Procurement and Supply Function in the Organisation - Assignment Example

PROCUREMENT al Affiliation Executive Summary: Assignment Procurement and Supply function is essential toany organisation. It is critical to the maintenance of the operations of the organisation. There are various costs that arise in the process of procurement and corresponding opportunities that can be exploited to create savings and efficiencies or any other sources of added value. These include collaborative savings, capital reductions, price reductions, purchase avoidance, added value opportunities, inventory management and procurement-effort avoidance. Most of these are centred on either improved supplier deals or improvement of efficiencies (Government Procurement Development Group, 2010, p.1). To improve the profile of the function in organisations, various strategies can be employed. These include partnering with other organisations, fostering achievement of an optimal operating model, prioritisation of supply chain risks, moving beyond cost savings and incorporating systems and technology. As regards, partnerships, it is important that the organisation engage early with the stakeholders. Early engagement with the stakeholders should be done in the planning stage to avoid to be effective. There is also a need for the organisation to establish policies and procedures to enhance efficiency and effectiveness in the implementation of procurement and supply (Government Procurement Development Group, 2010, p.1). The policies help in ensuring that the procurement procedures are accountable, editable, ethical, legal, economically effective and social and environmentally responsible. Introduction Procurement describes the process of purchasing goods and services. In practice, it involves the preparation and the processing of a demand of a commodity until the end receipts and approval of the payment for the goods and services. There is a variety of activities involved in the process. These include purchase planning, determination of standards, analysis of value, development of specifications, negotiation of prices, control of the stores and inventory, financing, administration of the supply contract and disposals (Government Procurement Development Group, 2010, p.1). Procurement and supply function in an organisation determines if the operations of the company will continue and as such it should be done in a way that creates savings or efficiencies and other sources of added value. Question 1 Opportunities for the Procurement and Supply Function in Creating Savings or Efficiencies Capital reduction is an opportunity of creating savings and increasing efficiency in procurement. The tangible benefit realised is the difference that would result between the initial budget or forecast and the final cost. Capital reduction can be facilitated through successful tendering strategies (Government Procurement Development Group, 2010, p.1). Purchase avoidance can also be used as an opportunity to create efficiency and promote savings. In this regard, an intended research can be avoided or cancelled because the equipment is still functioning sufficiently or the simpler product meets minimum requirements (Government Procurement Development Group, 2010, p.1). Price reductions can similarly be used to minimise costs. In practice, the company may find that the tangible benefit is the resulting difference between the original paid price and the end price that is lower for a product that still meets the minimum criteria. Collaborative purchases also provide sources of savings (Government Procurement Development Group, 2010, p.1). Collaborative savings involves many companies coming together to buy in bulk purchases thus benefiting from the quantity discounts. Another critical opportunity for creating efficiencies is through cost-increase avoidance. Here, a price increase or above-budget original tender is cut down so that is close to the budget. Alternatively, a cost increase can be negated or reduced inclusive of the retail index (Government Procurement Development Group, 2010, p.1). There will be an additional price reduction saving if the agreed price turns out to be lower than the offered price. Avoiding Cost-increase is however not an actual cash-releasing benefit. Added-value can be created by looking for better terms on guarantees or warranties. The improvement in this regard results in a more-for- less or more-for- the same kind of situation. For instance, a product-warranty may be inclusive for an identical price like that for which the commodity alone was bought in the past (Government Procurement Development Group, 2010, p.1). Saving of staff time, as an area of efficiency improvement, incorporates improvements in processes or policies in whereby the corporation can reduce the projected budget for a pro-data decrease in staff-time. The company can realise non-budgetary savings by reallocating staff resources to another project or task (Government Procurement Development Group, 2010, p.1). Another source of efficiency in procurement comes about through procurement-effort avoidance. In this regard, the use of existing collaborative agreement/contract implies that the company does not need to undertake its own procurement activity. For example, by claiming a cashable saving for the pro-data reduction is staff time (Government Procurement Development Group, 2010, p.1). Use of e-tool implementation is also an opportunity for increasing the efficiency of