According to Porter`s Value Chain Analysis, which breaks an organization’s activities into strategically relevant sub-activities, procurement is a support activity. However, during the past decade, procurement as a function won the “fight” for organizational significance, and turned from a back-office support function, to a primary function that is key to remain competitive in today`s ever changing economic environment. Many organizations have realized, that procurement can deliver a unique strategic advantage and value to the company, therefore it needs to be elevated from being an operational process into one that is integrated to the organisation`s strategy.
Traditionally, procurement ...view middle of the document...
The strategic approach to procurement management addresses the long term approach to maintaining an efficient and effective supplier base and the delivery models proposed for the procurement activities. We need to examine the financial and value benefits the organisation can achieve from the strategic procurement approach.
While not all cost categories can be influenced by procurement, it can help the organization identify potential cost saving areas, and initiate short term improvements to reduce costs, by directly or indirectly manipulating the price of goods (re-negotiate prices with vendors) and/or the volume of purchases (centralised, request based procurement). Effective procurement strategy can also help reducing the total cost of ownership, or turning fix costs into variable costs through outsourcing.
A.T. Kearney`s “Assessment of Excellence in Procurement” survey (2011) identified a number of characteristics shared by the top procurement companies. These leading practices are:
The procurement strategy needs to be aligned with the overall business goals, the values of the organisation and with the goals and activities of other business functions.