Growth in the Strategic Role of Procurement - Essay Example

Growth in the Strategic Role of Procurement Introduction The function of procurement is basically descriptive of the process of purchasing supplies, materials and services. Supply management defines the department that most organisations allocate the responsibility of procurement of all resources. Organisational workers who serve in the supply chains are known as supply managers or purchasing agents. In different business organisations, purchasers function as either junior or senior employees. In the majority of organisations in today’s marketplace, such buyers are entrusted with responsibilities such as coordinating user departments with purchase requirements, recognising potential suppliers, carrying out market studies that are conducted to determine material purchases, supplier selection, proposal analysis, supplying purchase orders, discussing important issues with sales representatives, dealing with the administration, conducting negotiations, solving problems which are purchase related, and preserving purchase records. Supply Chain Management and the ‘Bull-Whip Effect’ The main objective of any organisation’s supply chain is to get the correct selection of services and goods to consumers in the most effective way. In the interests of realising this objective, every link in the different stages of the supply chain has to operate effectively. The different links also have to be able to integrate and coordinate with other links that are positioned downstream and upstream. The most important characteristic that helps in providing a lean supply chain is ensuring precision in the process of demand planning (Ketikidis, Koh, Dimitriadis, Gunasekaran, and Kehajova 2008). Unanticipated spikes or demand over-estimations can stimulate the chain’s supply end to react by instituting production changes. These supply and production problems then negatively affect the consumer end, resulting in an effect that causes ripples over the entire chain. This ripple effect is known as the bullwhip effect. Causes of the ‘Bullwhip Effect’ In all business organisations, and particularly the large scale ones, the process of supply chain management is a sophisticated process. There are different issues that could result in the bullwhip effect, which can be further complicated by problems like communication delays, and the dearth of coordination. The bullwhip effect could be described as the incident where orders transmitted to suppliers and producers end up generating a greater variance than the sales to consumers. It is the irregular orders in the supply chain’s lower end that end up being more distinct than those in the higher end. This could result in effects such as exaggerated fluctuations and other interruptions. There are numerous factors that could result in the bullwhip effect. These include: The incidence of natural disasters which interrupt the natural flow of goods and services The tendency towards overcompensation when dealing with inventory issues Disorganisation within supply chain links that result in smaller or larger quantities of product than were originally ordered The lack of transparency and communication between various supply chain links The existence of free return offerings which allow consumers deliberately overstating demands as a result of shortages, only to cancel their orders when their supplies are restored to normal numbers again The incidence of order batching when organisations do not place an order but wait to for the demand to increase The incident of price variations where special discounts affect regular purchasing patterns. The reality is that purchasers desire to attain advantage on offered discounts provided in the short term. This could result in distorted demand statistics and uneven production  Depending on past information when estimating what the present demand might be Consumers can contribute to the ‘bullwhip’ effect when they participate in shortage gaming practices How to Reduce the Bullwhip Effect Entrepreneurs first have to gain a good comprehension of all aspects concerning inventory consumption and customer demand. The absence of demand visibility can be dealt with by supplying all the supply chain’s major players with point of sale statistics. It is also important of customers and suppliers to work together to improve the frequency in terms of reception of information, and its quality as well (Amid, Ghodsypour, and O’Brien 2006). Information could also be shared by these parties through factors such as vendor-managed inventory. It is important to eliminate operations that introduce demand spikes. The costs created by higher orders could be eliminated through computer aided ordering (CAO) and Electronic Data Interchange (EDI). Another factor that could minimise the bullwhip effect has to do with pricing policies and strategies. Doing away with incentives that result in the delay of orders by consumers like discounts in volume transportation, and looking into the real causes of the cancellation of orders could effectively bring about clearer ordering patterns. Offering goods at fair and stable prices could prevent purchasing surges that are facilitated by short-term promotional discounts. In addition, purchase contracts can be created to encourage customers to order at frequent intervals for the sake of achieving improved synchronisation of purchase and delivery. Procurement Trends in the Age of Globalisation In today’s business environment, procurement operations are increasingly turning global as organisations depend on international suppliers and contractors in various economies to effect the reduction of costs (Chan and Kumar 2007). To deliver strategies that