Strategic Procurement Management Report - Summer 2019 Coursework

This report provides a comprehensive analysis of strategic procurement management within contemporary organizations operating globally. It begins with a discussion of the background of procurement, differentiating between the roles of procurement professionals and the evolution of procurement practices. The report then delves into the distinctions between tactical and strategic procurement, highlighting the advantages and limitations of each. A significant portion is dedicated to exploring the strategic role of the purchasing function within organizations, including needs and supplier analysis, awarding supplier contracts, compliance and quality control, and inventory control. Furthermore, the report examines various sourcing options available to managers and assesses the criteria that influence their suitability. The report also analyzes factors affecting procurement management and leadership, concluding with recommendations and a summary of the key findings. This analysis is crucial for understanding how procurement impacts an organization's long-term strategic planning and choices.

Running head: PROCUREMENT MANAGEMENT
Procurement Management
Name of the Student:
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Table of Contents
1. Introduction.........................................................................................................................2
2. Discussion...........................................................................................................................2
2.1. Background..................................................................................................................2
2.2. Role of procurement professional...............................................................................3
2.3. Strategic Procurement.................................................................................................3
2.4. Strategic role of purchasing function within the organisations...................................4
2.5. Sourcing options available to managers and understand the criteria that affect their
suitability................................................................................................................................7
2.6. Factors affecting procurement management and leadership.......................................8
3. Recommendations.............................................................................................................10
4. Conclusion........................................................................................................................10
References:...............................................................................................................................12

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1. Introduction
Procurement has never played such an important role like it is playing in this
transition of current global economy (Chimni 2017). It has changes fundamentally itself in
the last decade. The concept of strategic procurement means completely different things in
different sectors and industries. Pursuit of individuals for the bottom line improvement would
notably influence the way in which the businessmen conduct their businesses in the local
market, the return that they generate from their ROI investment and the efficiency that they
deliver through the supply chain. This paper shall elaborate on presenting a critical review
and discussion on the role of strategic procurement in the contemporary organisations with
the global operations.
2. Discussion
2.1. Background
There are two sides of the coin when it comes to the notion of procurement management.
Firstly, on one side, there is the professional who is involved in all the procurement related
decisions, right from the first meeting to the last one. On the other side is the procurement as
“buyers” who are seen as the one playing clerical role with very little or absolutely no
involvement before or after the actual purchase. According to Landy and Conte (2016), “the
movement of the procurement staff to the more professional end of the scale has long been
predicted by the industry”. Here the question arises that has there been such change in the
procurement culture? Is procurement strategic yet or is it still in progress? It is indeed a great
question to take into consideration in the present economy. There is a considerable “noise”
regarding change in the market today. However, the reality is that majority of the people and
departments are too busy to change.

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2.2. Role of procurement professional
It is to note that procurement refers to the process of finding out and agreeing to the terms
and attaining goods, works and services from the external source, often through a competitive
or tendering bidding process. Tay et al. (2015) has defined procurement as the process of
getting supplies, the process by which a firm buys the products and services that it needs
from the other companies. However, it is to note that some of the highly successful
companies often look at their CPOs (Chief Procurement Officers) as the ones to drive
proactively the global procurement strategy, sharing the duties and responsibilities with the
CFOs and COOs on the initiatives of value creation and deploying the global resources for
attaining the final supply chain targets. They are known as procurement professionals. They
are responsible of buying the activity of the business or the organisation. Their primary role is
to buy the goods and services for bringing out the best possible combination of price, service
and quality. It is also to mention that there are a total of three levels of procurement
professionals and they are- a) buyers, b) procurement officers and c) managers (Schapper,
Malta and Gilbert 2017). Buyer is an entry-level procurement professionals and he or she is
responsible of execution of purchasing contracts, issuing the buying orders and reviewing
change requests. Procurement officers are the most common types of procurement
professional. They manages the auctions, complex procurement transactions, tenders and
bidding. Some of the procurement officers are responsible of contract negotiation, issue of
large purchase orders and vendor management.
2.3. Strategic Procurement
It is to note that there are a total of two types of procurement and they are tactical and
strategic. Tactical procurement refers to the plan that is for short time goal. It is basically
used for achieving the short time strategic goal of a company. Here, the short term goals refer
to the goals that a company plans to attain within short period of time, i.e., a year or lesser.

