The Principle of Acquisitions Management - Research Paper Example

? The Principle of Acquisitions Management. What is most important? What do you think will become more important over the next two decades? Professor Class University Date Acquisition Management is the process or activity whereby business organizations purchase the economic resources and business inputs from suppliers or vendors. This process enables business organizations to obtain favorable terms in terms of the price and quality of their material acquisition that will be used for their production processes. The complete cycle of acquisition management begins from sourcing and purchase decision by internal control of production materials, planning and control of work-in-process, the warehousing and shipping, to distribution of finished products. Combining the activities of material management does not merely represent a linear chain of one-on-one business relationships, but a web of multiple business networks and relationships [Min, Zhou 2002 qtd. in Sliwczynski, 2012 The main principle of acquisition management is to make strategic purchases or sourcing that is based on a reasonable set of criteria. While these criteria may vary from industry to industry, good acquisition management always require the decision to purchase or acquire to be as sound as possible (Leenders et al., 2006). Sound criteria behind a good purchase decision ranges from favorable negotiated price, good quality of sourced materials and certainty of its availability and price in the future. What is most important? The principles of Acquisition Management are continually reshaping as business and the economic landscape of which it operates continuously change. The primary principle of Acquisition Management as a mere operational function to obtain the necessary resources to make the products or render the services of a company is already inadequate with the new economic landscape. Thus, the principle of acquisition management as a mere procurement tool has now evolved as a strategic tool which is now the most important principle in the new economic landscape of business. It is no longer enough that business organizations acquire the necessary economic resources for the operation of the company and ensure its availability. Rather, the quality, cost and timeliness of materials that will be acquired should also enhance the company’s competitive advantage. The process of acquiring resources itself should bring about strategic competitiveness to the business organization which when combined with the materials procured, will reduce not only the cost associated with acquisition but also the reduction of price of its materials inventory at a quality that is consistent with the company’s commitment to its customers. While the dynamics of the economic landscape of which Acquisition Management is applied, principles of acquiring resources at a lower price, better quality and availability will not change regardless of the changing modalities which acquisition is processed. What do you think will become more important over the next two decades? Integration of electronic procurement in Acquisition Management One of the major changes in Acquisition Management is the enhancement of its role in business organization from a mere operational tool to acquire the economic resources necessary for business to operate and to process its products and services. Acquisition Management is now a strategic implement of business organizations to edge out competitors and ensure its viability on a long term. Acquisition Management’s typical role to merely procure resources (material, process and manpower) for the organization as a mere operational function is now being used to leverage as a company’s competitive advantage and as a risk management strategy. Procurement or Acquisition Management is now being used as a competitive advantage not only in terms of getting the necessary resources for the operation of the business either to create product or services but also as a strategy to enhance the company’s competitiveness. Procurement is no longer seen as a function to get the right resources but also as a means to lower cost not only the material being procured but also the process of acquiring the resources itself which the business could ultimately translate to its price and enhanced bottom line. One of the strategies employed is the use of electronic procurement to lower cost is the use of electronic procurement. Study predicted that the use of electronic procurement could cut procurement costs by as much as 8% to 15% whose savings can be translated to the company’s competitive pricing of its goods and/or services (Tai, 2010). The idea of electronic procurement in Acquisition Management started with the electronic data interchange (EDI). But even if EDI was the most common procurement method in the past, not all was able to take advantage of electronic procurement. The cost associated in setting up the hardware as well as the system platform was very prohibitive that only large companies were able to afford it (Tai, 2010). The recent development in internet technology however changed the landscape in procurement. With the increasing availability of low cost electronic infrastructure and development of web-based tools, the cost associated in integrating electronic procurement in Acquisition Management has been