Introduction
Procurement cycle is part of an organisation’s process since it ensures cost effective ownership of products for a company. The various processes involved while carrying out procurement normally challenges and pressures the managers’ values and beliefs. New approaches are called for when a company adopts to new procedures and practices.
These approaches should aim at aligning human and financial capital towards the company’s operations. This paper focuses on the current procurement cycle that is used for purchases in Hewlett –Packard (HP) Company, and then sheds some light on how the procurement process can be re-engineered for greater effectiveness in the organization.
Discussion
Every company has an obligation of coming up with an effective procurement process that necessitates effective procurement strategies, adequate preparation for contracts, and proper selection of suppliers. There are many challenges that are currently facing business operations. One of these challenges includes technology innovation, which is currently forcing the old business paradigm out of market.
About a decade ago after the introduction of flash memory for the cell phones, the HP Company was faced with competition crises for flash memory. This innovation resulted to a high demand for the flash memory, and thus led the cell phone manufacturers to buy this memory in bulk (Nagali, 2010).
The high demand and the low supply of the flash memory facilitated an increase in prices for the HP printers. There was therefore a correlation between increased prices for the flash memory and increased prices for the HP printers.
Due to high demand, low supply, and high prices for the flash memory, the HP Company has already changed its procurement strategy by adopting a long-term vision. This approach is vital since companies that commit themselves to implementation of long-term goals are more likely to experience a greater success than those that implement short term or “damage control” practices (Shah, 2009: 297).
Currently, the HP Company’s success depends on proper preparation for contracts with the major suppliers of the flash memory. However, the HP management was later faced with anxiety due to a high degree of uncertainty of the demand and supply of the flash memory, which in turn affects the prices of the printers (Nagali, 2010).
Therefore, the HP Company has considered a number of factors in order to come up with an appropriate contract. These include assessing the price of the flash memory on a long-term basis, assessing the acquisition of product from the supplies, evaluating the duration of the contract in relationship to cost benefit, and carrying out a proper management of compliance (Nagali, 2010).
The Current Procurement Cycle That Is Used For Purchases
An appropriate contract arrangement involves the evaluation of demand and supply curve. This helps in coming up with an appropriate buying strategy that will reduce the chances of incurring losses (Kloppenborg, 2008: 332).
Due to the current high rate of technology innovation that has the capacity of interfering with the demand and supply of the flash memory, the HP Company has managed to limit the chances of incurring losses by eliminating fixed quantity purchasing strategies (Nagali, 2010). The HP Company therefore uses a framework that forecasts the demand, supply, and the price of the flash memory.
The HP Company handles its procurement cycle by defining the roles of the planning department, assessing the effectiveness of the supply chains, and defining the role of the financial and the marketing department (Nagali, 2010).
The contract evaluation of the procurement is done after successfully monitoring and forecasting the contract. The performance of the contract is then evaluated using the HPRisk software. This software facilitates greater effectiveness in HP Company due to the following reasons
- Increased savings on material cost as it facilitates reduction of supplier’s cost that results from inappropriate planning process.
- Prediction of costs
- Ensures adequate supply of commodity at all times.
- Reduces costs associated to inventory from within as well as outside the company, and hence improves the supply chains (Nagali, 2010).
In spite the fact that the HP Company has managed to make a successful procurement through sharing and lowering the risks with the supplier, the process is faced with a number limitation which when re-engineered, could bring rise to an effective procurement process.
How the Procurement Process Can Be Re-Engineered For Greater Effectiveness
In order for the HP Company to have an effective procurement procedure, it must take a careful consideration while positioning their products to their customers in the global market. The company has to overcome a number of technology terminologies and give way to the marketing terminologies (Gay et al. 2007).
Adjusting to marketing terminologies is paramount since the first step of the procurement process entails having a clear knowledge for the demand of the company’s product (Cartlidge, 2004: 318). This knowledge can be achieved by applying flexibility while dealing with different cultures.
The HP Company should put into consideration that different professions have different terms or words that they identify themselves with. Handling the challenges that emanate from culture can be achieved by designing a framework that helps to distinguish between the internal and the external networks of their products (Osmonbekov et al., 2002).
This framework should be fashioned in a way that provides universal language standards as well as reliability and quality of HP products. This can be achieved by evaluating the social environment, legal environment, the competitive forces, and the customers’ demand for the products (Rajagopal & Benard, 1993).
Due to the high rate of technology innovation, it is a necessity for the HP Company to note that the suppliers’ goods are in line with the current technology trend in order to meet the demand of the global market. In cases where product becomes obsolete, the worth of the product must also be put into consideration besides considering the tender price (Hamilton, 2003:392).
In order for the HP Company to establish a market dynamics from a wider perspective, increasing the level of accuracy for global operation through internet is essential, as it will help the Company to become conversant with the high value metrics for the aspects of marketing such as advertisement, distributions, and assessing the customers’ perspective (Osmonbekov et al., 2002).
The HP Company should fully adopt the electronic procurement in purchases since it is associated with effective procurement procedures, which result to substantial benefits such as reduction in product prices, improved contract agreement, effective management of inventory, reduced procurement cycle, improved supply chains, and improved production accuracy due to controlled inventory (Hawking et al., 2004).
Although the HP Company has taken an approach of continuously assessing the demand, supply and price uncertainty, it should initiate a purchasing Manager’s Indexes (PMI) as this will serve to curb this uncertainty.
The use of PMI index is vital since it plays a critical role in controlling the exports based on the current indicators of the economic trend of a particular country. The global economic indicator of the GDP growth can be effectively obtained by standardizing the PMI as this helps to reflect the current economic condition of a country (Williamson, 2002).
The HP website should have a central storage area for data that facilitates effective procurement through a collaborative framework (Brown & Vashistha, 2002).
This website should not include online specialists terms since the IT specialists perceive a company as a system that provides information, while businesspersons perceive a company as an entity that undergoes through a process innovation taking due consideration that their vision is closely associated with the activities of the people(Gardner, 2000).
Bartezzaghi and Ronchi (2003) assert that the use of electronic procurement serves a critical role in reducing the communication barriers as well as the communication costs, thus increasing the levels of transactions.
The matching of demand and supply can be effectively evaluated by considering the various available alternatives. Through this information, the HP Company can be able to evaluate whether the customers’ requirements are in line with the suppliers.
By adopting the internet-based procurement, the company gets into a position of engaging itself in the virtual community. This community is vital since it facilitates social interactions and hence, breaks the political and geographical boundaries in order to pursue mutual goals and interests (Taras et al., 2007:275).
This serves the role of reducing the procurement cycle since the alliance formed through the internet facilitates tracking the levels of the inventory, which in turn sends purchasing orders to the relevant suppliers (Kheng & Hawamdeh, 2002).
Conclusion
The HP company should note that effective procurement does not only result from assessing the demand, supply, and price uncertainty levels but by seeking for diverse supplies, being informed on the current technology trend, and finding ways and means of adopting an efficient communication strategies.
This helps in evaluating errors that result from miscommunication between the company and its suppliers (Teo & Lai, 2009).
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