the procurement process. In this respect, the initiative would simplify the supply chain and reduce staff time or saving from the supplier (Government Procurement Development Group, 2010, p.1). In other cases, a procurement activity might result in a reduction of the demand for a particular service/product that would then increase efficiency (Organisation for Economic Co-operation and Development, 2011, p.92). For instance, a new video conferencing technology might eliminate the need for travelling without detrimentally affecting the productivity of the service. Opportunities for creating savings and improving efficiency Creation of savings Improved Efficiency/ Added Value Capital Reduction Inventory Management Price reduction E-tool Implementation Avoidance of Purchase Demand reduction Collaborative savings Reduction of invoicing costs Part b. Improvement of the function of the profile There are several areas through which procurement could be elevated or improved to add significant value to the organisation. i. Partnering with the organisation The company should strive to align its work with the key stakeholders and their understanding to become a true strategic partner (KMPG, 2011, p.1). Partnership with the organisation requires movement up the chain of value to make sure that procurement is involved at an early stage in the process of making decisions (KMPG, 2011, p.1). It also requires a clear demonstration of how active collaboration may add real value to both the top and the bottom line of the business. ii. Achievement of an optimal operating model Many organisations face challenges in translating the traditional centralised operating model into strategic value for their organisations. The supply chain directors and the Chief Procurement officers involved in the procurement chain function will have to reassess their operation mechanism so as to obtain more value from their businesses while working under a centralised-framework. Such a framework would deliver efficiencies in the company’s activities at lower costs of operation for procurement. iii. Movement beyond cost savings Most procurements aim to minimise costs. However, to add value to the organisation, the company needs to extend their activities proactively into core capabilities such as supplier relationship management (SRM), category management, demand management and risk management of risks (KMPG, 2011, p.1). There is a significant opportunity for the procurement function to go beyond costs savings so as to deliver a more strategic value to the organisations. Most companies, however, still struggle to extend their activities into these areas. iv. Incorporation of modern systems and technology Many procurement functions seem to lack the ability to leverage supply chain technology and business systems capabilities to bring greater automation to the business. What is worse, the organisation might have made the technological investment but have yet to realise the value (KMPG, 2011, p.1). Incorporation of modern technological systems will help in providing greater clarity for procurement. v. Prioritisation of Supply Chain Risk The past five years have seen an increase in financial crises, massive supplier failures and natural disasters that have demonstrated a worrying lack of leadership in the area of the supplier risks. As such, the procurement function will need to seek aggressively the inclusion of supply chain risks on the companys agenda to protect itself from the uncertainty and disturbances that lie in the future. Part c: Creation of collaboration with stakeholders to increase early engagement in the procurement process A stakeholder is an individual or organisation that possesses relevant knowledge, has considerable influence or is affected by a proposed service. These can include current or potential service providers, community, bodies or the service users. Engagement entails working with the identified stakeholders to obtain a comprehensive, detailed understanding of the needs of both of the involved parties (Organisation for Economic Co-operation and Development, 2011, p.92). In the context of procurement, engagement with the relevant stakeholders should occur early enough before any decisions are made which could affect the achievement of the outcome. The stakeholders can either be internal or external. It is essential that the company collaborates early enough with the stakeholders to ensure that the subsequent decisions made are comprehensive and cover every base. The collaboration of stakeholders to foster an early engagement process entails several activities. For effective early engagement, collaboration with the stakeholders should begin in the design and planning stage. Correspondingly, this would require the drafting of procurement documents such as a procurement plan (KMPG, 2011, p.2). The first step is to come up with a list of all the needs and requirements of the company early enough. In this regard, the company would aim to conduct a thorough assessment of the needs of the business while considering its budget and plans (KMPG, 2011, p.2). After conduction of the assessment, the company should then begin participating in regular forums, events and surveys that would provide an avenue for meeting the potential suppliers (Organisation for Economic Co-operation and Development, 2011, p.92). After identification of the supplier, the organisation engages in a consultation process with the stakeholders that involves a two-way engagement