Table of Contents
- Price for a
- Importance of Purchasing to Supply Chain
- Current Problems in Purchasing
- Purchasing Costs
- Procurement Risk
- Poor Corporate Governance
- Poor or Lack of Adequate Employee Motivation
- Communication Problems
- Other Challenges
- Technological Developments
- Related Free Management Essays
All business entities need resources to perform their duties and present the most appropriate commodities to their customers. The process through which raw materials go may be complicated before the final product is availed to the end consumer. Since companies and manufacturers do not often have the raw materials to themselves, they tend to purchase from the suppliers before processing. Purchasing involves buying resources (Certified International Property Specialist [CIPS], 2013). It is a subset of the procurement process in business organizations and manufacturers. Procurement refers to the function of business management that aims at ensuring sourcing identification, access, as well as management of the external resources the organization needs in fulfilling its objectives (CIPS, 2013; Zigiaris, 2010).
On the other hand, supply chain covers the whole physical process starting from the acquisition of raw materials to the finished commodities that end in the hands of the final consumer (CIPS, 2013). A supply chain involves stakeholders who provide resources and contribute in the process of having the final product. In Appendix B, the figure illustrates the entire process of the supply chain. This paper explores the way purchasing is important in organizational supply chain and the current common problems in this field. Additionally, the effects of the problems and the ways to improve them will be at the center of the paper’s discussion.
Importance of Purchasing to Supply Chain
The supply chain is an important aspect in management that affects all stakeholders of a given organization in many ways. First, purchasing is critical to supply chain because it begins by affecting the organization buying commodities from suppliers. The supply chain process aims at giving customers of an organization demanded products quickly (Walker, Bourne, & Rowlinson, 2008). Therefore, a need to hasten the whole process by carrying out some of its activities and steps such as purchasing arises. This means that organization’s purchasing capabilities and effectiveness are important in determining how fast customers will access the final products. Walker, Bourne, and Rowlinson (2008) assert that hastening the process by going through the necessary steps of the supply chain process promotes faster access of the customer to the end products. The fast performance of activities such as purchasing hastens product availability and results in an increment in an organization’s sales (Zigiaris, 2010). Therefore, supply chain affects many stakeholders in varied ways.
Moreover, purchasing ensures the completeness of supply chain process being its part and parcel. According to Newman (2006), buying of commodities provides an uninterrupted flow of goods and services as well as information to keep the system of production operations. Notwithstanding, purchasing ensures that the processes in current activities provide optimal value to all stakeholders, including the customers (Van Weele, 2009). This can be performed through the purchase of quality resources from reliable suppliers and at friendly prices to complete the supply chain process.
Furthermore, purchasing promotes cooperation and collaboration of stakeholders involved in the supply chain process. For example, Newman (2006) explains that purchasing is the means through which an organization can interact with the world of suppliers. Moreover, it aids in translating the voice of customers to suppliers (Van Weele, 2009). In short, an organization purchases resources for use with the needs of its clients in hand. Communicating to the world of suppliers in the supply chain can only come about when someone is transacting with them. The way a company will buy its resources concerning the amount, quality, and time needed to have them is determined by customers’ preferences, needs, and demands. Therefore, promotion of collaboration and cooperation is achieved.
Nevertheless, purchasing and procurement as a whole influence the input costs of any given organization. The reason is that the company spends money on buying resources such as raw materials, which are part of the inputs costs. Careful purchasing ensures that although commodities are of high quality, their prices are equally fair (Van Weele, 2009). Lower input costs mean a lot to the company, especially when it concerns making sales and acquiring remarkable profits. According to Van Weele (2009), procurement and purchasing officers evaluate the operational costs and assess the available purchasing opportunities before avoiding high-cost inputs and opting for cost-effective operations and resources. Otherwise stated, input costs are influenced by the procurement process.
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Moreover, purchasing has other significances on all the stakeholders of an organization in many ways. Monczka, Handfield, Giunipero, and Patterson (2015) claim that purchasing enhances the smooth running of activities for both suppliers and purchasing organization. This may mean that a company buying products cannot get stuck due to the lack of necessary physical resources if it can purchase them early in time. Consequently, customers cannot miss meeting their needs and demands in time. Since buying involves selection of the most appropriate suppliers, it is crucial in determining the type of suppliers that will be included in the supply chain process (Monczka, Handfield, Giunipero, & Patterson, 2015). This occurrence may be present because it is only the process of procurement and purchasing that determine the identification of new and potential suppliers as well as other business partners.
