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What changes have enabled Michael Porter to see Procurement (Purchasing) in a more strategic light - Essay Example

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Michael Porter is known for his ideas concerning competitive strategy and competitive advantage. To be on top in the competition within an existing market with absolutely many key players and potential market entrants…
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What changes have enabled Michael Porter to see Procurement (Purchasing) in a more strategic light
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Download file to see previous pages Porter explains when a unique product is produced; a firm could have the advantage to set premium price for it, calling it as a differentiation advantage. In addition, he wants to point out there is competitive advantage earned when a firm could produce existing similar product offerings, but at lower cost. He calls this cost advantage. Today, most, if not all, firms require outsourcing almost everything just in order to provide or come up with service or product offerings. This can be clearly elaborated in the value chain, which at the bottom line, one would be able to realize the associated cost generated in production of certain product or service. In order to achieve cost advantage as Porter defines, it is therefore important to at least minimize or cut cost in order to produce offerings that would have competitive price. Procurement or purchasing is an important component in Michael Porter’s value chain model. In this model, he originally identifies procurement to be just a support activity. However, recently, he emphasises the potential strategic contribution of procurement to shared value, as published in the Harvard Business Review. Concerning Porter’s recent claim, this paper tries to present the existing trend to justify whether opportunities for purchasing to contribute more strategically have increased, and how it might have addressed relevant matters in the difficult economic conditions facing organisations today. Significant trending Purchasing together with its strategic importance has long been remarkably considered, but there was actually less appreciation of it when it comes to what it can actually do with business performance. Concerning this issue, a study with empirical analysis conducted on 141 industrial companies reveals interaction among purchasing efficacy (purchasing strategic objectives and capabilities) and strategic integration of purchasing (between business strategy and purchasing strategic objectives) (Benito, 2007, p.901). Today, one essential point of understanding the actual strategic importance of purchasing can be viewed within the context of its actual contribution to business performance. So this goes with finding interesting stuffs about the likelihood of its contribution to creation of profit, customer satisfaction, increase market share and more. After all, business performance might include different metrics that could help measure and as bases of actual business growth. Regarding this, it has become a considerable point to constantly investigate purchasing using various empirical researches just to be able to quantify its actual significance as a strategic function. A recent study conducted to investigate the empirical contribution of purchasing and supply management (PSM) to the company’s success generated a substantial result based on the information gathered from the international survey of 306 major companies from eight industry sectors (Hartmann et al., 2012, p.22). The study showcases empirical evidence leading to the point PSM has remarkable contribution to the company success. The contributed value was found to be mediated by three operational performances such as cost, quality and innovation (Hartmann et al., 2012, p.22). PSM, increasingly regarded by senior management to strategically influence operational performance and financial performance, however, was found to still require external survey methodology that complements the internal perceptional measures of PSM performance, and a comprehensive performance measurement framework ...Download file to see next pagesRead More
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