where the organisation asks the question and the stakeholders answer. The organisation should then aim to promote a two-way or multi-way engagement with the stakeholder thus firmly establishing decision-making, joint learning and actions (KMPG, 2011, p.2). The early engagement can be fostered through various methods. These include fact sheets, information sharing, surveys, opinion polls, workshops (facilitated events for collaborative environments) and expert panels. Part d. Need for Policies and Procedure There is a need for organisations and companies to establish policies and procedures to implement effective procurement and supplies. The policies are present for some discrete but often interconnected purposes (Organisation for Economic Co-operation and Development, 2011, p.92). For starters, the policies commit the organisation and every individual involved in procurement and supplies management processes within the organisation so that they can use their best endeavours to make sure that purchasing and contracting activities are efficient. Policies and procedures also commit all the stakeholders to ensure that procurement and supplies are ethical, legal, environmental and socially responsible. Policies are also necessary for making the procurement procedures accountable and auditable (Marston, 2015, p.1). Accounting and auditing of the activities involved in procurement and supply help the company keep track of the costs involved in the whole process and hence ensuring efficiency. Policies and procedures are essential in enhancing the organisations ability to exploit the appropriate commercial, technological and organisational developments as they arise. In this regard, the organisation would be more open to continuous improvement and development by facilitating the training, development and support of staff (Marston, 2015, p.1). As already stated, there is a need for organisations to incorporate current technologies in its systems in the conduct of its procurement and supply function of the company. Policies and procedure enable the company adhere to the budget it had set for itself and thus are economically effective (Marston, 2015, p.1). Identification and formulation of the correct and proper procurement policies and procedure enable the company to identify suppliers and contractors who subscribe and share similar operating principles. Most organisations battle with a lot of issues in their determination of the appropriate strategies to follow in their endeavour to create savings and promote efficiencies in procurement. The reason is that most companies accrue a lot of costs in their purchasing and supply function. There is, therefore, a need for companies to research into ways that it can reduce these costs by incorporating new strategies of procurement. Assignment 2: Executive Summary There are multiple categories of procurement in the organisation. The category of focus in this paper is the Information Technology and Telecommunication Systems. Information Technology and Telecommunication solutions are essential for many operations in the company and as such require detailed examination. In this regard, it is important to analyse the market structure of the IT industry. The market is among the fastest growing in most developed and developing economies as a result of the increase in the number of businesses that need its services. As a result, it is a very competitive industry. The scope of the competition is limited by the numbers and types of technological products that the particular companies offer. Because few dominating companies characterise the industry, it is essentially an oligopolistic market. Various demand factors impact the procurement of technological products from the company. These include its financial resources tastes and preferences, pricing and quality of the product. The supply of the technological solutions to the organisation is, on the other hand, affected by the factor prices, costs of production, market pricing and the technology. Since it is an oligopolistic market, the pricing mechanism is characterised by rigidity in pricing. Prices are determined by price wars, interdependent pricing or price leadership. Government intervention can, however, affect the pricing mechanism. There are various sources of categories of procurement. Information Technology and Telecommunication Systems is the chosen category of focus for this case. Improvement of the efficiency of Information Technology Departments is frequently the area where the organisation can make great savings. Additionally, and even more importantly, conduction of an efficient procurement for information technology services can also assist by acting as catalysts for other benefits of the organisation and in other transformation programmes. Information and technology services that are procured by the organisation include computer hardware, Information technology services and software, and telecommunication services. Question 2 Size, Scope and Extent of the competition in the Information, technology and communication industry. The Information and Technology Industry is extremely competitive. The size of the global software market is about $600 billion and the figure continues growing with the increase in the number of businesses that require information and technology services. In North America alone, the software and the Information Technology Services Industry increased its revenue between 2010 and 2011 to $606 billion