Notwithstanding, purchasing enhances supply chain management functions. For example, professionals in procurement field can use supply chain management in addressing problems related to network configurations, cash-flow transactions, trade-offs in logistics activities and functions, and distribution of strategies among others (Tukuta & Saruchera, 2015). Since supply chain involves both management and coordination of order sourcing and processing, movement of information, finances, and materials, purchasing is the ultimate activity for the supply chain to fulfill all these activities. Additionally, purchasing and procurement enhance the process of globalization among organizations and supply chain stakeholders (Tukuta & Saruchera, 2015). According to Tukuta and Saruchera (2015), the reason for that is a need of having partnerships with worldwide companies and suppliers to enhance a networked growth. To achieve globalization in such activities, the companies and business organizations should possess experienced procurement professionals with the skills and technical expertise to survive harsh international purchasing environment (Tukuta & Saruchera, 2015). It is quite obvious that the professionals are not only critical but also essential members of the supply chain.
Purchasing helps the supply chain management to enhance the procurement process and supplier base. In achieving this, the supply chain professionals and their organization as whole should identify opportunities in addition to managing and coordinating the internal and external operations (Tukuta & Saruchera, 2015). Tukuta and Saruchera (2015) argue that managing internal operations is only achievable through the provision of procurement leadership to the organization, definition of procurement and purchasing structures and strategies, development and maintenance of processes and policies, and provision of growth and training opportunities for organizational employees. This supply chain function can be achieved through adequate and effective collaboration and partnering, teamwork, ownership, communication of purpose, and accountability for the processes of sourcing. Since purchasing is one of the functions in supply chain and procurement, it is justifiable to assert that its part and parcel of the functions can help supply chain achieve its responsibilities.
On the same line, purchasing helps in the development of strong relationships with functional groups of an organization, including the supply chain. Tukuta and Saruchera (2015) explain that functions of an organization such as marketing, production, engineering, human resources, accounting, and purchasing work together not only in designing but also in fulfilling organizational goals and targets. This explanation deduces that each of the organizational functions affects the performance of other duties and the overall functionality of the firm, which has influence on the customer. For example, procurement is responsible for an origination’s spending of the biggest part of the budget and meets the purchasing obligation (Tukuta & Saruchera, 2015). It is endowed with the responsibility to submit the proposal to the accounting team that approves it before the release of funds. Purchasing, in turn, ensures that materials acquired conform to the specification and quality required by the engineering and production teams to enhance an efficient manufacturing process. Therefore, procurement function interrelates with other organizational functions to achieve the overall function and objectives of the organization.
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Current Problems in Purchasing
Running of organizations can sometimes be challenging. Personnel handling the function of procurement should possess a high level of purchasing skills and knowledge. Tukuta and Saruchera (2015) ascertain that the staff should be qualified and have skills to interpret and examine supply and demand changes in addition to handling various aspects of relationships with the organization’s suppliers. Since globalization and networking are important and necessary in supply chain, staff should acquire adequate professionalism in international purchasing. The lack of professionalism in global purchasing possesses a substantial risk since it can interfere with the entity’s relationship with its stakeholders (Tukuta & Saruchera, 2015).
Unprofessionalism in procurement and purchasing practices results in bad handling of shipments. It can lead to unnecessary delays, anger, expenses, and frustrations (Tukuta & Saruchera, 2015). Unprofessional practices disrupt operations in firms that purchase products in addition to damaging their relationships with their customers. Purchasing activities are often costly, and any problem arising from them can likely low the sales. Consequently, the company can achieve minimum profits if not losses. Therefore, there is a need to prevent and eliminate the challenges in order to promote organizational performance.
Purchasing resources and products are expensive in addition to processes and activities performed before completion of purchase. When an order is placed, multiple costs are incurred in the course of handling and processing the placed order (Tukuta & Saruchera, 2015). Funds can limit purchasing and supply chain functions. According to Tukuta & Saruchera (2015), limited foreign currency poses difficult for most of the procurement organizations participating in international trade in fulfilling their purchasing requirements to meet the stipulated purchasing contracts. It, therefore, means that an organization should spend a substantial amount of funds in meeting its objectives by networking and promoting globalization of its activities. In some cases, procurement professionals are compelled to reduce their orders due to increased costs (Hypo Group Alpe-Adria, 2010). Such a decision may result in the failure of the organization to meet its demands for commodities. That is the reason procurement professionals should be experienced to enable them to predict the costs necessary for indulging into international buying.
The process of procurement has many risk factors that should be well-assessed before implementing any function of this process. Roos (2015) states that the biggest external challenge for most of the business organizations is the supply chain risk. A study involving 830 procurement professionals in the UK, North America, and Europe revealed that 77% of the respondents believed that supply chain risk is one of the biggest challenges to operations of their businesses (Roos, 2015). The study claims procurement should do a recommendable job in managing the risk by taking into account multiple factors. Such a job entails understanding where they are doing business, the location of their manufacturers, and where their suppliers are performing their business activities. Furthermore, the procurement professionals should understand the political, currency, and workforce stability in the location of operation.
