Table of Contents
3. Trends of procurement
3.1Reverse auction procurement
4. Challenges of procurement
5. Adding value to procurement
5.1Short term strategies
5.2Long term strategies
- 1. PROCUREMENT
Procurement is the identification of what is needed for the running of a given organization, accessing and determining which the best organization is or individual who can better supply the need in question then ensuring the need is delivered safely, to the right person and place and at the right timing, it is thus crucial for the running of an organization. Procurement policies of different organization and businesses differ. Procurement involves the identification of the wants of an organization wants and verifying the need for the project, assessing the options of the suppliers, then the process of communication and preparation for quotation. It also entails coming up with a procurement strategy which takes in consideration the cost, time and quality of the goods to be bought, setting policies for evaluation of the stated proposals then implementing them and finally delivering the required need. Compared to other department in an organization such as finance and accounting, procurement is an emerging field that is growing due to its influence in the running of and success of an organization (Injazz, Paulraj and Lado, 2004, 505-523). Procurement helps one to obtain cost effective prices for quality services especially in the government due to its wide scope of needs in health, education and infrastructure projects. It also encourages transparency in tendering and competition of the different parties. In the previous years procurement was seen as a self governing domain but on receiving support from the World Trade Organization it has been accepted in modern society. It has increased the access of market and distributors thus a benefit to the country and its economy.
A critical analysis on the role, the trends and the challenges of procurement in order to access its significance and future is of great importance. Procurement analysis is also important for negotiators, investors and government in undertaking their development projects. This essay does a critical analysis on the role, challenges and trends of procurement in the contemporary society and ways to improve procurement. This is because it has a big part to play in most expenditure in an organization According to Husted and Reinecke (2009) procurement in the public sector attribute to a third of the spending of a company or about 5 to 8 percent of the market value of the overall goods and services national wide
3. Trends of Procurement
3.1 Reverse auction
This is the most prominent trend of procurement though it was not perceived practicable earlier on and involves looking for suppliers. In this case the buyers create a list of the company’s needs for its projects. Buyers then invite vendors to give quotes on the cost of fulfilling the required needs on post listing of the requirements. On ending of the auction those buyers pick a winner considering his cost, time of delivery and the reputation of the vendor. This trend has helped manufacturers to restructure vendor selection and selection for the supplier of their projects as well. It has forced suppliers to find strategies to be competitive in terms of price, increased values of services and products, excess warranties, training among others. This trend has merits that include increasing business competition, speeding up the process of procurement and expanding the business. In spite of these merits reverse auction always chooses a vendor with the lowest bind and encourages the purchase of low quality goods.
3.2 Trade exchanges
This is another trend of procurement that works wells in industries where several companies in a particular industry create stipulations for their suppliers jointly. Large reputable suppliers are then allowed to participate in the vendor selection unlike reverse auction where there is no restriction for suppliers. This method is however more convenient for large industries that have ample needs.
3.3 Green procurement
This trend of procurement is the most recent and started in 2007 and involves the buying of environmental favorable services and products. In this case products that are not health and environmental hazards are purchased other than their contingencies which are harmful. Environmental impact of the products is analyzed from the time of manufacture, consumption and disposal. This has brought a need for the vendors to comply with the standards of the buyers and enhance the campaign against environmental pollution.
3.4 Vertical integration
This is a common trend that requires a company to purchase all its products from one specific vendor. In this case it helps to save on time and cost since there is trust between the supplier and the buyer. This method is discouraged since the possibility of purchasing poor quality goods and lack of exposure to new products is high. This is contrary to the outsourcing method that requires the buying of products from different buyers. This trend stipulates that specific products to be bought from a specific sellers so as to compare and contrast. This ensures that the vendors sell only eminent products and increases competition in terms of value (Satish and Inman, 2004, pp.710-718).
- 4. Challenges of Procurement
Though the procuring of goods is significant for the continuity of the company it is faced with several shortcomings. The lack of delivery of goods and services in time can occur leading to time wastage and at times ceasing of the company’s operation transiently. Lack of quality goods and services and high unreasonable prices causing the company to incur heavy losses can occur. Synchronizing of different procurement procedures are difficult to cope with especially when tenders to buy goods are split. Challenges of documenting of supply and delivery services made negotiation between price and quality and limitations in importing of supply have also dragged procurement behind. The challenges of imposing new policies especially in the public sector is a big problem thus encouraging corruption especially in the awarding of tenders and pricing negotiations. According to Simon and Hoekman (2003, 39-42) the government procurement procedures can not be immune to corrupt procurement but improving the procurement strategy would increase the welfare of their economy and also allow access and expansion of market. This further emphasizes on the need to improve transparency in our purchasing departments.
- 5. Benefits of Added Value Procurement
Procurement due to its nature of being able to influence the running of an organization should be improved to ensure a company’s transparency and financial accounting. To add value to the procurement procedures of any organization then its level must first be accessed in order to identify the area that require much attention. Adding value will benefit the departments present in an organization that send information on their needs, the suppliers and the procurement officers who strategize on how to deliver the goods and services. The benefits for added value procurement are categorized as both short term and long term benefits. According to Coakes and Young (2007) the benefits of improving the value of procurement include: a developing of an improved relationship with the suppliers, enhance great control of negotiations and increase in social networking due to sharing of procurement practises. This emphasizes the need to add value to procurement procedures.
5.1 Short Term Benefits
Procurement is significant in a company since it helps in prior planning of acquisitions and purchases to be made during budgeting. This increases the control of finances in an organization. It helps in ensuring the products and services purchased are required. It also helps in prior analysis of potential sellers of company requirements and ensure continued running of the company. In choosing the best sellers you get quality products at fair prices. Procurement helps to identify and monitor contracts issued by the company, when they expire and if they should be renewed. Procurement ensures good governance of a company and safeguards lack of compliance by suppliers in terms of pricing, service and quality. It also set standards on the methods used in purchasing of goods and allow specific company department to prepare their needs in advance. Procurement helps to comply with the finance department to ensure only the required goods are bought, delivered to the right users and at the right timing.
