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CHAPTER 4
PROCUREMENT AS A SUPPORT AND STRATEGIC FUNCTION WITHIN COMPANIES
to be competitive on both the quality and pricing of its products and services.
Reducing the costs of materials and services is an area where procurement
plays a vital role and thereby helps to improve corporate profit margins. In many
cases, procured goods and services provide a major opportunity for reducing
costs within an organisation and for improving return on assets.
Many firms, however, do a poor job of accomplishing this. It is frequently the
result of a poor link of procurement strategies to corporate strategies. In some
instances a limited understanding or awareness by procurement of corporate
strategies causes the lack of accomplishment. In other cases procurement has
not been included in the development of the corporate strategy.
Perhaps the greatest underlying cause of this problem is that top and senior
management within organisations often fail to understand the strategic
importance of procurement to the organisation and/or how to effectively develop
an integrated sourcing strategy that supports organisational objectives. However,
many successful firms, including UPS, IBM, Dell and Honda, have recognised
the importance of procurement in helping to achieve organisational goals and
objectives and have developed organisational strategies to include procurement
in the process of developing and linking these strategies [2].
4.3.2 TRANSLATING CORPORATE OBJECTIVES INTO PROCUREMENT
GOALS AND OBJECTIVES
Linking procurement strategy to corporate strategy is essential, but many firms
do not have mechanisms in place to link the two. Effective contribution from
the procurement group means more than just a response to a directive from
top management. It implies input into the strategic planning process so that
organisational objectives and strategies include procurement opportunities
and problems.
One of the major obstacles to the development of an effective procurement
strategy lies in the difficulties inherent in translating organisational objectives
into procurement objectives. In most cases, organisational objectives can
be summarised under four main categories: survival, growth, financial and
environmental. When it comes to procurement objectives, however, these
are normally expressed in a totally different way, such as quality and function,
delivery, quantity, price, terms and conditions, service and so on.
One challenge facing the supply manager is the effective interpretation of
corporate objectives and how these link with procurement objectives. A second
challenge deals with the choice of the best action plan or strategy to achieve the
desired objectives. A third challenge deals with the identification and feedback of
procurement issues to be integrated into organisational objectives and strategies.
The development of a procurement strategy requires that procurement
management be in tune with the organisation’s key objectives and strategies
and also be capable of identifying, creating and realising opportunities relating to