CHAPTER 1

The scope & influence

of Procurement
OPS911
Strategic Procurement Management

Lecturer – Alana Tweddle

Learning Outcomes
Aim to provide an understanding of:
How to define procurement
Strategic roles of procurement
Procurement as organisational buying
The strategic scope of procurement
Procurement and change
World class procurement
The status of procurement and supply chain management
 Perspectives on procurement

What do you think of when you hear the phrase ‘procurement’?

1 As a function - To perform specialised tasks

2 As a process - To achieve an output

3 As a link in the supply chain - With production and warehousing

4 As a relationship - Internal and external focus

5 As a discipline - Knowledge based

6 As a profession - Demonstrable skills and knowledge

Definitions of Procurement

CIPS Definition
Procurement is the business management function that ensures the
identification, sourcing, access and mangement of the external
resources that an organisation needs or may need to fulfil its
strategic objectives.

to be contrasted with…
The Classic Definition
To buy materials of the right quality , in the right quantity
from the right source delivered to the right place at the
right time at the right price.

to be contrasted with…
Alana’s Definition
Procurement manages all of the externally sourced good and
services an organisation requires.
Typical breakdown of organisational costs
External and internal costs
What is the difference between Purchasing & Procurement

 Procurement deals with the sourcing activities, negotiation and

strategic selection of goods and services that are usually of
importance to an organization.

 Purchasing is the process of how goods and services are

ordered. For instance raising purchase order, good receipt and
processing an invoice for payment.

Alana’s Thoughts:

Procurement Purchasing
= =
Strategic Transactional
The relationship between procurement, supplier
management and purchasing

Figure 1.1
Page 8
Strategic Roles of Procurement
What does the procurement function do?
 Due diligence
 Risk management of the supply chain
 Provides functional procurement expertise
 Supply market monitoring
 Supplier evaluation and selection
 Providing input to the preparation of specifications
 Quality Management
 Inventory management
 Negotiating, buying and developing contracts
 Procure to pay and expediting
 Contract management
 Relationship management
 Supplier performance management
 Category Management
 Strategic Sourcing
Procurement linkages
Procurement linkages with Finance
Procurement linkages with Legal
Procurement linkages with Supply Chain
Procurement strategic phases – Farrington Model

Traditional

Awakening

Implementation

Systems Development

Leadership

Global Reach

Standards Challenge
Procurement and Change
The nature of procurement has changed rapidly

• Not just from a function to a strategic tool

• What other areas have impacted the nature of procurement?

• Think about local global forces

 Evolution of Purchasing
Relentless pressure: on cost
competitiveness, global supply
markets, $ exchange Business Models are often more
Impact of IT: Increasing speed of reliant on outsourcing: greater
communication. Increasing access need to monitor outsourced
to buyer and supply market data. suppliers to ensure
uncompromised standards of
service and delivery
Globalisation Impact:
Transgression of national Sustainability Challenges:
boundaries. Cost advantages. pressure to champion
Specialised labour skills. Emerging environmental initiatives & meet
economies. sustainability targets

Surety of Supply: attracting skilled

contractors, construction Supply chain is lengthening:
materials & other resources is inputs from global partners is now
becoming more difficult common practice

Strategic Relationships: strategic Goods and services are more

relationships increasingly impact
sourcing decisions
Consumers are more demanding:
require more consumer
information, better products,
services & guaranteed quality
complex: Items purchased are
increasingly complex, high value
and carry significant risk
Consumers are more demanding:
items purchased are increasingly
complex, high value and carry
significant risk
Towards ‘world-class procurement’
Best-practice ensures long-term survival

• The nature of business (e.g. global uncertainty) has triggered the need for world-
class, or ideal, business practices as a means of achieving both competitive
advantage and effective practices

• The idea of ‘world-class procurement’ proposes a series of ideas that form the
basis of what the most effective procurement strategy will look like
World-class procurement
Must accommodate

Total quality management (TQM)

Just-in-time (JIT)
Total cycle time reduction
Long-range planning
Supplier relationship engineering
Strategic cost management
Performance accountability
Professional flexibility and development
Service excellence
Corporate social responsibility
What influences the status of the procurement
function?
Leverage
• Power of procurement to enhance profitability

Focus
• Is it transactional, commercial or strategic?

Professionalism
• Perception of influencers
• Professionalism of procurement staff (commercial acumen
and technical competence)
• Academic activity
• Depth of knowledge and skill
• Future focus
Typical procurement categories
Reflections

• Why is procurement undervalued in some organisations?

• What performance outputs are required by top management?
• Is there a limit to procurement decision making?
• Which three factors, strategically, are crucial for procurement
to achieve?
• Does risk management failures of the supply chain reflect on
procurement?

• Should procurement have Board of Director representation?

Public Sector Procurement

• Achieving Value for Money

• Compliance with regulatory requirements
• Ethical standards vital
• Visibility of processes and contract awards
• Exposing cost drivers
• Negotiation
• Ministerial advice
Review

Outcome review

1) Defining procurement: history and academic perspectives?

2) How is general buying different from procurement?

3) Scope and Influence of Procurement

4) What is ‘World-class’ procurement?

Overview
Key closing points

• Procurement is complex and needs to be considered from a systems view

• Procurement strategies are going to vary product to product
• Different procurement strategies require different relationship strategies
• Keep and eye on the topical supply chain and procurement issues currently in the
media
For next class:

• Review individual assignment (on Moodle) and group assignment (your choice)

• Bring an idea for the group assignment next class

• Complete the readings before class

• Look at the review questions for week one

Thank you
Support Slides
 The scope and influence of procurement

Procurement and change

Information Changing production &

Globalisation impact technology management
impact philosophies impact

• Transgression of • Slicker transactions • Competitive advantage

national boundaries
• Quality of management • Outsourcing
• Advantage of cost data
• Supply chain
• Specialised labour skills • Strategic link with management
suppliers
• Emerging economies
• Paperless environment
Purchasing in the Future

Increase in strategic importance

Automated tactical activities

Master contracts

Electronic purchasing

Strategic purchasing competency centres

Shared supply chain resources

Profit contribution

Changed emphasis on individual skills

Procurement is working to evolve its value proposition…

Value Proposition Role of Procurement

Driving business value from
Improve
my Leveraging the capabilities of both the
spend (and supply markets)
market and our whole business for
rather than just reducing business Value
Hit my competitive advantage
spend magnitude Management
targets
Customer relationship management,
Reducing unneeded demand
influence demand and specification.
activity, complexity, Demand Management Challenge the business to change and
immediacy and variability
reduce spend
Free up my
budget Cost modelling, supplier market
Reducing total supply costs
Total Cost Reduction analysis, supplier relationship
(not just supplier profits)
management
Get it
Securing goods at the right cheaply
price Purchased Cost Reduction

Get it
Securing the right goods at quickly Site level tactical sourcing,
the right time Acquisition purchasing and expediting

Source: The Hackett Group

Enough theory… The purchase process