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In the modern world of business, companies often have to engage in stiff competition in order to survive in the market. To prevail in this competition, it is paramount that they make the process of production of goods or services highly effective. Because of this, the efficacious procurement function is vital, because if it is poor, a firm may suffer considerable losses due to high expenses, low quality of materials purchased, non-timely delivery, etc.
Procurement is a process that plays a critical role in any organization. It is possible to define procurement as the process of purchasing goods and services which are needed in order for the business to function (Solish & Semanik 2007); it should be pointed out that this term describes the full process of doing so, including such stages as the purchase planning, articulation of the standards to which the goods or services that are to be bought need to correspond, the study of the suppliers and the process of choosing them, the negotiations with the supplier, the act of purchase itself, the involved financial transactions, the control of inventory, and so on (Baily et al. 2008; Dimitri, Piga & Spagnolo 2006). It also ought to be noted that, as a rule, procurement as such takes place between businesses, for companies buy goods and services from other organizations and virtually never do so from private persons.
The Impact of Procurement on a Firm’s Success or Failure
It is easy to see that the degree of success and profitability of a business considerably depends upon the procurement practices that the company is a part of (Quale 2006). For instance, choosing an ineffective supplier may considerably hinder the efforts of an organization to produce goods or services, adversely affect the quality of the final product, result in delays in production, and so on.
Numerous factors should be considered when a company carries out the process of procurement. Because a considerable part of the revenue of a business may be spent in order to purchase materials and services needed for the further functioning of an organization, a slight decrease in the price of raw materials which are bought may lead to a significant reduction of costs which are spent for this purpose. In addition, a firm needs to make sure that the products and services which it buys are successfully delivered to that firm’s production factories or any other facilities where they are needed.
Thus, it is rather simple to understand how an ineffective procurement may result in the failure of a particular organization. For example, when an organization poorly plans the process of purchase and does not buy enough materials, the production may stop due to the lack of these materials (Lysons & Farrington 2006). If the goods or services provided by a supplier do not correspond to some minimum standards, or if these standards are too low, this may adversely affect the quality of the firm’s final product, whereas too high standards might result in too large costs of production. If the suppliers that were chosen are ineffective (too costly, unreliable, provide goods or services with delay, and so on), this may lead to a situation when production cannot continue due to delays in delivery, unexpected problems with the materials, deficiencies in the provided resources (e.g., in parts of mechanisms), etc. If the inventory is not properly controlled, the materials needed for production (such as fruit needed to create juice) may spoil, or there may be a dearth of the raw materials, and so on (Monczka et al. 2011; Quale 2006). For the same reasons, effective procurement is necessary for a company’s success.
A Real-Life Example
It might be problematic to find an example of a company that failed due to ineffective procurement because case studies of failures are not very popular; however, it is easy to find an example of a business where procurement is effective, for more or less efficacious procurement is an indispensable part of any successful firm. The company of Boeing can be used as an example of such an enterprise. This organization uses multiple suppliers of a wide range of products and services (raw materials, parts and equipment, certain external services, and so on) for the production of its aircraft (Boeing n.d.). For Boeing, it is pivotal that the products it uses in the process of production are of supreme quality, to ensure the high degree of safety of its aircraft; the materials and details need to be delivered on time to ensure the timely creation of the planes which were ordered, and so on. If due to ineffective procurement (e.g., poor choice of suppliers), the materials or parts it used had been of low quality, this could result in a disaster and possibly the deaths of the clients of Boeing’s customers, let alone the considerable harm to Boeing’s reputation.
On the whole, efficacious procurement is vital in any organization and is an indispensable component of its success. Effective procurement may permit a company to gain high-quality raw materials, parts, etc., on time, at affordable prices, whereas poor procurement practices may result in high spending, low quality of the final product, loss of customer’s trust, etc.
Baily, P, Farmer, D, Crocker, B, Jessop, D & Jones, D 2008, Procurement principles and management, 10th edn, Pearson Education Limited, Harlow, UK.
Boeing n.d., Boeing suppliers, Web.
Dimitri, N, Piga, G & Spagnolo, G (eds) 2006, Handbook of procurement, Cambridge University Press, Cambridge, UK.
Lysons, K & Farrington, B 2006, Purchasing and supply chain management, 7th edn, Pearson Education Limited, Harlow, UK.
Monczka, RM, Handfield, RB, Giunipero, LC & Patterson, JL 2011, Purchasing & supply chain management, 5th edn, South-Western Cengage Learning, Mason, OH.
Quale, M 2006, Purchasing and supply chain management: strategies and realities, Idea Group Publishing, Hershey, PA.
Solish, FB & Semanik, JS 2007, The procurement and supply manager’s desk reference, John Wiley & Sons, Hoboken, NJ.