The procurement function is a logistic function associated with supplies and its influence covers the whole logistical chain. It is a logistical function that handles the delivery of materials, equipment, spares, and services in the demand (Hernández and García, 2006). However, cost efficiency and better productivity have always been a challenge in procurement. Businesses use various models and strategies to mitigate such challenges.
Cost based challenge in procurement
Procurement costs include the cost of processing, transferring the order from the supplier, transporting the order when transportation charges are not included and material handling (Tukuta and Saruchera, 2015). Cost based procurement involves the business to become financially stable and competitive. Competitive pressure is not only to become a low-cost producer but how the business can become (Wanjiru, 2016). In addition, it also involves how to build complex differentiating features that are difficult to emulate for competitors. Another cost based challenge is, how to serve both internal and external customers and remain lean. In addition, costs measures to reduce lead times and deal with short product life cycles is another challenge.
Accessing low-cost procurement of products is difficult as most businesses fail to sort out the unnecessary costs on the logistics operations. Goods for resale should meet customer requirements to avoid unnecessary costs, such as those of reverse logistics, and losing customers’ goodwill (Tukuta and Saruchera, 2015). Cost based challenge in procurement also involves tariff charges when procuring from foreign countries.
The procurement cycle
There are 10 steps of the procurement process in logistics which is also known as the procurement cycle (Kakwezi and Nyeko, 2019).
The ‘need recognition’ and ‘need specification’ is based on the maintenance of records of the number of products produced in a specific period. For ‘ned recognition’ and ‘need specification’ demand forecasting helps in the procurement of raw materials. Similarly, the use of the demand forecasting allows businesses to assess the type of product specification and sourcing options too (Kakwezi and Nyeko, 2019). These tools are commonly termed as procurement management tools. It helps in all stages of the procurement cycle to navigate complex requirements efficiently. Instead of tracking swathes of suppliers individually to ensure compliance and performance, procurement management tools help to improve internal workflows and tasks.
Requests for information (RFI), requests for proposal (RFP), and requests for quotation (RFQ) can be handled with procurement management tools. These tools help to collate supplier information, assist with risk management, and create online reverse and forward auctions (Kakwezi and Nyeko, 2019).
For example, Precoro incorporated budget tracking, purchase order approval routing, and supplier onboarding into a feature-rich platform to streamline their procurement lifecycle.
Integrated supply chain management for efficient procurement cycle
Integrated supply chain management involves more than one stakeholder (a buyer and a supplier) take the form of a sequential, strategic game involving anticipation by one player of the other player’s actions. This integrated method remains used to show how co-operative behavior becomes more likely if two stakeholders interact with one another on a repeated basis (Mena et. al., 2013). Repeated interactions enable them to get to know each other, build trust and to overcome the lack of information in the initial interaction. However, in the first interaction, the intentions are unknown, as per the integrated model both stakeholders will behave competitively.
Based on this theoretical provenance, the underlying assumptions of the integrated logistics approach are that the stakeholders are rational. With repeated interactions, they will co-operate for greater gains. The integrated procurement applies this reasoning to develop an understanding of how buyers and suppliers are encouraged to co-operate. This helps to innovate and create a larger pool of value rather than competing over a static pool of value (Mena et. al., 2013). A crucial aspect of this approach is that the buyers and suppliers should trust and be transparent with one another. It can be achieved by sharing information with open book costing.
- Hernández, J.G. and García, M.J., 2006. The importance of the procurement function in logistics. Proceedings ICIL, pp.149-157.
- Kakwezi, P. and Nyeko, S., 2019. Procurement processes and performance: Efficiency and effectiveness of the procurement function. International Journal of Social Sciences Management and Entrepreneurship (IJSSME), 3(1).
- Mena, C., Humphries, A. and Choi, T.Y., 2013. Toward a theory of multi‐tier supply chain management. Journal of Supply Chain Management, 49(2), pp.58-77.
- Tukuta, M. and Saruchera, F., 2015. Challenges facing procurement professionals in developing economies: Unlocking value through professional international purchasing. Journal of Transport and Supply Chain Management, 9(1), pp.1-9.
- Wanjiru, B.W., 2016. THE ROLE OF STRATEGIC PROCUREMENT ON AN ORGANIZATION’S PERFORMANCE: A Case Study of Cooperative Bank; Head Office.