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There are many merits of tactical procurement such as it helps in cost reduction and while
doing so, it increases the efficiency of the firm. Furthermore, it also helps in increasing the
profitability while achieving the short term business goals, which are quite necessary to meet
the long term goals of the company. However, there are certain limitations too as it is a very
time consuming process and it requires much time in order to be implemented in the firm.
Furthermore, it only focuses in the short term organisational goals and the development of
this plan in the business needs special sets of skills and this is why each and every one cannot
proceed with the same.
On the other hand, the strategic procurement is all about the plan that is developed
with the objective of reduction of the supplier base, negotiation as well as long term
relationship with the supplier (Ghobadian et al. 2016). In simpler words, it is the long range
plan that ensure the timely supply of goods and services that is very difficult for the company
for meeting its key business objectives. There are certain advantages of strategic
procurement. It helps organisations in increasing their profitability and performing effective
risk management for the company. With the same, it shows continuous improvement in their
performance that is highly beneficial for the firms. This further helps the company in making
effective decisions. However, like tactical procurement, strategic procurement also have
certain limitations. It is to note that strategic procurement is suitable only for the long term
organisational goals as it does not focus on any short term objectives of the firm. With the
same, it helps in fixing the plan and need to be redesigned annually according to the
requirements of the business.
2.4. Strategic role of purchasing function within the organisations
It is to note that all the businesses need some specific goods, equipment and materials for
manufacturing products, offering goods for sale to the customers and performing the services
that they are selling. There needs to be someone who would ensure that all these goods and

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services are brought into the firm, at right time and at right volume for meeting the
requirements of the company. This role falls under the purchase department. It is really a
broad one and it covers the areas like negotiations with the producers and suppliers, market
analysis, storage options, procurement technologies, transport and the order times for
ensuring that the goods and products are bought as time-efficiently and economically as
possible. Historically, purchasing has played a significant role in “getting the lowest possible
price and it was often at the expense of a positive relationship with the supplier and usually a
trade-off with quality” (Porter and Kramer 2019). Over the passage of time, its role has
evolved into the cost saving function where the relationships of the supplier and the contracts
were developed while keeping the cost savings in mind and these cost savings came through
the improvements of process, improvements of products and the development efforts of the
suppliers. The vitality of the strategic alignment in between purchasing and the company
strategy has maximised in the recent years as it has been pointed out as a significant mean of
improving the performance of the business. Notwithstanding this fact, the usage of diverse
sourcing strategies on the basis of the characteristics of components that the company are
purchasing has not been regarded while analysing the strategic alignment. According to
Knight, Tu and Preston (2014), PSM (Purchasing and Supply Management) is recognised as
a vital tool for creating value for a firm. Its efficient management could help in creating a
competitive advantage for firm. One of the particular managerial themes in relation to the
purchasing function that could help in creating a competitive advantage is “strategic
alignment”, which means “fit between business strategies and purchasing strategy”.
It is to note that the procurement decisions are highly based on the total cost of supply
chain, the impact of carbon footprint and the other economic, social and ethical factors
instead of just the purchase prices (Moretto, Ronchi and Patrucco 2017). Some of the specific
functions of purchasing function within a company include identifying the requirements for

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materials, services and goods; establishing the order quantities; price negotiations;
comparison of the delivery terms; identifying some reliable suppliers; managing payments
and budgets; quality control and product testing; writing requests for awarding the supply
contracts and bids etc.
a) Needs and Supplier Analysis- It is to note that the starting point for strategic purchasing is
benchmarking how the firm is performing at present and how its resources are used and
what are the costs of purchasing per department, job functions and team. Thereafter the
purchase department would look at the growth of the company and then come up with an
efficient plan for helping the business to perform better and to save costs.
b) Awarding supplier contracts- Every business would have its own needs and requirements.
However, a team would be looking for the supplier’s costs, the reliability, the reputation
of the business, the product quality, delivery schedules and production capacity prior to
awarding a supplier contract (Knight, Tu and Preston 2014). The inability of the supplier
to meet any of such requirements can result in some notable losses for the part of the
company so it is vital for getting these decisions in right way. In large firms like
Wesfarmer and Tesla, the department might also make decisions regarding whether to
make the products in-house.
c) Compliance and quality control- It is to mention that quality control is very important for
the smooth flowing of procurement process. Purchase department of the company
required to continuously inspect about the reliability, performance and quality in order to
make sure that they are not lapsing into the complacency. For the suppliers in the other
nations, it might include monitoring the right of the workers, their working conditions and
compensation. Furthermore, it is also to mention that one of the most important roles of
purchasing department is analysing and measuring the performance data to make sure that
the suppliers are attaining the desired outcomes as per the procurement strategy of the

