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Procurement Management: Objectives, Strategies, and Tools

This chapter covers the objectives of procurement management, its strategic role within a business, tiers of procurement management, selecting and developing suppliers, procurement-related activities, cost management, and electronic procurement.

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Procurement Management: Objectives, Strategies, and Tools

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  1. Chapter 9 Procurement management

  2. This chapter covers the following aspects: The objectives of procurement management The strategic role of procurement management within a business Tiers of procurement management The nature and classification of purchased products Selecting and developing suppliers Procurement-related activities that enhance supply chain success Procurement cost management Electronic procurement Procurementmanagement

  3. Five principal steps of procurement management Step 1: Identifying a procurement need Step 2: Supplier survey Step 3: Investigation and assessment of suppliers Step 4: Choice of supplier(s) Step 5: Establishing relationships with suppliers (Steps 2, 3 and 4 collectively form the supplier selection phase.)

  4. The objectives of procurement management Improve competitive position Provide uninterrupted flow of goods/services Minimise inventory investment and loss of revenue Maintain and improve quality Find/develop best suppliers Standardise (where appropriate) inputs Aim for TCP Achieve co-operative, productive internal relationships Accomplish procurement objectives efficiently

  5. Our definition of procurement management Procurement management is that part of supply chain management that plans, implements and controls the efficient, effective acquisition of all raw materials, semi-finished goods, finished goods, services and information in order to support the core operations and ancillary activities of the organisation.

  6. The strategic role of procurement within a business • Access to external markets • Intra-firm management relations • Strategic • Tactical • Operational Tiers of procurement management:

  7. Strategic procurement management (long-term planning by top management) • Ensure availability of inputs needed for successful, ongoing business. • Ensure best business location. • Decide on size and shape of procurement organisation. • Lay down procedures for specification of needs. • Select suppliers and develop long-standing relationships with them.

  8. Tactical procurement management (middle-management level for the medium term) • Conduct ongoing logistical analysis. • Conduct informant networking. • Study available inventory-control systems. • Evaluate materials-flow systems and implement best one. • Administer requisitions and bills of materials. • Advise top management on contracts. • Develop current and new suppliers.

  9. Operational procurement management (short-term planning and execution, monitoring and control of procurement operations) • Conduct inventory analyses and stocktaking. • Reduce inventories through scheduling. • Maintain and improve relationships with suppliers. • Assist suppliers by supplying technical and administrative support. • Communicate operations schedules with suppliers and order on time. • Pay supplier invoices on time (but not too early). • Adhere to suppliers’ contract clauses. • Co-ordinate incoming traffic.

  10. The nature and classification of purchased products Products are divided into goods and services. Goods comprise: 1. Raw materials 2. Semi-finished goods 3. Finished goods Finished goods consist of: 1. Final goods (consumer goods) 2. Intermediate goods (producer goods) Services are intangible products

  11. Quality of physical products (goods) • Performance • Reliability • Durability • Conformance • Features • Aesthetics • Serviceability

  12. Service quality • Suitability • Accessibility/market area coverage • Security • Lead time • Reliability • Flexibility

  13. Selecting and developing suppliers The supplier selection process (the second, third and fourth steps in the procurement process) comprises: Supplier survey Supplier investigation and assessment Supplier choice Establishing relationships with suppliers (the fifth step in the procurement process)

  14. Procurement-related activities that enhance supply chain success Just-in-time scheduling Value analyses Co-ordinating incoming traffic

  15. Procurement cost management Expenditure-reduction programmes Speculative buying Forward buying Price-change management Volume contracts Stockless purchasing

  16. Electronic procurement Electronic catalogues Electronic exchanges Electronic auctions (see Table 9.1) Vertical marketplaces (see Figure 9.1) Horizontal marketplaces (see Figure 9.1) Functional marketplaces Types of transactions

  17. The benefits of e-procurement

  18. Vertical and horizontal marketplaces

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