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CHAPTER 4
PROCUREMENT AS A SUPPORT AND STRATEGIC FUNCTION WITHIN COMPANIES
SYNOPSIS
This chapter focuses on the contribution that procurement can make to a firm’s
competitive position and how this contribution should be linked to the firm’s goals
and objectives. We begin by discussing the concept of a corporate strategy and
how it is developed. We then discuss the importance of procurement and how
procurement can contribute to the strategic plan. In order for procurement to
effectively contribute to achieving the corporate strategy, procurement must be
able to translate corporate goals and objectives into specific procurement goals
and objectives. In turn, these goals and objectives must underpin, and drive,
strategic procurement processes and detailed commodity strategies, including
specific action plans that detail how goals and objectives will be achieved. To
illustrate this, a process is provided that procurement management can adopt to
translate corporate goals and objectives into procurement commodity strategies.
We also discuss the evolution of procurement strategy and the various sourcing
strategies that can be adopted to help ensure the support, and achievement
of, corporate strategies. In the last part of the chapter we discuss some of the
evolving strategies that modern procurement groups are adopting to remain
‘ahead of the game’.
4.1 INTRODUCTION
For firms to remain competitive they must constantly evolve to meet the
challenges of competition. Remaining competitive means that procurement
must contribute to the profitability of a firm. It can do so by concentrating on
and developing world-class processes and co-ordinating procurement activities
related to the objectives of the organisation as a whole. Procurement groups
must adopt strategies that help a firm achieve a competitive advantage.
Modern firms are finding that to remain competitive they have to develop
strategies that include seeking new sources of supply, at reduced costs, around
the world. As firms ‘go global’ the procurement function has taken on a significant
role in supporting this strategy.
4.2 DEFINING CORPORATE STRATEGY
Today, firms face the challenge of remaining successful in highly competitive
world markets. A firm’s ability to relate effectively to external environments –
social, economic, political, legal and technological – to anticipate and to adjust
to changes, and to make best use of opportunities by formulating and executing
strategic plans is a major factor in generating future earnings and is critical to
survival. Procurement plays a vital role in the development and execution of a
firm’s strategy.
Two key issues to be addressed are how procurement can contribute effectively