in 2011 (Organisation for Economic Co-operation and Development, 2011, p.92). More than a hundred thousand software and information technology services companies exist in the United States. More than 99% of these are small and medium-sized companies (less than five hundred employees). These include suppliers of computer programming services, computer systems design firms and software publishers (Organisation for Economic Co-operation and Development, 2011, p.92). The International Data Corporation (IDC) released a report estimating the United States Demand for software would increase by more than 7% to 165 billion in 2016. The demand will also rise in the same measure. The surveys conducted by the investigation also reveal that the infrastructure projects are listed among the highest needs of the North American Businesses and thus interest is fast increasing in the services of computer aplications. Successful competition in the technological environment required rapid and continued design, development and marketing of solutions and the related products services that are valued in the marketplace. The scope of the market is thus limited or characterised by the number of the Information technology products and services that the consumers want (Organisation for Economic Co-operation and Development, 2011, p.92). These include computer hard wares, software packages and the human personnel that possess the skills needed to incorporate and implement these systems in different organisations (Jayaram and Kotwani, 2012, p.44). The industry subsectors include cloud computing services, electronic commerce and the entertainment software. In this regard, the amount of products and services offered by a specific technological company defines its competitiveness in the market. The more the range of services and products offered by the company, the more competitively advantaged it is in the market. In this regard, there is a variety of dominant players of the providers of information technology products, services and solutions in North America. These include the following: Cephalon, Fidelity National Financial Inc., Level 3 Communications (LLC), Apple Inc., Oracle, Verisk/ EagleView, T-Mobile USA, CoreLogic, Inc., Nielsen Holdings, Samsung Technologies and PDB sports. The market structure of the companies operating in the information, technology and Communications Industry is an Imperfect Competition (oligopolistic). The reason is that there is a low n dominating companies in the information technology due to the high number of barriers in the industry (Jayaram and Kotwani, 2012, p.44). Entry into the technological industry requires a high capital investment as well as advanced technical prowess. Correspondingly, Survival in the industry depends on the innovative power of the company (Jayaram and Kotwani, 2012, p.44). Part b. Demand and Supply Factors impacting on the procurement of Information, Technology and Communications products and services Demand Factors There is a variety of factors impacting on the organisations procurement of information, services and products. For starters, the organisations tastes and preferences for a certain technological product and service will impact on its decision to buy the product. The company may express a greater demand for the information and technological services of a certain company, say Apple, Inc., due to perhaps its higher quality of hardware and software components (Coyle, Langley, Novack and Gibson, 2012, p.45). The changes in the demand for the various commodities occur as a result of changes in fashion and trends as well as pressure from advertisements by the manufacturers and sellers of different technological solutions. Technological solutions and services are constantly being improved and new ones being discovered. The organisation would most likely seek to procure the equipment regarded as being of the highest quality. Financial Capacity of the organisation is another demand factor that would influence its decision to procure a particular technological solution (Coyle, Langley, Novack and Gibson, 2012, p.44). Depending on the net income of the organisation it might choose to compromise on quality and go for the cheaper product to save costs. With a higher net income or high capital reserves, the organisation might choose to invest in an expensive but high-quality product (Coyle, Langley, Novack and Gibson, 2012, p.45). However, the organisation also considers the resulting input that the particular technological solution would have for the company before deciding to invest in it. The changes in the price of other related Information technological products might also impact on the organisation’s demand for a certain technological solution. For instance, if a lower price is offered for a certain technological solution from one company, the procuring organisation would opt to purchase from this company provided that there is no compromise on the quality of this commodity (Coyle, Langley, Novack and Gibson, 2012, p.45). The number of consumers in the market might also impact on the demand for the technological solution in the market. A high number of consumers interested in Apple products would lead to high demand for their products. Supply factors The definition of supply is usually related to price and time. The primary factor that may affect the supply of technological factors in the organisation is the price of the commodity (Coyle, Langley, Novack and Gibson, 2012, p.45). Unlike