HOW PROCUREMENT CAN BECOME VALUE ADDING FUNCTION IN SUPPLY CHAIN

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Procurement will be considered as a value adding function if the approach is customized and if it is based on the needs of different types of customers.

The supply chain considers the procurement cycle as a one-dimensional process in the organization. Procurement is adopted in the organization as it leads to greater efficiency, provides a better match with the required goods & services as an organized purchasing process, which will lead to more efficient sourcing, quality goods, services, adds value to be delivered on time. The supply chain will have to update procurement that will ensure that an organization will be able to guide unforeseen conditions, financial shortage, and surplus economic volatility, whereas the procurement process is optimized to help distinguish between successful vendors, and underachieved vendors.  

Import functions of Procurement:

  1. Procurement deals with different suppliers, building a strong relationship with suppliers to ensure proper successful delivery.
  2. Procurement adds value by reducing costs, without the compromise of quality, product failures, assuring the operational efficiency to enable better quality without any additional cost with an aim to achieve the best objectives, output at a reduced cost in the supply chain.
  3. In a supply chain, the procurement function will be able to participate in product development, able to organize supply chain analysis, audit, optimize the business chances of production, and give importance to supplier’s strategies adding value.
  4. It also helps in providing supplier relationship, provides unique resources knowledge, experience, and creativity of supplier that normally benefits the organization. Procurement is able to recommend on quality improvement, cost reduction of product, life cycle, synchronization between the organization, supplier so that innovation does contribute to the innovator, do contribute to the product consulting the business with a supplier to provide free of charge, discounted rate, minimum rate, so as to optimize much help to organization, production process, marketing strategy by adding value in the supply chain.
  5. It supports Micro Small Medium Enterprises, as this has become necessary at a point for the business to encourage small scale industries not to depend upon large scale industries, so as to improve the responsibility of small scale industry who are able to generate revenue, receive certain preferences with a way to a strategic partnership of long-standing subjective to prepare the assessment, internal and evaluation adding value in the supply chain.

Some of the benefits through Procurement function:

  1. Supply chain procurement can bring down the cost, without damaging the profitability through effective cost management by purchasing goods, by proper handling, also by adding value in supply chain management.
  2. Value-based procurement in the supply chain depends upon the creation of value, rather than the traditional objective of cost savings efficiency, purchasing is seen as a strategic contribution to add value to the organization, as only a few contributions, possibly view the values that purchasing could actually add value to the organization, to fill in the gaps of the traditional strategic concepts of values added to purchasing affecting value added in the supply chain.
  3. In the supply chain the role of purchasing has been evolving, increasing its strategic importance in the organization, as a supportive function, which impacts the bottom line of the organization, the performance for purchasing, cost reduction, savings as they are recognized as value-added savings, generated in the purchasing process, thus broadening the vision in purchasing as a strategic contribution of value both in economics and intangible aspects in the supply chain.
  4. In supply chain procurement as is a source is to add value, is measured in terms of capital invested, the quantum of communication made in terms of contracts, which can increase the value of an organization, products through improved relationship, intervention, among the departments, with internal customers, suppliers, that may or may not directly reduce the cost of purchase of materials, but liable to increase the organization performance.
  5. Efficient management of procurement activity to reduce transaction cost will enable cost reduction effective inventory management to minimize acquiring holding cost, will reduce cost in the supply chain, effective contracts negotiation management, in order to reduce the cost of inputs effective communication with use department to enhance specification so as to fulfill the needs of the business efficiently, lowering cost in the supply chain, selecting managing supply in order to improve the quality of inputs, also improving the quality of outputs, also eliminating waste in the supply chain.

In supply chain opportunities in purchase adds value with the increased use of technology  with the introduction of E-commerce, which is due to higher standardization, improved communication, E-mails usage, Internet of Things, Artificial Intelligence, with better control over the process creations of management information, reports having purchasing professionals to concentrate on strategic activities on various projects, ordering in supply chain.

The supply chain has resulted in external expenditure, which makes up a large part of the cost of procurement activities, which is likely to expect high expectation, to achieve the best cost savings, as financial plays, a major role in the added value in purchasing as it is gaining importance as a part of the system for measuring the cost savings for gaining cost savings in the supply chain, added value in procurement as this is measured in an approximate as a part of the performance in an organization.

In supply chain procurement securing good quality materials ensuring reliable delivery, supporting value for money, pricing to keep cost, down procurement, can contribute to value-added, procurement.  

Supply chain distinguishes between quality vendor, will be able to improve supply chain, lead to better compensation, for the low-quality vendor, add value and agree to supply chain parameters.

Key Points:

In the supply chain, the value of procurement must clearly identify the buying needs, develop technology, type of innovation to be focused in a competitive market, to keep control of supply chain providing different purchasing aspect or a channel, partnership, adapting to the cultural aspect, creating a value to meet the customer needs, also to know the functionality of the products, technical knowledge, add value in the supply chain.  

In some of the organizations where products are manufactured as per the requirement of customers, must be able to capture the changes, have effective control in the supply chain, able to supply products as per the market requirement, as this captures the perception of the buyer organization, into the predominant value-added elements, so as to guide, and take decisions for the adoption of managing actions by supplier organization forcing to add value in the supply chain.

2 thoughts

  1. Interesting writing talking at an depth on how procurement has moved from sourcing alone way street to collaborative two approach.

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