In the modern business world, it is true that the way organizations carry out transactions have tremendously evolved. As a result of this, the topics of procurement, purchasing and strategic sourcing have received considerable attention in the world over as business organizations try to remain relevant in the goods and services that they produce and offer to the people in an efficient and effective manner (Van, 2010). Even though the definition of these terms are intentioned to help in understanding some of the existing similarities and differences between them, it cannot be denied that at times it is impractical for these business terms to be used in place of one another. The purpose of this essay is, therefore, to establish and know the process of sourcing for goods and services using the given terms.
Firstly, it is important to understand that purchasing is the transactional function of acquiring goods and services through the process of buying. In a business situation, it virtually involves acquiring the existence of the products and then placing a purchase order. In a normal setting, this process follows the official sourcing process (Walker & Rowlinson, 2007). On the other hand, procurement involves managing a broad range of processes. These processes are deemed to associate with the organization's needs of wanting to procure the goods and services needed to manufacture a certain product. Some of the activities that can be procured are; service or product sourcing, contract management, supplier selection, and even price negotiation among others. Lastly, strategic sourcing should be known to be a little bit more complex and comprehensive than procurement. As opposed to procurement, it further focusses more on supply chain impacts of procurement and the purchasing decision (Van, 2010). It is worth noting that because of its nature, strategic sourcing works across the business units cross-functionally to help achieve the overall objectives of the organization at large.
The risk or value technique helps a supply chain manager to measure and know the importance of every product or service that is being purchased (Walker & Rawlinson, 2007). It uses a two by two matrix format to determine the procured items concerning their importance, value and risk. The distinctive part represents the high risk and low-value products, generics represent low risk and low-value products. The commodities section indicates low risk and high-value products. The last quadrant is critical which represent high risk and high-value products.
From the items of the automobile given, the engine is a distinctive product because of its high risk associated with it; tires are classified in the quadrant of a commodity because it has got low risk even though it has got high value. Gasoline is also a commodity and therefore in the same quadrant as tires (Van, 2010). Paper is classified in the generic quadrant because of its low risk and low value. Also, a uniquely designed muffler is represented in a critical quadrant because of its high risks and high value. Finally, railcar service to dealers is also critical because of the high value and high risk associated with it.
In the purchase of goods and services, it is essential to evaluate security and risk management services. This is helpful in recognizing which service deliverables are most important, thereby helping the company as a buyer to align its requirements (Walker & Rowlinson, 2007). The first element is establishing the requirements before providers are engaged. This involves detection of any threat, management of the security device as well as vulnerability management. The next element is aligning the service reporting effectively to help identify service deficiencies. This includes reporting, alerting and common overlay (Walker & Rowlinson, 2007). The other element is putting ready the internal processes by choosing providers who can commit to regular and fixed formatting. It also involves identifying service customization requirement from the onset of the purchasing process.
It is true that the procurement process is a challenging task to handle. It, therefore, requires the input and cooperation of everyone in an organization. However, an efficient and effective procurement process can be created if the following step is adhered to.
Carrying a thorough analysis of the current situation of the organization
The analysis should be carried out to know where the process is in line with the goals of the organization, budget as well as the set timelines. It is essential to the first benchmark with the existing performance so that the manager can be able to detect and know the necessities before coming up with the strategy. This involves gathering various types of data.
Finding areas which need improvement
For a successful procurement strategy, areas that should be improved must be known. This is done by evaluating the effectiveness of various functions concerning capabilities. After this is done, the manager can ask business partners for their outlook so that strengths and weaknesses can be determined (Van, 2010). One of the most effective ways to build a strong team to tackle procurement process is by providing training services and development programs to employees.
Developing an action plan to achieve procurement objectives
Having identified areas that needed improvement, the business goals will then be translated to procurement objectives after which strategic initiatives shall be developed to help stir up the process.
Communicating the plan to stakeholders
Remember that these are the owners of the business and therefore, once the plan is all set, it has to be shared by business leaders, procurement leaders, and the whole procurement staff. This will help to get the thoughts of interested parties.
Implementation and measurement of strategy
Before a strategy is considered as effective, it has to bring with it some changes that help to improve the general performance of the organization. If a plan is developed that outlines clearly the various initiatives, timelines as well as responsibilities and anticipated results, then it will lead to the success of the organization.
The Total Landed Cost of a product or service is the cost that considers, not only the prices at which the products have been bought but also other costs like value-added costs, transportation cost, customs costs among other costs. Yes, it is extremely realistic for companies to consider all of these components of total load cost because if they don't, then it is possible that they could waste a lot of company funds.
Van Weele, Arjan J. Purchasing & supply chain management: analysis, strategy, planning and practice. Cengage Learning EMEA, 2010.
Walker, Derek, and Steve Rowlinson. Procurement systems: a cross-industry project management perspective. Routledge, 2007.
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