Benefits Of Effective Purchase And Supply Chain

Published Date: 02 Nov 2017

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Table of Contents

INTRODUCTION

To survive in today's competitive world every operation of business needs to be planned and managed. Sustainable purchase and supply chain management has been recognized as an important and crucial component of modern day business. It helps business to increase its competitiveness and profitability in the market.

PROCUREMENT

The process of identifying and acquiring the right quality goods and services at right price and time to execute the business operation most efficiently may be defined as Procurement. It includes managing the whole supply chain from contracts, purchasing and logistics. Effective procurement process enables an organization to reduce operation cost, maintain the quality and manage the risk level to its supply chain e.g. the Just in time method for inventory control enables the managers to keep the inventory cost to minimum and increase the cash flow of business

The steps in procurement process are:

Planning the purchase

Determination of standards

Development of specification

Supplier research and selection

Value analysis

financing

negotiation

purchasing

administration of supply contract

inventory control and management

disposal and other related function

Procurement may be further classified as:

Direct procurement - Purchases that are directly related to manufacturing process and are part of the finished product

Indirect procurement - Purchases that are not related to manufacturing process but enables the operations of business. Thus it relates to procurement of operating resources

The concept of sustainable procurement has made its place in modern day business. Procurement is called sustainable when business operations integrate its financial goal with environmental and social goal. Sustainable procurement builds international community commitments along with safeguarding company's reputational risk of exploitation or environmental damage to the supply chain. It helps company to present innovative production of cleaner and ethical products.

References

http://www.articlesfactory.com/articles/business/find-out-more-about-procurement.html

https://www.ungm.org/sustainableprocurement/

http://businesscasestudies.co.uk/opito/the-importance-of-sustainable-purchasing-and-supply/introduction.html

http://www.slideshare.net/barvie/the-role-of-procurement

BENEFITS OF EFFECTIVE PURCHASE AND SUPPLY CHAIN

Add Value to the business - Managing a proper procurement process helps the managers to identify ways to improve efficiencies and opportunities to improve quality of products and services bought. The knowledge of external environment, marketplace and impact of products bought on business process helps them to generate new ideas to add value to the business. It enables them to identify ways to increase competitive advantage and improve sustainability of business.

Supports Innovation - Researching new suppliers in new markets and developing new methods of procurement improving effectiveness of business is one of the focus areas of effective purchase and supply chain. This not only supports innovation in procurement process but also helps to make new and better quality finished product.

Risk Management - Operational, financial and reputational risks of business is managed by effective procurement process. Supply disruptions creating operational risk, instability in market creates financial risk and questionable supply practices exposing to reputational risk are taken care by Procurement managers by entering into long term contract and maintaining good supplier relationship.

Achieve Customer Satisfaction - Ability to purchase the required quality raw materials and services at right time and price enables organization to provide customers standard end product at competitive price thus satisfying customers. Also helps to be more flexible as to adjust changing demands of customers.

Gain Competitive Advantage - Researching and locating new suppliers and good contractual relationship with suppliers helps business to enjoy competitive advantage

Enables to choose cost efficient method - Managers are open to various option for carrying operations of business and selecting the most efficient option gives an edge to the business e.g. to decide on whether to rent or own an oil platform the manager will compare between the costs involved in paying rent and for repairs and maintenance it will incur in rental period with cost of buying it and benefit company will enjoy from buying the asset also considering the issues costs of maintenance and ultimately, disposal of the asset. Purchasing managers work with operational managers to consider these issues and find the most cost-effective and efficient solution for the business.

Is boon to face emergencies - Effective procurement management enables quick response to emergencies. Identified supply sources helps to meet the requirements in need e.g. in case of the Deepwater Horizon oil spill in the Gulf of Mexico in 2010.The procurement team had to source mealworms to feed wounded birds, booms to prevent further oil spread, dispersant materials for removing oil. The challenge was to find sufficiently large quantities of supplies urgently keepin the budgets under control

Create organization image - Achieving entity objective along with social and environmental objective enhances company image to the society and helps to create trust for the company by society.

References

www.businesscasestudies.co.uk

https://mcgrawhill.com

http://goxi.org/profiles/blogs/the-benefits-of-effective

IMPORTANCE OF PURCHASER AND SUPPLIER RELATIONSHIP

Mutual relationship between purchaser and supplier based on trust, communication, interpersonal relationship, cooperation and power dependence brings potential benefits to both the parties.

