appropriately elsewhere.
• Procurement must ensure an uninterrupted flow of the materials, supplies
and services required to operate the organisation. This prevents stock-outs
or late deliveries of materials, components and services, which can be
extremely costly in terms of lost production, reduced profit or revenue and
customer goodwill.
Procurement also plays an important role in improving the organisation’s
competitive position. Procurement does this by identifying opportunities in the
supply chain that can contribute to revenue enhancement, asset management
and cost reduction. Procurement can source goods and services at the lowest
total cost of supply, provide access to new technologies, and then design flexible
delivery arrangements, fast response times, access to high-quality products or
services and product design and engineering assistance [10, 12, 21].
1.6 LEVELS OF PROCUREMENT MANAGEMENT WITHIN AN
ORGANISATION
Three levels of procurement typically exist within an organisation.
1.6.1 STRATEGIC PROCUREMENT MANAGEMENT
Strategic procurement planning takes place at the highest management level.
It involves devising long-term plans that must be aligned with the vision and
mission of the organisation. Strategic procurement objectives enable the
organisation to ensure the availability, at competitive prices, of the inputs that
are needed to produce the finished products that the organisation delivers to its
customers; ensure that the organisation is located in an area that enables it to
gain easy and efficient access to physical resources; decide on the shape and
size of the procurement function and the level of authority or seniority assigned
to procurement management; institute procedures through which specific needs
are reported; and select new suppliers and develop and maintain long-standing
and mutually beneficial relationships with them [20].
Positions at this level of management include the procurement director and
the procurement manager or merchandise director, in the case of a retail
organisation. The procurement director is the most senior or top-level executive
within an organisation’s corporate level or major division, such as a Strategic
Business Unit (SBU). The director has formal authority and is responsible
for managing the organisation’s or the SBU’s purchasing, buying or sourcing
functions for the procurement of goods and services from external suppliers
[10]. In some organisations, the top position within the procurement function is
the procurement manager and not the procurement director. This depends on
the organisation’s structure.