The general objective of purchasing is to obtain the ‘inputs’ required by an organisation for its operations. Different types of organisation will require different types of inputs: a manufacturing organisation may require raw materials or components to make into products; a retail organisation may require finished goods to sell on to consumers; while a service organisation may require equipment, information and people to provide services to customers. But the principle is the same in each case.
The primary task of procurement function is therefore to provide the ‘right’ inputs for the organisation’s processes. The ‘right’ inputs are traditionally described as: Inputs of the right’ quality, delivered in the right quantity, to the right place, at the right time, or the right price. These are often called the ‘five rights of procurement. We will discuss the 5 rights in another article.
Meanwhile, it is possible to identify a number of other general objectives of procurement operations or other ways of looking at the primary task of procurement.
- Internal customer service.
Procurement provides inputs to organisational processes. The units responsible for those processes (such as the production or operations function) can therefore be seen as internal ‘customers’ of the procurement function. One of procurement’s overall objectives is to service internal customers: ascertaining and satisfying their input needs (by the five rights); giving them advice and information about the best inputs, sources and prices available; and so on.
- Risk management.
The organisation cannot function without inputs, particularly those which are essential to its production or service provision processes. If inputs become scarce, or a source of supply fails suddenly (eg a major supplier goes out of business), the organisation will be faced with problems and losses: production delayed or shut down, customers lost, extra costs incurred to get ’emergency’ supplies and so on; One of procurement’s overall objectives is therefore to ensure that risks of supply failure or disruption are minimised and/or ‘covered’ by contingency plans. This means monitoring the supply market; anticipating demand; avoiding over-dependency on single suppliers; developing relationships with dependable suppliers; and so on.
- Cost control and reduction.
In order to make a profit (the primary objective of commercial organisations) or to provide services cost-effectively (the primary objective of not-for-profit organisations), an organisation will need to control its costs – and a significant proportion of any organisation’s overall costs will be the inputs it buys in: that is, its expenditure with external suppliers. One of procurement’s overall objectives is therefore to control, reduce and/or minimise costs, by consistently buying the right quantity at the right price, and reducing or eliminating wastage in purchasing and supply procedures.
- Relationship and reputation management.
Procurement is an important ‘interface’ or touch-point between the organisation and the outside world. One of its overall objectives is therefore to maintain constructive relationships with suppliers; and to conduct its activities in an ethical, socially responsible and environmentally friendly way, so as to promote and protect a positive reputation for the organisation.
To sum up the main objectives of procurement function is to achieve value for money, the ‘five rights’ of procurement and to Add value to the organization. In our future article we will discuss how to add value and the role of procurement in company’s added value to its customers.
By: Haytham Etemad