6 ways for procurement to add value in organisations
By Haytham Etemad
Managing director (ArcBlue Egypt Office)
The primary objective of procurement department is to obtain the ‘inputs’ required for the operation of a company, these inputs vary according to the type of the organisation. For example, a manufacturer will need raw materials to make its products; a retailer will need finished goods to sell; while a service company will require office equipment and people to provide services to customers, whatever the industry is the principle is the same in each case.
The main objective of a procurement function is to provide (inputs of the ‘right quality’; delivered in the ‘right quantity’ to the ‘right place’ at the ‘right time’ for the ‘right price’. These are called procurement 5 rights. These are often called the ‘five rights of procurement’. Meanwhile, we can identify other general objectives of procurement operations or other primary task of procurement. They are Internal customer service, risk management, Cost control and reduction and Relationship and reputation management.
The question now is how can procurement function add value to the organisation?
Procurement can add value either by reducing costs without any compromise in quality or product features. or by assuring operational efficiency to enable better quality at no additional cost.
Ideally, we might aim to achieve both of these objectives (improved output at reduced cost). by means such as the following.
- Efficient management of procurement activities to reduce transaction cost that will enable cost reduction
- Effective inventory management, to minimise acquiring and holding costs this also will help in cost reduction
- Effective contracts negotiation and management in order to reduce the cost of inputs
- Effective communication with user departments to enhance specifications, so that business needs are fulfilled more efficiently and at lower cost
- Selecting and managing suppliers, in order to improve the quality of inputs, with consequent improvement in the quality of outputs
- Working with key supply chain partners to eliminate wastes (non-value adding activities) wherever they are found in the supply process: an approach sometimes referred to as ‘lean’ supply.
This just a brief about how to add value to the organisation but we will discuss in future articles procurement contribution to add value in the 5 right, procurement process and other procurement objectives to understand the importance of procurement role in organisation’s competitive advantage.
CIPS Study materials
Purchasing & Supply Chain Management (Lyson & frington).