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company. For instance, the department might measure the rates of product defect, the
supplier availability, the lead time, the total number of suppliers and the number of
products that they supply and the proportion of the products that they are delivered on
time.
d) Ordering and inventory control- At the level of operations, it is crucial to have right
quantities of raw materials in the company warehouse. Running out of resources and
products is equal to losing sales and this can further led to customers turning to the
competitors for getting the products that they need. Similarly, overstocking is also very
disadvantageous as it means one would have to pay more in the costs of storage and then
run the risk of product being obsolete prior to having the opportunity of using it or selling
it.
e) Supplier relationships and selections- It is very usual for the large firms like Wesfarmer,
Woolworths, Coca Cola to have multiple suppliers on their books and as an important
role of the purchase department is managing and maintaining these relationship. It is to
mention that having a close cooperation with the important suppliers is ensuring that one
can share the knowledge about the shifts in the market, the new technologies and the
products along with the other different factors that can help in staying ahead of the very
competition. For instance, a retail business needs to share the feedbacks from its
customers regarding the existing products and must use this knowledge for innovating the
new and improved product offerings.
2.5. Sourcing options available to managers and understand the criteria that affect
their suitability
It is to note that sourcing options are all about the strategies of planning, building and
designing a competitive and reliable supplier base while determining the procurement
strategy and defining the pricing strategy along with the supply chain requirements

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(Kamalahmadi and Mellat-Parast 2016). It comprise of integration of all the objectives in line
with and confirming to the objectives of the stake holders in finance, distribution, operations
and marketing. There are several successive options for the small and medium sized firms in
London. Firstly, it is purchasing. In this sourcing option, the businesses buy simple goods and
products from the external vendor the company. Secondly, it is the project-based developing.
In this type of sourcing, the businesses purchase a specific set of deliverables at an accepted
price and that too in the defined time schedule. Thirdly, it is out tasking. It is to note that in
out tasking, the business could turn over the narrowly defined activities to the external
vendors. Fourthly, it is selecting the outsourcing. In this business could turn over the whole
function to the external vendor. Lastly, it is business process outsourcing. In this the whole
business process are handed over to the external vendors.
2.6. Factors affecting procurement management and leadership
According to Fineman and Grear (2016), a business is considered to be vulnerable entity,
which is at the whim of the external forces, be they political, environmental, financial,
technological or socio-cultural.
a) Financial environment- It comprise of the economic performance and it has a
significant impact on how the buyers conduct their operations of procurement
(Sierchula et al. 2014). One of the major challenges that the financial environment
poses on the businesses is the fluctuation in currency. Buying at the right time and
returning on the investment could be high and similarly, investment at the wrong time
could result in loss of money. It is to note that the financial policy of London also has
some ramifications for the departments of procurement as it governs the investor
behaviour as well as the inflation and this in turn impacts the cash flow of the
business. At the same time, the lending activity of the banks could constrain the
activity of procurement and put a higher emphasis on the cutting of cost if it becomes

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tough to secure the finance. Similarly, credit squeeze is likely to make the smaller
supplier vulnerable and would increase the risk of the buyer.
b) Political change- Change in the policy, government and the international politics
could highly influence who the buyers do the business with and in what ways (Gilpin
2016). It is to note that at a domestic level, changes in the policy and the government
could see some regulatory reforms and changes in the packages and representation of
the business support. It further impacts on how the firms structure the supply chains
and at the same time, how they comply with the tax, safety, health, ethics,
employment and the quality control regulations and how they develop and grow
further.
On the other hand, at an international level, the cessation of the relationships
with the supplier nations could significantly impact the trade dynamics as opening up
of a nation to the free market could create new challenges and opportunities. In the
same way, changes in the policy and government in the foreign nations, territories and
regions could further create financial, compliance and supplier management
challenges for the businesses.
c) Technological advances- It is to note that the technological landscape is continuously
changing and the customers need to come to expect the businesses for operating faster
and being more connected and offering them the latest advances due to the same
(Porter and Heppelmann 2015). Right from the services and products that are offered
to the way in which the buyers collaborate with the suppliers, technology has a
significant impact on the procurement process. Hence, companies today need to keep
on top of the changes in technological environment and how it influence their
businesses.