IMPORTANCE OF MUTUAL RELATIONSHIP TO THE PURCHASER

Market Knowledge - Suppliers often are updated with the local market trends and new technologies and are source of information to the purchaser to improve the end product as per the need of market

Meeting and maintaining purchaser budget - Contractual relationship with suppliers enables suppliers to enjoy discount benefits and also price stability for the products and services purchased which helps the managers to keep the budgets under control

Purchaser satisfaction - Trust of getting quality product at competitive price and in time of requirement leads to purchaser satisfaction

Customer satisfaction - Purchaser is able to satisfy customer needs as quality inputs results to quality finished product. Reliable supplier is one of the important key to achieve the goal of customer satisfaction

Competitive advantage - Purchaser enjoys the competitive edge on maintaining a good and long term relationship with suppliers as they enjoy better prices, delivery times, increased opportunities to consider and implement innovative practices

IMPORTANCE OF MUTUAL RELATIONSHIP TO THE SUPPLIER

Lower risks related to non-payment and acceptance of order - Entering into a contractual relationship with the supplier assures risk minimization related to nonpayment and risk of cancellation of order

Guaranteed order flow - Assurance of getting minimum order at regular intervals is a benefit of entering into a relationship with the purchaser

Lower overhead costs, less paperwork are other benefits

Well defined payment terms without fails and frauds

More accurate business forecasts through long term agreements

References

http://definitions.uslegal.com/s/supplier-relations/

www.businesscasestudies.co.uk

www.feb.ugent.be

COMPETITIVE ADVANTAGE

The advantage company enjoys over its competitors due to its cost structure, market offerings, distribution model, network and customer support model is known as competitive advantage. Thus it is an ability of a company to generate greater sales or margins and retain more customers than its competitors. It generates more value for the firm and its shareholders. The more the competitive advantage company enjoys the harder it is for the competitors to lessen the advantage gap.

Competitive advantages is categorized as:

Comparative advantage or cost advantage achieved by firms ability to sell its product at lower cost than its competitors without compromising on quality or by generating larger margin on sales

Differential advantage achieved by presenting its products and services unique and better from its competitors

Competitive advantage involves enjoying the economics of a firm's business by focusing on ability to generate excess returns on capital and links the business strategy with fundamental finance and capital markets, for a longer period of time.

Firm's competitive advantage allows it to earn excess returns for its shareholders. Without a competitive advantage, a firm has limited economic reason to exist.

Creating a sustainable competitive advantage may be the most significant goal of any organization and may be the most significant single attribute on which each firm must place its most focus.

References

http://www.computerbusinessresearch.com/Home/business-information-systems/competitive-advantage

http://www.investopedia.com/terms/c/competitive_advantage.asp

http://www.strategy-train.eu/index.php?id=38

RELIABLE SUPPLIER AND COMPETITIVE ADVANTAGE

Suppliers play an important role in attaining the goal of Competitive advantage for a firm.

Cost advantage is achieved by providing the product and services at a price lower than competitors. Getting Low cost raw materials without compromising on quality is one of the important factor that enables company to provide finished product or services at a competitive price. Thus selection of a reliable who provides quality product at competitive price is very significant

To survive in modern competition adapting to market needs, product innovation , access to latest technology has proven its importance and good supplier relationship helps the company to achieve the same

Differential competitive advantage may be achieved by satisfying customer needs which is done by providing them with quality products at better price and at the time of requirement. Suppliers plays an important role in this as quality inputs results in quality finished goods and services. Improved time on delivery, paperless order processing works, accurate order deliveries, improved cycle times and improved product process by the supplier helps the firm to achieve its competitive advantage.

References

www.actacommercii.co.za

CONCLUSION

Sustainable purchasing and supply is essential to any organization wishing to capture and create intellectual capital and, thereby, increase the competitiveness and profitability of their supply chain. Supplier plays significant role in achieving firm's profitable goals along with national goals that includes social and environment betterment objectives. The supply chain competitiveness and profitability is only achieved by recognizing supplier relationships as a rich source of current and potential intellectual capital which is constantly valued, invested in and managed to get the benefits of increased profitability and strategic competitive position.