firms can depend on in the present rapidly-changing and complex business world, procure departments have to go beyond the conventional concerns of quality and costs and come up with specialised capabilities that are needed to handle complex circumstances. These capabilities must then be used to allocate resources and unite the responsiveness of daily functions with a strategic agenda of procurement (Tomlin 2006). There are more skills that are needed in the competitive global environment than negotiation abilities and a deep understanding of specific groups of goods and services. Specialised skills such as supplier qualification capabilities, risk management skills, and analytical skills to deal with trends and reinforce the deployment of favoured strategies are needed in areas that have not traditionally fallen under an organisation’s procurement remit (Araz and Ozkarahan 2007). Organisations could also leverage capabilities via functions such as effective resource sharing. As there are a large number of skills that procurement specialists are required to have, even the biggest groups that have the biggest numbers of workers have to ensure that they do not duplicate capabilities. For procurement teams that function globally through sophisticated organisational structures, this could be a real challenge (Tsai and Wang 2010). This means that procurement managers have to acquire ‘clienting skills’ that are necessary when allocating resources effectively, to state what is required from specialists in the procedure of overseeing work progress, and how best to act on what is learned every week. Procurement departments also have to react quickly when problems arise so that the unanticipated events do not impact the normal supply of products and services. Procurement leaders and managers can balance their responsibilities with the need to realise corporate objectives by observing certain rules. In the first place, they should create a regime for performance management which compels the staff to balance the delivery of corporate objectives with immediate help demands (Uyarra and Flanagan 2010). They could also endeavour to create a strong team made up of procurement leaders and managers who can influence other top managers and operators to embrace a given strategic agenda (Berger, Gerstenfeld, and Zeng 2004). Procurement managers could also seek to generate a strong plan which could be used to translate strategy into practical and usable steps, and then effectively make use of all existing specialist skills. The Importance of Procurement for Global Organisations Procurement plays a big role in the present global economy than it did a decade ago. Procurement officers are responsible for driving a global procurement strategy that pushes for corporate managers of different departments to work together in facilitating value creation incentives, and using global resources to attain supply chain objectives (Xia and Wu 2007). In the present business setting, there are global procurement councils created by multinational corporations to facilitate global networks of procurement operations. Global procurement councils serve as a forum for information exchange in order to make sure that the multinational corporation’s procurement knowledge and experience is relevant to local markets (Yue, Xia, and Tran 2010). In the past, procurement operations were virtually descriptive of purchasing operations. This is something that has been changed, to a large extent, as a result of globalisation. Today, most business organisations try to do away with functional siloism, by supporting cross-functional synchronisation by means of efficient support systems and clear responsibilities (Froystad 2010). This significant change in the role of procurement operations supports the notion of employees and managers using clear guidelines in the implementation of procurement activities. A competent procurement process should cater to the entire firm’s supply (Ruiz-Torres and Mahmoodi 2006). Procurement activities can be created to influence operations in every department of an organisation. For instance, in any organisation, the Business Process Outsourcing function in the manufacturing, logistics, HR, and IT departments needs for organisational workers to be competent in knowing how to acquire or procure an external solution by means of cross-functional effort while also over-seeing vendor performance and establishing the sustainability of the outsourcing solution’s value. Today, more and more procurement decisions are also being based on factors such as the impact of carbon footprints and the cost supply chain among other economic and social factors. Procurement leaders have to be proficient in different levels of management. In some organisations, the cross-functional understanding is the most important facet for the sustenance of interactive processes in the supply chain. All these functions, though, have to be coordinated with the re-training of procurement officers. For many organisations, having inexperienced procurement officers who have not been exposed to the workings of the global market is usually counter-productive (Pooler, Pooler, and Farney 2004). Procurement officers today have to trained in having characteristics such as extensive cross-functional experience and multicultural experience. In the global economy, procurement councils function as the key drivers and facilitators of long-term organisational strategies. Global sourcing has effectively become an economic and political agenda for multinational corporations. It is becoming more and more popular in the business world for supply chains to be linked with outsourcing programs. Moreover, supply chain executives have to be ready to