The justification of the resources required for the Procurement Function to operate effectively and efficiently depends on a number of factors, Ronald Mlalazi (MCIPS), Ed ucation Manager at Commerce Edge Academy, tells SmartProcurement.
In his 8th article for SmartProcurement’s World-Class Procurement Practice series, Mlalazi discusses how Procurement professionals can add value and improve supply chain performance in their organisations and lead to improved bottom-line and sustainable profitability only if they have the resources and mandate to do this.
The series is based on Chartered Institute of Purchasing & Supply (CIPS) unit content and on recent research done by Commerce Edge Academy. This month’s article is based on Level 5, Unit 3, ‘Improving Supply Chain Performance ’.
“Procurement cuts across the whole organisation (‘a product well bought is half sold’). It has a direct impact on the overall performance of the organisation. Therefore, first and foremost, its resources should correspond to the importance of its activities,” says Mlalazi.
Procurement’s core objectives alone justify its existence:
• Conserving an organisation’s profitability and enhancing shareholder value through a judicious supply chain management approach.
• Maintaining continuity of supply, regardless of supply constraints and risks.
• Continually searching the market for opportunities that will drive down costs.
• Analysing and reporting on long-term materials availability and costs.
• Procuring materials or services at the lowest total cost possible, without compromising on quality.
• Maintaining a sustainable inventory investment.
However, to continuously meet and exceed these objectives as market conditions change, Procurement will need a strong system of resources, says Mlalazi.
In most instances, the output needs to justify the input. Where there is greater visibility of Procurement with clearly defined objectives, the challenges associated with resource allocation will be less confrontational.
Usually, an organisation’s biggest spend is Procuring, whilst at the same time the Procurement Function is not given the right attention. Organisations miss the opportunity to reach their profit potential and in-turn experience strategic drift. In organisations, Procurement may be delegated, along with budgetary control, to staff or managers who may be full-time or only part-time Procurement people.
Managers may have Procurement responsibilities as part of other roles or they may have moved into Procurement from other disciplines.
Some of the resources needed by Procurement can be classified into:
• Physical, which includes offices, office equipment and vehicles.
• Human, which includes appropriately and adequately trained personnel with the necessary skills to carry out their responsibilities.
• Financial, which includes the budget allocation.
The factors influencing the allocation of resources to Procurement:
• Top management’s perception of Procurement as strategic, tactical or operational.
• Top management’s representation of the Procurement Function, usually at board level.
• Other departments’ perceptions of Procurement, as either adding value or policing their activities and stalling progress.
• Level of tasks, responsibility and authority.
• The organisational structure.
If Procurement fails to deliver value or does not rise to expectation and is consequently not afforded the right resources, then, says Mlalazi, the next question is: Are supply chain aspects represented fully (or at all) at executive committee level during strategic sessions, or do they appear at the end of the agenda where they are not given due attention?
In order to improve supply chain performance, there are a number of tools and techniques that Procurement Professionals can adopt and customise to their operations. However, each requires sufficient and appropriate resources to achieve corporate objectives. Consider the following list
• Positioning of the Purchasing department within the organisation.
• Aligning Procurement activities with business objectives.
• Supplier management and establishing key performance indicators.
• Selecting and sustaining effective suppliers and developing supplier relationships.
• Understanding the impact of organisational structure to supply chain strategy.