Understanding the Purchasing Environment

Procurement practitioners will only add sustainable value to an organisation’s bottom-line if they understand the environment in which they operate, Ronald Mlalazi (MCIPS), Edu cation Manager at Commerce Edge Academy, tells SmartProcurement.

In his seventh article for SmartProcurement’s series on World-Class Procurement Practice, Mlalazi discusses the need for Procurement professionals to understand the purchasing environment in which they operate, in their respective organisations and industries.

The series is based on Chartered Institute of Purchasing & Supply (CIPS) unit content and on recent research done by Commerce Edge Academy. This month’s article is based on Level 4, Unit 5, ‘Purchasing Contexts’.

“The activities of Procurement have a direct impact on the overall performance of an organisation as these activities cut across the whole organisation, ‘a product well bought is half sold’”, says Mlalazi.

The role of procurement is often described as the purchasing of the goods and services at acceptable quality standards, in quantities that meet the organisational needs, delivered at the time and place where they are needed to a price that is sustainable.

Under-specification or over-specification of goods and services can lead to an organisation incurring unnecessary costs. Therefore, getting the right quality of product or service is fundamental to procurement’s role.

Finding the best fit for the above at the lowest total cost of ownership requires that Procurement professionals understand the driving factors within their purchasing environment, which will bring about efficiency and effectiveness of procurement.

According to Peter Druker, “effectiveness is doing the right things while efficiency is doing things right.”

Effectiveness is related more to specific professional skills in procurement, which is a core function of the department.

Effectiveness and efficiency of procurement is determined by the following factors:

1. The position of the department within the corporate business planning and management structure.

2. The ability to align and link the purchasing objectives and strategy to business objectives and strategy.

3. Financial resourcing of the department.

4. Organisation of the department in line with the size and structure of the company.

5. Competence and staffing levels in line with the workload.

Competence in any field is important, but competence does not mean one has to “know all” before acting.

Competence is measured by several elements, including skill, experience, knowledge and attitude, and when combined with a qualification will create a best effort.

In many organisations purchasing is delegated along with budgetary control to staff and managers who may be full-time or only part-time purchasing people. Managers may have purchasing responsibilities as part of other roles, or they may have moved into purchasing from other disciplines, or in extreme cases, the purchasing function is headed by people on early retirement or those who had poor performance records in other departments.

It is, therefore, no wonder that there is a great need for Procurement professionals to raise their competency levels to manage supplies during the economically distressed period in which the economy finds itself and their level of preparedness for the economy’s recovery.

The key to managing such situations is to look at the competencies required and then assess the gaps. Based on the assessment, the organisation can decide its purchasing competency needs and facilitate training and skills development programmes to develop the required competencies.

Often Procurement fails to deliver value and rise to expectations because supply chain aspects are not represented at the executive committee (Execo) level during strategic sessions, or appear at the end of the agenda and are not given due attention, says Mlalazi.

The consequence is that organisations will not realise the full potential of cost-savings and experience strategic drift.

In order to achieve a sustainable purchasing achievement, there are a number of tools and techniques that Procurement professionals can adopt and customise to their operations:

• Positioning the Purchasing department within the organisation.

• Purchasing centralisation versus decentralization or centre-led action network (clan) processes.

• Understanding the supply markets and supply chains.

• Understanding the tender process.

• Understanding your operating environment.

• Providing sufficient and appropriate resources to the Procurement department in order to achieve corporate objectives.

• Understanding the impact of organisational structure to supply chain strategy.

To learn more about Commerce Edge Academy and CIPS Qualifications, please contact Ronald Mlalazi, Education Manager of Commerce Edge Academy at ronaldm@commerce-edge.com. www.commerce-edge.com