evaluate opportunities from the perspective of marketable skills to determine what systems and procedures have to be in place for the effective deployment of an effective supply chain. Integrating Procurement Strategies with Corporate Objectives Today, many world-class business corporations are increasingly using procurement departments to fulfil corporate objectives such as encouraging innovative tendencies among suppliers, and overseeing the prevention of business risks. Procurement organisations are increasingly being identified as valid business partners and not just administrators or gatekeepers. These procurement organisations do not just facilitate purchasing processes, but they actually seek to fully understand what motivates purchasing decisions. This then makes it possible for them to repeal engineer costs and look into potentially high-quality operational alternatives. Procurement organisations can also aim to realise corporate objectives by creating strong business partnerships with important suppliers and cooperating with them to find ways of decreasing operational costs. Procurement departments can even generate unique and customised breakthrough solutions. Procurement departments or organisations could also work closely with other organisations with the aim of improving operational planning, and allowing budgeting periods to give predictive insights on subjects such as the reigning supply market (Kleinschmidt 2007). To accomplish this, the procurement firms have to have the necessary expertise and tools to translate information and statistics into usable knowledge. The capacity to be able to perceive spending information by suppliers on an international basis functions as an essential component of more predictive analytics. World class business organisations have reached their stature because they have access to a significant amount of data available on a regular basis. Procurement organisations and departments can hone on their information skills to such an extent that they are able to offer market intelligence, analytics, and benchmarking information on demand to major stakeholders. Furthermore, procurement organisations today tend to have risk management programs which are meant to guarantee regularity compliance and supply continuity (Burt, Petcavage, and Pinkerton 2011). They are efficient in the way they monitor business relationships with different corporate clients and then look into ways in which they can act in order to prevent unwanted risk from affecting the organisation. The Influence of the Present Global Economy The recent world wide recessions had severe effect on supply chains all over the world. High tech companies, in particular, were exposed to a lot of pressure as market volatility negatively affected the conventional supply chains which were comprised of raw-material procurements, production processes, and transport capacity. For supply chains in many nations, there was a very real forecasting challenge due to the decoupling from aspects such as the downstream consumption. The rising commodity value resulted in excess inventory stockpiles. This was followed by the postponing of orders in the hopes of settling on better deals after the commodity value fell. Supply chain managers also had to contend with the disappearance of established financing channels which left organisations desperate to get rid of inventory and decrease working capital in the hope of saving capital. To deal with such challenges effectively, organisations first have to ensure that they revise their decision-making processes so that supply chain decisions are made rapidly. This will benefit the organisation faced by volatile conditions in the global economy. In some organisations, this is accomplished by creating teams that comprise of managers from various departments such as procurement, logistics, and sales. These groups are important because they ensure that the organisation is not stalled by slowed decision making processes. For instance, when transport and raw material costs shift dramatically, organisations have to be ready to revisit the concept of trade-offs that comprise of optimal process yields or minimum batch sizes. Essentially, organisations have to make their production procedures far more flexible, and take into consideration the importance of changing production locations swiftly as shipping costs are altered. Conclusion It is also important for organisations’ procurement departments to have effective partnerships with key suppliers of their raw materials in order to ensure that market volatility does not negatively affect their survival. Such partnerships endure most when they involve the performance of simple operations such as ensuring that there is smooth communication between planners, and conducting forecasting procedures with major suppliers. Furthermore, making smaller orders on a faster than regular basis is another way through which a organisation can ensure that it remain unaffected by market volatility in terms of demand, as well as inventory levels. Organisations today have been given an opportunity by the unpredictable global market, in one sense. This is because they are in a position to make significant changes to their supply chains such as consolidating manufacturing networks, renegotiating contracts, consolidating distribution networks, and creating programs that pursue aggressive productivity. These are factors that would have been impossible to effect or accomplish in a stable market. A return to normal stabilised growth will automatically remove this window of opportunity to enhance or change supply chains. References Amid, A., Ghodsypour, S.H. & O’Brien, C. 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