demand, price varies directly with the supply if a product. The technological company will tend to supply more of a product that has high market prices. The costs of production would also impact on the supply of the availability of the technological solution to be procured. With increasing costs of production, the supply of the IT product or service would tend to decrease. In most cases, the supplier usually compares the cost of production with the market price before making this decision (Coyle, Langley, Novack and Gibson, 2012, p.45). Correspondingly, the seller would wait for the price to peak to balance the costs of production. The technology used in making the IT product plays a huge role in determining the supply of the product as well. A better and more advanced technology tends to increase the production of a product that would in turn result in an increase in the supply of the technological solution in the market (Coyle, Langley, Novack and Gibson, 2012, p.45). In most cases, the IT companies look for better and cheaper technologies for making the product before choosing to produce it. Factors prices are also important considerations of the same topic (Coyle, Langley, Novack and Gibson, 2012, p.45). These refer to the inputs of production. Most IT companies acquire their raw materials from other technological companies and as such an increase in the prices of these factors might cause a decrease in the level of production and thus a decrease in supply. Demand Factors Supply Factors tastes and preferences the price of the commodity Financial Capacity of the organisation The costs of production changes in the price of other related Information technological products The technology input The number of consumers in the market Prices of factor inputs Part c. Current Pricing Mechanism in Information, Technology and Communication’s Industry and Factors That Might Affect it. The market structure of the information technology industry from which the organisation procures its IT products and services is an oligopolistic market structure (Jayaram and Kotwani, 2012, p.45). As such the current pricing mechanism would be derived through the oligopolistic marketing structure price determination. As previously stated very few dominating companies characterise the oligopolistic markets because of the high costs of entry and technological barriers (Jayaram and Kotwani, 2012, p.45). Price Determination The curve illustrates the rigidity of the prices in the oligopolistic market. The kinked nature of the curve illustrates the relative inelasticity of the price regardless of the marginal costs typical of the technological industry. Since there are a few firms in the industry and there are high costs that prevent the entry of new firms in the industry, the prices of the products will be determined mostly by the few pre-existing firms in the organisation (Jayaram and Kotwani, 2012, p.44). The prices can either be set through interdependent pricing, price wars or price leadership. In Interdependent pricing, the firms closely monitors the activities of the other companies in the sector and the pricing decision made by one firm will influence the others (Jayaram and Kotwani, 2012, p.44). In price wars, the competitors set competing prices to get the highest market share while, in price leadership, the major market leader would set the price and other companies would follow him. Several factors might affect the pricing mechanism depicted above. Government intervention, for one, can interfere with the oligopolistic pricing Mechanism structure depicted above. The government can formulate policies mandating that a certain set price is charged for a certain technological product. In this regard, the companies would be forced to sell at a uniform or a lower price than that set by the government. The government can also provide incentives to particular companies especially those affiliated with the government. Incentives include tax cuts and subsidies. Such companies would then sell at a lower price than other companies. An increase in the number of producers in the market facilitated by the elimination of the barriers to entry would result in the influx of producers and a consequent drop in prices. Acquisition of an extremely cheap but efficient technology by a company may result in that company charging extremely low prices. References Coyle, J., Langley, C., Novack, R., & Gibson, B., 2012. Supply chain management: a logistics perspective. New York: Cengage Learning. Government Procurement Development Group, 2010. Guide to measuring procurement savings & benefits.[Online]. Available on https://www.business.govt.nz/procurement/pdf-library/agencies/Guidetomeasuringprocurementsavings.pdf Accessed November 19th 2015 Jayaram, R., & Kotwani, N. R., 2012. Industrial Economics and Telecommunication Regulations. Chicago: PHI Learning Pvt. Ltd. KMPG, 2011. The Power of Procurement. [Online]. Available on https://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Documents/the-power-of-procurement-a-global-survey-of-procurement-functions.pdf Accessed November 19th 2015 Marston, M., 2015. Top Tips for a Successful Procurement Process. [Online]. Available on https://www.staffordshire.gov.uk/business/procurement/news/2toptipsforasuccessfulprocurementprocess-mikemarston.pdf. Accessed November 19th 2015 Organisation for Economic Co-operation and Development., 2011. OECD guide to measuring the information society 2011. Paris: OECD. Read More