Purchasing and Supply Management: A Key to Competitive Advantage
Purchasing and supply management is an essential function of any business. Regardless of the size of the business, or the product are service that they offer, every business depends on some type of supply in order to produce goods or services. If supplies do not arrive on time, the business could be it a standstill. This not only means lost money and lost time, but it also means angry customers and potentially lost business. This research will support the thesis that purchasing and supply management play a significant role in customer relations and maintaining competitive advantage.
Definition of Purchasing and Supply Management
Purchasing and supply management means placing attention on the procedures and policies of the organization in the acquisition of goods with which to produce their products. According to Johnson, Leenders, & Flynn (2010), many academics are only concerned with the purchasing processes of buying. They do not concern themselves with the processes involved with the strategic side of the process. Purchasing and supply do more than simply fill purchase orders as directed by others in the organization. They must actively seek to find a need within the organization, find appropriate suppliers, and negotiate a price. There are many considerations in the purchasing process. In an earlier edition, the authors defined purchasing and supply management in the following manner,
"Purchasing, supply management, and procurement are used interchangeably to refer to the integration of related functions to provide effective and efficient materials and services to the organization" (Leenders, Johnson, Flynn, and Fearson, 2006).
As one can see, the role of purchasing and supply management goes far beyond pushing paperwork and filling orders. Purchasing and supply managers now play a vital role in the profitability of the organization. The work of the supply manager has a definitive impact on the success and grown of the organization. The supply manager must do more than to make certain that supplies arrive on time and within budget.
Importance of Supply Management to the Business
Purchasing and supply management are not one of the most noticeable functions of the organization. It is easy to take purchasing and supply management for granted. That is, until something goes wrong, then the functions of purchasing and supply management suddenly are at the top of everyone's list of importance. If the supplies needed to operate the business are not in place, products do not get made, customers do not get served, and the business can literally come to a halt. Although it is one of the least noticed functions of the business, it is also one of the most important. Without purchasing and supply, none of the rest of the departments within the organization could function at all.
According to Johnson, Leenders, & Flynn (2010), the contributions of purchasing and supply management can be divided into several different categories. Their functions can be operational vs. strategic. Operational refers to the day-to-day transactions and functions associated with the purchasing process. However, the strategic side of supply is what places purchasing and supply management as of the functions that create value within the organization. Their constant search to lower costs helps the organization use their resources more efficiently, thus improving their revenues and retained profits. Purchasing and supply can also be a part of the risk management strategy by ensuring that the company has the resources that it will need in the future.
Supply management makes both direct and indirect contributions to the organization. Johnson & Associates consider the profit-leverage affect and the return on assets affect be a direct contribution to the organization that can be measured. Supply management is intimately associated with financial management functions of the organization. Supply management cannot be separated from the vital financial decisions within the organization. The efficiency with which supply management operates has a direct effect on the present and future financial health of the organization. By this direct association, the importance of supply management becomes a value creating function, rather than a passive function.
Johnson & Associates found several indirect contributions of supply management. They have an affect on the overall efficiency of other departments by the ability to identify their needs and have and what they need available for them on time. They are an excellent information source because they must be in touch with the web of suppliers and others outside of the organization. They may be able to foresee changes in other related fields that may have an impact on the organization long before it does. Their connection with others outside of the organization gives them insights that can help to reduce risks and take advantage of opportunities because they know about them long in advance. These are only a few examples of the indirect effects of supply management on the organization.
Steps in the Creation of Project Supply, Service, and Material Budget
Although procedures within organizations differ, the steps to creating supply for certain project or service, and for creating a material budget are the same in many organizations. Following a stepwise procedure is the best way to ensure that all of the details are attended to properly. Supply management should be included in the project planning process from the very beginning of a project. The supply manager needs to know what materials will be needed and at what specific time in the project. Failure to have the supplies in place could mean a major delay in project completion. This could have a serious impact on the reputation of the company and their ability to obtain future contracts and work.
Typically, the project itself does not arise in supply management. They are created in other departments and supply management is told about them as an afterthought. The concept comes long before the actual planning of the project. Supply management is often consulted later in the planning process rather than in the early stages. However, this is not the best practice. The first responsibility of the supply manager is to make certain that the project can be done at all, from a supply side. There may be problems obtaining materials, or a lack of suppliers for certain materials. Some materials may have to be shipped from overseas and there may be import restrictions. The list of things that could go wrong and prevent the project from happening at all are too numerous to name. A project manager should consult supply manager before they agree to any project, but in reality this is not the way businesses operate. It is assumed that the supply manager will be able to get the parts and components needed when they are needed.
The second step in the project supply process is to communicate the needs to the organization in a manner that will make it seem "doable." If the project seems too expensive or too large from the beginning, management may not approve it. The supply manager must act as an intermediary between those that wish to do the project and upper management to obtain funding for the project. They must convince management on behalf of the project originators that the project is worthwhile, will create value, and is worth the cost.
Only after these two steps are complete, can the supply manager move onto the third step. This is a step or they actually begin locating suppliers and sources for needed materials. They must find suppliers that are dependable, affordable, and that they have a product that is of the qualities needed for the specific project. This can be a difficult task and the supplier must do all of this, while maintaining good relationships with existing suppliers. Once they have all of the potential suppliers located, they must then go about the process of selecting those that will be used for the project. There are many small steps in this part of the supply process. They must arrange receiving, scheduling, inspection, storage, payment, transport, and all other logistical functions necessary. In all of these steps, the supply manager must make certain that they meet the goals of the project and the organization. They must also plan for any anticipated or unanticipated problems that might occur.
Selecting the Right Suppliers and Negotiating Price
Selecting the right suppliers is only one small step in the procurement process. There are many important considerations, other than just price that must be considered when hiring suppliers. This is one of the most difficult jobs for suppliers in today's marketplace. It is easy for a supplier to make themselves look good or sound good, but in the end the question is if they actually deliver the goods according to the agreed term of service. Finding new suppliers is time consuming. It is wise to have more than one supplier for any certain component that is needed. If the first one falls through, even though the second choice may not be optimal, they may be a better alternative than not it all. Having a backup is an…