BENEFITS OF PROCUREMENT IN BUSINESS

The Added Value Of Procurement: What Is the Added Value That Effective Procurement Activities Can Make to a Company or Organization?

Table of Contents

1. Introduction………………………………………………………………………………………………………1

1.1 What value . . . . business? ………………………………………………………2

1.1 Importance of procurement in business……………………………………3

1.2 Aligning with the organization………………………………………………………4

1.3 Key steps in the process of organizational design……8

1.3.1 Setting the mission, vision and principles………………………8

1.3.2 Designing procurement processes……………………………………………………8

1.3.2.1 Transactional processes…………………………………………………………………………9

1.3.2.2 Strategic processes……………………………………………………………………………………10

1.3.3 Who does what? ………………………………………………………………………………………………10

Finalizing organizational design………………………………………………………………11

2. Discussion and Analysis…………………………………………………………………………12

3. Conclusion……………………………………………………………………………………………………………12

The Added Value Of Procurement: What Is the Added Value That Effective Procurement Activities Can Make to a Company or Organization?

Introduction

Procurement is still a relatively young function. It is only in the last two or three decades that it has been recognized as a separate sphere of expertise in its own right and companies have created procurement functions. Inevitably, this means procurement operations vary widely from one organization to another. Its importance can be traced by 2003, when Microsoft has save $852 million in 20 months, by effectively using procurement techniques. (Arrowsmith 2003, Pp. 283-303)

This in turn raises the question: which ways of organizing procurement work best? In this study, what value effective procurement can add in a business would be defined, by producing examples that how procurement can add value in businesses.

1.1 What value an effective procurement function can add in business?

Effective purchasing is not just about price (short term) but about total cost of acquisition (long-term value).

Professional procurement teams that base their expertise on negotiation and transaction skills alone are not sufficient to implement an effective procurement approach.

Applying a strategic approach to a poorly purchased good or service generates a saving of between 20 per cent and 40 per cent in expenditure.

There is a clear correlation between purchasing effectiveness and relative market prices paid. Transactional purchasing leads to 102 per cent of market price while advanced techniques achieve 98.5 per cent - a saving of 3.5 per cent

Close relationships with suppliers restrict price rises to below market norms.

An effective purchasing strategy improves the quality of the supplier's service in terms of product, delivery; response times and customer service as well as price

These vary by sector and by business. The general level of value added is driven by the nature of the market and the business's position within it. The potential for improvement around this base is dependent on each business applying the right processes to bought-in goods and services. (Hayslette 2009, Pp. 6-7)

1.2 Importance of procurement in business

It is well understood why companies need defined product and service organizations when it comes to revenue generating activities. The ability to maximize revenue by adapting quickly and expertly to changes in the market is crucial. Income is the lifeblood of every commercial organization. But on the cost side of the business, the picture is much less clear. (Arrowsmith 2003, Pp. 283-303) Procurement, the function responsible for acquiring goods and services on behalf of the organization, has historically been paid far less attention than sales, marketing and ...