Researchers and practitioners increasingly view that the operations and procurement functions as intimately linked and as playing imperative roles in Supply Chain Management. Ultimately the performance of the operations management system measured in terms of cost, quality, delivery and flexibility which depend on inputs secured by the purchasing function. During the last two decades or so there has been a quiet revolution in procurement a shift from operational to strategic. Procurement function has become an important and strategic part of goals of most of the organizations primarily because of the recognition that increased profitability can be equally accomplished by spending less. Procurement is a strategic contributor to the firm and strategic purchasing tasks manifest the firms' competitive priorities. Purchasing professionals now find themselves increasingly asked to work as supply chain managers ensuring the seamless flow of supplies and services.
[...] The optimal level of supply chain integration can be deducted from Kralijic matrix as follows. Only in the case of strategic products a true supply chain partnership adds value to the chain. It is because of the impact on the financial relevance; the investment in time, effort, IT etc becomes feasible. In case of routine products, extensive integration will not provide many gains and the coordination costs will increase. It may not be worthwhile to invest heavily in supply chain relations with suppliers of routine products. [...]
[...] coordination of independent organizations within supply chain is considered. Compared to the earlier two levels the scope is widened across the company borders. The emphasis here is how to coordinate the activities of an organization with the suppliers. For this purpose the well known Kralijic Purchasing Portfolio matrix is utilized as a tool. The matrix differentiates the products by two variables: Impact on Financial relevance and Supply risk. High Leverage products Financial Relevance Total Cost Value relative to total expenditure “Negotiate / bargain” Strategic Products “Cherish / pamper” Routine Products “Neglect” Bottleneck products “Develop” Low Figure Kralijic Matrix Supply Risk Lack of supply continuity Technological complexity High Routine products are low valued items that are easy to buy and carry little risk because there are various suppliers and they are exchangeable. [...]
[...] SUPPLY CHAIN Third Level Organization 1 Organization 2 Organization 3 Second level Business Unit 1 Business Unit 2 Business Unit 3 First level Department 1 Department 2 Department 3 Figure 2 : Three levels of Supply chain Management The impact of Procurement on the First Level: Conventionally in many organizations the perceived function of procurement is quite narrow (Reck and Long., 1988). The key accountability for purchasing usually is buying the parts that operations need at the lowest possible price. [...]
[...] This means that in order to take advantage of the joint buying power, there will be one single procurement organization that usually is located at head office. However this may not necessarily provide the company with an optimal situation. In fact there might be various coordination mechanisms besides centralizing decisions. In other words centralizing procurement is one way of capturing the benefits of supply chain management in the second level. In practice there are various combinations of centralized and decentralized procurement organizations. One alternative possibility is to centralize the strategic and tactical purchasing and decentralize the operational purchasing activities. [...]
[...] Supply Chain Management in this level is aimed at optimizing the flow of goods and information as well as the activities and goals between the different business units (Copper and Ellaram 1993). Here Procurement aims to present one face to the suppliers and another to the customer (account management) and optimization of activities between the different Business Units. Every unit internally plays the role of both the supplier and customer in the organization. Even here the Supply Chain Management on the second level is about internal optimization only. [...]
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