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d) Environmental fluctuations- It is to mention that environment is one of the significant
challenges for the supply chains. Be it natural disasters or resource scarcity, the
procurement departments are always at the mercy of the environment. In the year
2013, the Carbon Disclosure Project founded that about 70 percent of the businesses
all over the world believe that climate change has significant potential of influencing
the revenue of their businesses. The companies are well aware of the threats and the
recent natural disasters have served as a significant testament t how the incidents
could possibly devastate the supply chain.
3. Recommendations
a) The procurement departments require to keep a track of all the political events on a
global basis and must act swiftly for minimising the risk and making the most of the
opportunities.
b) The procurement departments are required to plan ahead for managing the resource
scarcity from taking place and must spread out their suppliers for decreasing the
disruption during the occurrence of natural disaster. With the same, it is also advised
to avoid the high risk zones at the time.
c) Buyers should make sure that they are taking into account the external environment
while creating the procurement strategies for getting ahead of the risk. It is to mention
that supplier management plays a significant role in this process by enabling the
business creating a supply chain of the pre-qualified supplier as well as monitoring
their exposure to the threats and challenges.
4. Conclusion
Hence, from the above analysis it is to conclude that the time when procurement was
considered to the synonym of purchasing has long lost. Today, the modern technologically

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advanced organisations are trying to get rid of the functional siloism by means of
encouraging the cross-functional coordination with some clear responsibilities and having
effective system supports. This cultural change have encouraged the employees and the
managers to take part in the procurement activities more actively with clear set of guidelines.
The vitality of the strategic alignment in between purchasing and the company strategy has
maximised in the recent years as it has been pointed out as a significant mean of improving
the performance of the business. Over the passage of time, its role has evolved into cost
saving function in which the relationships of the supplier and the contracts were developed
while keeping the cost savings in mind and these cost savings came through the
improvements of process, improvements of products and the development efforts of the
suppliers.

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References:
Chimni, B.S., 2017. International institutions today: an imperial global state in the making.
In Globalization and International Organizations (pp. 41-78). Routledge.
Fineman, M.A. and Grear, A., 2016. Equality, autonomy, and the vulnerable subject in law
and politics. In Vulnerability (pp. 25-40). Routledge.
Ghobadian, A., Stainer, A., Liu, J. and Kiss, T., 2016. A computerised vendor rating system.
In Developments in Logistics and Supply Chain Management (pp. 103-112). Palgrave
Macmillan, London.
Gilpin, R., 2016. The political economy of international relations. Princeton University Press.
Kamalahmadi, M. and Mellat-Parast, M., 2016. Developing a resilient supply chain through
supplier flexibility and reliability assessment. International Journal of Production
Research, 54(1), pp.302-321.
Knight, L., Tu, Y.H. and Preston, J., 2014. Integrating skills profiling and purchasing
portfolio management: An opportunity for building purchasing capability. International
Journal of Production Economics, 147, pp.271-283.
Landy, F.J. and Conte, J.M., 2016. Work in the 21st century, Binder ready version: An
introduction to Industrial and Organizational Psychology. John Wiley & Sons.

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Moretto, A., Ronchi, S. and Patrucco, A.S., 2017. Increasing the effectiveness of procurement
decisions: The value of big data in the procurement process. International Journal of RF
Technologies, 8(3), pp.79-103.
Porter, M.E. and Heppelmann, J.E., 2015. How smart, connected products are transforming
companies. Harvard business review, 93(10), pp.96-114.
Porter, M.E. and Kramer, M.R., 2019. Creating shared value. In Managing sustainable
business (pp. 323-346). Springer, Dordrecht.
Schapper, P.R., Malta, J.N.V. and Gilbert, D.L., 2017. Analytical framework for the
management and reform of public procurement. In International handbook of public
procurement(pp. 119-136). Routledge.
Sierzchula, W., Bakker, S., Maat, K. and Van Wee, B., 2014. The influence of financial
incentives and other socio-economic factors on electric vehicle adoption. Energy Policy, 68,
pp.183-194.
Tay, M.Y., Rahman, A.A., Aziz, Y.A. and Sidek, S., 2015. A review on drivers and barriers
towards sustainable supply chain practices. International Journal of Social Science and
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