Understanding Benefits and Drawbacks of implementing a global procurement programme within Bank of Tokyo Mitsubishi UFJ

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TABLE OF CONTENTS

CHAPTER NO 2: LITERATURE REVIEW1

Introduction1

Procurement within organisations1

Global Procurement3

Global procurement strategy5

Drivers for a global programme between global procurement7

Benefits to Global Procurement programme10

Drawbacks to Global Procurement programme13

Strategy Evaluation17

Summary18

REFERENCES19

CHAPTER NO 2: LITERATURE REVIEW

Introduction

This chapter discusses the theories behind global procurement and the need for the organisation to consider procurement as a strategic function within the organisation. If an organisation sees the procurement function as a supporting role, then it may not be included in the vision for the organisation. The literature review firstly discusses the concept of global procurement; also discusses procurement within organizations, benefits and drawbacks which may be considered when implementing a global procurement programme. The chapter also considers how procurement fits strategically within an organisation and how procurement strategies should be aligned to corporate strategies if procurement is to show the organisation what value they can add which is important to understand the potential benefits or drawbacks of implementing a global procurement programme within Bank of Tokyo-Mitsubishi UFJ, Japanese Bank with offices located globally.

Procurement within organisations

Most organisations recognise there may be a need to centralise procurement to drive a global strategy. However, less centralisation allows innovation and greater communication between departments (Torrington and Weightman 1994). It can be seen that larger organisations decentralise operations due to size, age and culture. Bhargava and Kelkar (2001) claim that centralisation may lead the workforce to be less empowered in decision making thus leading to a de motivated workforce. However, it could be argued that this would only be for the short term and if there were advantages to centralising the procurement function the workforce would recognise this and embrace the changes. Also, those staff could work with the procurement team to bring different areas of technical expertise. Centralising procurement in a multi divisional organisation can bring some advantages. A central group will manage those activities that provide advantages to the whole organisation. Some people may argue that, by centralising purchasing, it adds another step to the decision making process. However, today's technology allows organisations to identify common purchased items between divisions or business units and looks for centrally coordinated purchases. Another reason for centralising procurement may be to reduce duplication of purchasing effort across the organisation. It is recognised that some business units may source more than other units thus suppliers give better pricing to those business units that purchase more.

By combining all purchases there is the ability to obtain even better pricing from suppliers. Furthermore, by centralising the procurement function there is more opportunity to implement a coordinated procurement strategy. Centralised purchasing enables an organisation to leverage its buying power. Consolidation of purchases enables an organisation to negotiate quantity discounts. Also, suppliers dealing with a centralised team will recognise there is a benefit to becoming a preferred supplier thus they would be incentivised to reach this status. Centralising procurement also ensures that the correct, professional team is employed rather than a diversified team across the ...