Strategic Purchasing: The Role of Procurement Department Essay

Introduction

Strategic purchasing entails planning, implementation, evaluation, and controlling of strategic and operating purchasing decisions for directing all activities of the purchasing function toward opportunities consistent with the firm’s ability to achieve its long-term goals. Three properties together form strategic purchasing as a holistic and a broader concept. These concepts are; strategic focus, strategic involvement, and strategic visibility (Monczka et al., 2019). Strategic focus defines the long-term perspective of procurement. Strategic involvement defines the level of involvement of purchasing in strategic decisions. Strategic visibility defines how purchasing is perceived to be critical to the corporate strategy.

Risk management is very vital in strategic purchasing to ensure that there is no disruption in the supply chain. An applicable case is during the Covid-19 pandemic that brought the world to a standstill. The supply chain was heavily disrupted by restrictions on importation and exportation. Trade restrictions intensified. Companies shut down the entire production process due to lockdown and logistical reasons. The Contemporary Amperex Technology Co. Limited (CATL) is a classic example of a firm that struggled during the pandemic. It is a China-based company CATL is a global leader in lithium-ion related batteries because they patched a plan which enabled them to acquire raw materials within China. The way CATL sourced their commodities enabled them to be more resilient to supply risks which is desirable. Today strategic procurement is more than just buying goods for a good price. It entails all processes from internal customer to supplier. This paper describes strategic purchasing, its elements, and the role of the procurement department in strategic management.

Procurement Department Goals and Objectives

The procurement department is mandated with purchasing all goods, equipment, materials, and services a firm requires to run its businesses at a reasonable price (Richards, 2022). It is a vital role because any delay in purchases could stop the production process and result in empty shelves for consumers. Other critical roles of the procurement department include:

1. Negotiating prices and delivery terms;
2. Finding trustworthy and valuable suppliers;
3. Organizing deliveries with the retailers and logistic team;
4. Mining the best value from contractors;
5. Evaluating the quality and quantity of items the business needs to thrive.

Cost efficiency is one of the leading objectives of the procurement team. It is fulfilled by checking out all the suppliers in the market and comparing them in terms of quality, reputation, service delivery, capacity, and cost. The business must evaluate what happens when it relies on one supplier and come up with a contingency plan to ensure that the production process is not faltered. In the context of risk mitigation, the procurement team should analyze the pros and cons of hiring for instance, domestic versus foreign suppliers, and decide whether the firm should produce goods itself or purchase goods from external suppliers (Monczka et al., 2019). From an operational context, the procurement team is mandated with ordering goods and services, receiving inventory, administration of supplier contracts, and handling quality control issues. These issues include the management of complaints and returns from suppliers and contractors. The aim is to keep a constant flow of supplies and avail enough resources for people to perform their jobs.

The procurement team requires high-level organization, evaluation, and budgeting skills.

1. Organization – The procurement team needs to know when to order a product so that it is delivered in time. If the order is not placed in time or the shipment is delayed then a crisis might arise when that item is unavailable.
2. Evaluation – The frequency with which one orders an item depends on its projected demand and customer’s preference. The procurement team must know what to order and when to order it. At times one item may not be efficient and therefore a different brand may serve the business well (Lysons & Gillingham, 2018). The procurement department makes this analysis and seeks advice from other departments about what they require to perform their duties.
3. Budgeting – The procurement team like any other department operates on a budget each fiscal year. They must approximate the quantity required so that the stock does not last for long.

Elements of a Strategic Purchasing Plan

The elements of a strategic purchasing plan include; a properly defined goal that is aligned with the firm’s mission, measurable objectives, strategies, and tactics that are aligned with internal and external factors, and a measurable plan to ensure that the desired results are achieved. These elements are explained as follows:

1. A properly defined goal – The initial step in the development of a strategic purchasing plan is to come up with a clearly defined goal that is in line with the firm’s mission, vision, and values (Richards, 2022). A goal is an abroad statement of intent. For example, the goal could be to optimize profit. The mission, vision, and values emerge when selecting the appropriate sub-goals. If the firm’s mission is to avail the best quality goods and services to consumers, a sub-goal of cutting back the cost of raw materials that go into the production of goods and services would not be appropriate.
2. Measurable objectives – Goals are backed by measurable aims. Measurable objectives should be concise and specific enough so that after implementation two independent observers could agree as to whether the objectives were met or not. In the corporate world, the acronym SMART is used to guide the development of objectives. SMART stands for specific, measurable, actionable, realistic, and timebound. For example, if the goal is to optimize profit through reduction of supply expenses. This goal may be supported by an objective that seeks to reduce the supply cost by 15% for one year.
3. Strategies and tactics – Strategies are developed to attain certain aims and objectives. Strategies generally indicate how a firm will meet its procurement goals and therefore should be designed to maximize strengths and opportunities or overcome weaknesses and threats. Tactics refer to actions for certain tasks that will be performed in favor of the identified strategy (Richards, 2022). A strategy for minimizing the supply cost may be locating a business enterprise close to the source of raw materials.
4. The measurement plan – It shows the progress being made towards the realization of strategies and tactics that back the firm’s goals and objectives. A viable action plan should have mechanisms for monitoring progress and success. Good progress may indicate an opportunity to strengthen or improve focus on certain strategies and tactics.

Conclusion

The basic responsibility of a procurement agent is to ensure enough supply and quality of required products at the right prices. The primary aim should be on quality, product availability, pricing, and inventory investment. In establishing goals, the procurement agent should be focused on activities that improve performance in these four areas. Strategic management objectives are either financial or strategic. When planning an organization’s strategy, it is important to comprehend whether the objectives are short-term or long-term.

References

Lysons, K., & Gillingham, M. (2018). Purchasing and supply chain management. Harlow Prentice Hall.

Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2019). Purchasing and supply chain management. Cengage Learning.

Richards, L. (2022). Elements of a Strategic Purchasing Plan. bizfluent.com. Web.