Procurement Best Practices for Medium-Sized Organizations in Construction Industry

Project Management -Procurement

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Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................4
Building best practices in medium sized organization...........................................................4
Best practices of procurement to be introduced in the medium-sized organization...............7
Other factors that affect best practices in procurement........................................................10
Key Performance Indicators.................................................................................................13
Procurement Process................................................................................................................14
Conclusion................................................................................................................................18
References................................................................................................................................18

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Introduction
Procurement can be explained as management and acquisition (not limited to) of resources
that includes buildings, materials, land, food, water, energy, equipments, transport,
outsourced services, tools, software, machineries and waste (Drucker, 2012). Its major
activity is called as sourcing. It helps in creating value for customers, identifying new
products and market possibilities, brings innovation for organizations. Sourcing in the
procurement is a systematic process which directs supply and purchasing managers to
develop, plan, and manage the supply base in alignment with the strategic objectives of the
organization (Ball, 2005).
Traditionally companies treat procurement as the process of fulfilling supplying needs of
required services and goods. But it is more detailed process and involves management of
spending categories, and relationship with key suppliers. Procurement even helps in
development of enhanced capabilities, cost management, and hence maintain and directs
overall competitive advantage of the organization. A new approach is required in this process
for supplying and building skills. Training programs should focus more upon polishing these
skills so as to hone advanced capabilities that involve strategic value of spending areas that
are critical (Tevelson et al., 2013).
In general, the purchasing function and the task of managing the whole process of purchasing
the required resources and materials has become majorly important for all big, medium, and
small organizations because of the fact that competitive is increasing day by day in the
business (Furlotti, 2014).
Following procurement best practices is a rapid and continuous movement and also acts as a
benchmark. It involves organization to measure itself against other organizations which are
best in class (Kilonzo, 2012). In order to manage supplies a lot of best practices categories are
identified across many organizations which are high performing. A lot of such characteristics

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are there like commitment to TQM (Total Quality Management), commitment to Total Cycle
Time Reduction, commitment to JIT (Just in Time), supplier relationships, long range
strategic plans, training and professional development, service excellence, leadership and
management, strategic cost management, learning, and corporate social responsibility (Agus,
2011).
I am writing this report as first Chief Procurement Officer of my company that is a medium
sized construction company. Currently there are no policies or procedure is there for
procurement in the company. Each employee is ordering and procuring the resources as and
when required as per their understanding. In this report the need and way of introducing best
practices for procurement in the organization is discussed. Importance of introducing best
practices procurement in Construction Company and best practice in Construction Company
is explained. Major best practices required to be followed in construction company is been
explained in detail along with the factor affecting these practices. Some key performance
indicators are also explained.
Discussion
Building best practices in medium sized organization
Most of the time it has been seen traditionally, that the top management of medium and
small-sized companies fail to notice the critical need to incorporate best practices in
procurement into their operations, because they think that they have inadequate resources for
this kind of deployment in the organization (O’Reilly, 2008). Although there may be some
limitations in relation to such kind resources like budgets, staffing, and systems, there should
never be any lacking when it is related to the strategic planning in order to make purchasing
organization of a company the best it could be. Best practices in procurement are equally

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important to be deployed in medium sized organization as that of large organizations (Navas-
Alemán & Guerrero, 2016).
While discussing about best practices in procurement, there is a critically essential factor
needed to be discussed. This factor explains that no two organizations are exactly same and
no approach is available like a simple cookie cutter, for best practices in procurement. It can
be explained by an example that says there is one company that is involved in manufacturing
a basic product of commodity and another company that is involved in making high
technology products (AT Kearney, 2012).
Best procurement practice for first company is to employ a strategy for supply management
that focuses on low cost, and for second company such supply strategy will be introduced that
focuses speed to market and development of the technology (Molenaar et al., 2015). When it
is about supply, every organization has their unique set of weaknesses and strengths. Every
organization captures different places while they are serving same market. Best supply
strategy is determined by the management of the organization, it will direct the best areas to
be targeted in order to develop and use best procurement practices effectively (KPMG, 2016).
It is also important to understand that the strategies cannot be just simple copied by the
organization always. Best procurement practices majorly depend on suppliers, processes,
people or other elements of the business that are particular to some specific situation. All
these facts should be kept in mind by the organization during the research, which are
assessing the best procurement practices of other organizations (ETI, 2010).
At the time of assessing the differences which are always present from one organization to
another, some factors are there that always or usually exist while the successful deployment
or development of one or more best procurement practices by an organization. Following are
those factors:

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 Active support from company’s top management
 Deep cost driver understanding
 Cooperative supplier relations
 Culture of continuous improvement
 Cross-functional approach
 Advanced Communications Technology Appreciation
 Investment in procurement/supply management
It should not be considered that these factors will act as elements that automatically will
result in best practices development in procurement/supply management. But it is very much
difficult for anyone to find a company that has attained best procurement practices but lacks
in exhibiting all of the above mentioned characteristics. If there is involvement of CEO in all
the daily management and operations in procurement, it cannot be understood as support
(Fitzgerald, 2015).
For the owners of small and medium sized firms, a lot of other responsibilities like financing,
staffing, marketing, inventory management, customer support etc. consume most of their time
and efforts. This is the reason the procurement and supply management processes take a back
seat instead of planning it strategically. Approximately 65% to 45% of the sales revenue is
spent on procurement of the inputs by small and medium sized companies. This makes it a
necessity to consider procurement and its management as an important approach to improve
efficiency and reduce costs (Ott, 2016).
There exist some strategies of procurement that must be followed by the medium and small
sized companies to improve their procurement efforts and help in their businesses at any level
of procurement. These strategies can be named as leveraging the technology and
technological innovations, maintaining and building strategic partnerships to achieve strong
and improved supplier relations, improving internal process of procurement by change in