Poor Corporate Governance
Poor or the lack of governance in the corporate world results in a high turnover of labor. It spreads to all economy sectors, which negatively affects the economic growth and stability of a nation (Tukuta & Saruchera, 2015). Whether it is purchasing or any other function in a business institution, the most important asset is the human resource. Lack of governance may make employees feel reluctant without commitment in fulfilling their roles and responsibilities (Roos, 2015). Some of the employees are those involved in purchasing activities of a company as well as those who may be involved in functions of the supply chain such as the accountants. Failure of these employees to commit themselves to work may make the company lose a lot of funds in purchasing poor quality items. Therefore, governance should be present and implemented in the most suitable manner.
Poor or Lack of Adequate Employee Motivation
Human resources should receive adequate motivation while performing their duties. Employees expect to be rewarded in agreement with their efforts and skills among many others (Monczka, Handfield, Giunipero, & Patterson, 2015). Victor Vroom’s theory of expectancy asserts that efforts of satisfying needs depend on an individual’s perception that he or she expects the efforts incurred when working be followed by a given outcome that brings desirable results (Miner, 2015). Most employees have a tendency to compare their job input and output with that of others across the same board and measure whether there is any inequity. A problem arises after some significant inequity is realized. According to Miner (2015), lack of justice and equity is a pure indication of poor governance that results in the likelihood of having a poorly motivated staff. The staff may deliver poor quality work in the purchasing and supply chain processes, which may hinder the optimal performance of an organization. In such a case, the functioning of the purchasing process and supply chain may be poor due to meeting employee challenges. The only option for institutions is to formulate ways of motivating staff in order for them to deliver quality services. Such employees can have a positive impact on business operations.
Some organizations experience poor communication both internally and externally. Internal communication involves organizational departments and purchasers. Purchasers should receive good communication from all angles to rightfully affect their buying decisions (Po, 2012). Poor services and products are attainable when there is poor communication because the purchasers and suppliers may not understand the type and quality of products the organization wants in producing the final commodities for customers. Consequently, companies may fail to satisfy their customers, which can affect competition. Cutting-Decelle et al. (2007) explain that organizations concerned with supply-chain relationships should share information adequately in their course of interaction. The most involved parties in communication to enhance procurement and supply chain processes are the suppliers, service providers, and customers.
This challenge is solvable. The solution to this challenge is the development of a substantial strategy to enhance communication within and outside the organization (Po, 2012). Information flow should be managed in different ways to incorporate all stakeholders. Over the years, organizations have been managing the flow of information in some ways such as using faxes, electronic data interchange, telex, telephone calls, and letters (Cutting-Decelle et al., 2007). Recently, internet use in communication has been effective in organizations because it is very fast and efficient, and it has the capability to handle large amounts and varied kinds of information. Companies should develop supply chain information systems both from manual interactions and from automated sources. In agreement with Cutting-Decelle et al.’s (2007) assertions, in a perfect system, one should develop a network of communication through which data can be entered only once, and the information gets availed to all the stakeholders at once. This kind of network can help in spreading similar information to all the shareholders without being interfered with many communication barriers.
Professionals in supply chain should be able to adapt to technological changes in order to keep abreast with the current needs and demands of various stakeholders. However, the costs of implementing and coping up with these changes may also be a drawback (Tukuta & Saruchera, 2015). Modern procurement is currently taking place online, yet some companies are lacking behind regarding adaptability and finances (Savage, Fransman, & Jenkins, 2013). This may impact the process of networking and globalization of organizational activities thus diminished growth.
Regulations and Audit, Lack of Supplier Innovation, Currency Fluctuations, Supply Chain Fraud, Diseases, and Impact of General Elections in Home Country
Challenges that affect procurement professionals have influence on their purchasing activities, supply chain, and overall functions of a business organization. The Global Procurement Study of 2015 establishes several challenges (Roos, 2015). In this study, 71% of the professionals informed that they were affected by regulations and audits. On the other hand, 63% cited lack of supplier innovation, 58% were for currency fluctuations, 26% cited the fluctuation of oil prices, and 20% cited taxes. Moreover, 17% settled for political unrest, 15% for supply chain fraud while 8% and 3% stated that general election in the home country and impact of diseases respectively challenged their activities. Appendix A illustrates the challenges in line with the study findings. They need appropriate solutions to enhance the smooth running of organizations.
Business organizations need resources to promote their activities. They acquire these resources through the supply chain process, specifically through procurement. The purchasing effect is important to supply chain, yet it has challenges that should be solved to ensure the smooth running of business organizations. Purchasing ensures timely performance of activities after the acquisition of necessary resources that hastens the process of getting finished products for customers. Since purchasing is a part of the functions of the supply chain, it is important since it makes the chain complete. Furthermore, purchasing provides an avenue through which supply chain stakeholders can interact by cooperating and collaborating with each other. Moreover, purchasing involves a lot of expenses, which determine an organization’s inputs hence its outputs. On the other hand, challenges in the whole process of purchasing and supply chain affect any organization’s performance. Some of the problems are low professionalism, poor employee motivation, costly purchasing processes, procurement risks, poor corporate governance, communication problems, and technological developments among many others. Each of these challenges should be solved to enhance smooth running of an organization.
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