To improve procurement communication both verbal and written has been improved during procurement procedures. This has helped to create good relations with the vendors and enhance negotiations skills of procurement officers. Listening has also helped to improve procurement since it helps you learn and analyze your partners based on what they say and how reliable they are. On mingling with other organization and agencies talking to them frankly has added value to skills of procurement by emulating the exemplary skills of procurement from successful organizations with such a department. Cooperation benefits you as a team leader allowing one to participate in organizational activities, it has built good relations with other departments in your organization so that it can enhance good communication and foster development of the company. Time control and management in procurement activities has helped to ensure in time delivery of services and prior planning of the suppliers without any haste. This has caused the company to save a lot not only on time but also on the quality and resources of the company.
Procurement has helped to stream line the purchasing of products to ensure full control and remove any roadblocks that cause inconveniencies in delivery process. Professional development entailing being good at what you do has been enhanced by procurement officers causing improved efficiency in their work, good procurement activities has bettered other departments through training to acquire knowledge on how to liaise with the department by prior informing them to improve organization efficiency. According to Wiltshire (2007) in a seminar on public procurement stated that improved procurement had increased equality in trade and organization, environmental management such as using the Green procurement strategy ahs been embraced, transparent trade and decent methods of purchasing which have improved the organization operations at large has been achieved. The adding of value to procurement has enhanced the performance of this department in any organization, has ensured proper interaction of this department with other related department, has helped to access correct information required for successful purchases and sales (Procurement Head Reveals Keys to Achieve World-Class Status, 2005, 1-4).
5.2 Long Term Benefits
These are every day activities basic to accompany that has had an efficient running procurement department. It has developed a customer focused operation since without them there is no value for procurement. This has enhanced business expansion and enhanced good communication and negotiations with customers to result to enhance purchasing of quality products for reasonable prices. Developing a value added mindset has helped procurement officers to hunt for upcoming opportunities, novelty on new trends of procurement, allowed gaining on the use of the technology available such as internet to reach quality services and qualified suppliers. This is according to the arguments made by Smyth (2005, 33-44) who describes these practices as on going and essential for transparent procurement. Soliciting always in advance to know the requirements of a company and their priority has been achieved through good procurement practices. Added value has also benefitted the faithful suppliers who are often awarded for their good work; it has given the officers knowledge on negotiations other than just turning down proposals from other departments. Further it has helped the personnel concerned to be experts in the field of procurement and become role models which other organizations can emulate. It has ensured transparent administration of contracts making sure their time of issue and closure is clearly defined and that they are only given to people who qualify for them. Procurement has also motivated employees of an organization by ensuring they have well they require to work with and are paid their dues on time.
Improved procurement has seen the introduction of a new software for such transactions that has a programmed bid assent, computerized cost negotiations and has made the purchasing department to realize a lot of savings. This software is however limited to those people with knowledge of both the purchasing and the computer skills. This has given the procurement officers room to analyze there expenditure and relate it to their goals. It also gives a clue of the average prices of goods which you want to purchase and understand the dynamics in the market thus avoid underrating or overrating the budget. It has helped them determine the tactic to use to purchase your goods. For large procurement process an automated system has proved more professional in pricing than doing it manually thus the ability to locate qualified suppliers has been made easier. Purchasing and supply professionals have come up with new strategies of negotiations, accounting, distribution, transport and other operations. According to Husted and Reinecke (2009) the impact of improving procurement has had a big effect on purchasing projects. They claim that the organization they work for which is Mckinsey has supported about 500 private and public companies and has seen clients having a 15-28 percent savings in their transactions thus minimizing expenses. This further explains that improved procurement is very beneficial to a company.
For proper procedures of procurement time management and transparency must be maintained as the key virtues of any undertakings. To overcome the challenges faced by and purchasing department the three key elements of procurement: the request for information, proposal and quotation have to be made on time so as to enhance quick processing and in time delivery of goods and services. On the issue of cost it should be noted it is imprudent to pay much but it is worse to pay little since with paying much possibility is you will loose less but with paying little you would end up losing everything. Thus people in the procurement department are encouraged on the need to embrace new technologies in procurement and to take care when doing there transactions. The benefits of good procurement activities can be summarized as improved relationship with suppliers and vendors, from whom you buy needs, a great control of negotiations and also an increased social network for the company.
Coakes, E. andYoung, N. 2007. Journal of Knowledge Management Practice: Transformation Procurement in the Immigration Directorate. Volume 8, issue 1. University of Westminster.
Injazz J. , Paulraj, A. and Lado, A. 2004. Strategic Purchasing, Supply Management, and Firm Performance: Journal of Operations Management 22.
Evenett, Simon and Hoekman. 2003. Transparency in Procurement Regimes and
Market Access: What can we expect from international trade agreements? in
Arrowsmith and Trybus.
Husted, C. and Reinecke, N. 2009.Improving the Public Sector Purchasing. Mckinsey and Company.
Mehra, Satish and Inman. 2004. Purchasing Management and Business Competitiveness in the Coming Decade: Production Planning and Control Volume 15, issue no. 7.
Procurement Head Reveals Keys to Achieve World-Class Status. Supplier Selection and Management. 2005. Report 5, no. 2.
Smyth, H. 2005. Procurement push and marketing pull in supply chain management: The conceptual contribution of relationship marketing as a driver in project financial performance. Journal of Financial Management of Property and Construction, Volume 10, Issue 1, London, UK.