tremendously reduced that smaller companies who were not able to afford EDI’s before, can now take advantage of electronic procurement with the internet as the infrastructure. Having said this, the integration of electronic procurement in Acquisition Management will become very important in the next two decades as it well suited to the new economic landscape in business. Electronic procurement is very conducive in a globalized environment where economies and business are now closely link as it allows exchange of information in real time. It could also be said that electronic procurement will become a business imperative due to intensified competition where companies are looking for ways to cut cost (which electronic procurement will allow savings between 8 to 15%) to make their products more attractive. It is also anticipated that in the next two decades, electronic procurement will evolve and innovate itself to accommodate the changing buyer and supplier behavior. Electronic transactions such as online reverse auctions, electronic catalog management, electronic order fulfillment and electronic payment are becoming more pervasive which would require business organizations to integrate electronic procurement as the changing economic behavior of both buyers and suppliers complements electronic procurement (Rai, 2009). Acquisition Management as a Risk Management tool Recently, Apple popularized the idea of locking in its suppliers over long-term contract to be able to acquire computer parts at a lower price. From a lagging company which many consumers perceived to sell expensive computers and gadgets, Apple transformed to be a dominant player in the computer tablet, smart phone and listening device industry. This change was a result of a succesful implementation of its Acquistion Management that has significantly lowered the price of its products. This was very pronounced with the launching of Ipad which analysts observed its price is far lower than what they expected. Its introductory price of $499 stunned everyone which led John Gallaugher, an associate professor of information systems at Boston College to comment “It was a very competitively priced device” (Wingfield, 2011). The same is true in the notebook product line. When Macbook Air was introduced in 2008, it was priced at an exorbitant $,1,799. A year later, Apple made its Macbook Air thinner and smaller and just when analysts thought it could be more expensive, the entry level price was slashed to almost a thousand dollars when it was tagged at $999 while its 11-inch and 13-inch counterparts were only priced at $1,299. This was made possible by the briliant management of Acquisition Management by capitalizing its organizational capability of having huge cash reserves. It made acquisiton managemetn a strategic weapon to lower its price and to capture and create market. It tapped into its huge war chest of $82 billion in cash and marketable securities to lock up supplies of parts for years to enable it push down cost by the scale of its purchase (Wingfield, 2011). It also bought manufacturing capacity ahead of it time and making its components scarce that made its competitors scrambling for any parts that are left and drove the cost of its products up while Apple had lowered its own (Wingfield, 2011). To date, Apple has been recorded as the biggest buyer of flash memory chips in the world according to the research firm iSuppli (Wingfield, 2011). While this is a sound competitive strategy to edge out competitors by acquiring parts at lower price, it is also a sound risk management tool. By binding suppliers to a long term contract, it shields the company from the uncertainty of the future such as fluctuation in price and unavailability of supply. It also assures the company that it will have enough materials in its inventory to create its product or render its services. The use of acquisition management as a Risk Management tool is not only being used by Apple but is also recognized by other established companies such as Ford, Cisco, Dell who realizes the risk associated in the uncertainty of the price and availability of resources in the future. By committing suppliers for a long-term contract, it minimizes the risk of resource availability in the future and shields the company from the fluctuation of price (Nagali et al., 2008). References Michiel R. Leenders, P. Fraser Johnson, Anna E. Flynn, Harold E. Fearon (2006). Purchasing and Supply Management. McGraw-Hill Companies, Inc. Nagali, V., Hwang, J., Sanghera, D., Gaskins, M., Pridgen, M., Thurston, T., & ... Shoemaker, G. (2008). Procurement Risk Management (PRM) at Hewlett-Packard Company. Interfaces, 38(1), 51-60. Rai, A., Brown, P., & Tang, X. (2009). Organizational Assimilation of Electronic Procurement Innovations. Journal Of Management Information Systems, 26(1), 257-296. Sliwczynski, B., & Kolinski, A. (2012). EFFICIENCY ANALYSIS SYSTEM OF MATERIAL MANAGEMENT. Logforum, 8(4), 297-310. Tai, Y., Ho, C., & Wu, W. (2010). The performance impact of implementing Web-based e-procurement systems. International Journal Of Production Research, 48(18), 5397-5414. doi:10.1080/00207540903117915 Wingfield, Nick (2011). Apple’s Lower Prices Are All Part of the Plan. New York Times online. Available at http://www.nytimes.com/2011/10/24/technology/apples-lower-prices-are-all-part-of-the-plan.html?pagewanted=1&_r=2 Read More