Assignment Title: Firms should seek to “get their own house in order” before seeking to manage suppliers
Purchasing is a vital process of the company, 100% efficiency is required at all times. There must be proper organization and flexibility in this department. People working in this department should constantly evaluate the current purchasing scheme of the company and adapt to changes at all times.
Purchasing department or team of a company basically seek to answer these two questions: what we buy and how we buy. The answers to these two questions can change depending to companies size and sector. Indeed, by answering these two questions is the main goal of procurement team or department is to create best value for money and to maximize it. It is possible to maximize best value for money by obtaining surplus value. Surplus value is different from the value. Surplus value locates between cost of production for supplier and value of the product to the buyer. This is called the area zone of agreement. The surplus value which is retained by supplier is called producer surplus and the value which is retained by buyer is called consumer surplus, the procurement team/department aim to maximize consumer surplus. Purchasing process means that demand management. There are two ways to make purchase decision make-buy or outsourcing. Make-buy is required internal management it is related to the organizational buying behavior. Outsourcing is required external management consist of supplier management. The fundamental issue in purchasing process is to provide efficiency in demand management. Efficiency of purchasing process is related for instance a reduction in the number of suppliers used an automation of the purchasing process, the use of framework agreements, and the development of trusting relationship with suppliers. Providing efficiency contribute to get power. Business life means power games. The market is unforgiving for weakness so at first hand, while the firm seeks to establish its own house in order before seeking to manage the suppliers. It will provide efficiency. In order to get successful purchasing process, firm should manage its demand efficiently and firstly firm should be sure to provide this efficiency by establishing “in its own house in order” in this case firm could get power above its suppliers. Demand management problems in an organization could appear in different ways (Londsdale, SP&SM, Lecturer notes, Week 3) Maverick buying, fragmentation of spend, early specification, over-specification, unnecessary change to specifications, poor demand information, lack of clarity, adverse selection, inappropriate contracting, poor monitoring leading to moral hazard, unnecessary purchase. These problems occur alone or together. Organizational buying behavior involves a multi-person activity and it is true for 90% of organizational buying. This includes a very meticulous process which can even take more than a year to decide and conclude. Today’s organizations are aware of the costs involved in making timely, accurate and efficient decisions; create more value for money. If firms are to succeed in one facet of its global goal to be known in the market, a strong leadership should be in place; guide and make it move in a synchronized manner. Most of whom started small in its own right to be able to manage its own people easily, efficiently and most of all, avoid unaccounted costs. For a firm to manage its buying behavior and create a benchmark, it needs to: recognize a problem, acknowledge a general need, create or come up with product specifications, make an efficient and able supplier search, make a buying step, select a supplier, make an order-routine specification and conduct a post-purchase performance review. Once this process is harnessed over time; the next step to go bigger; to expand. (http://www.smartcompany.com.au/marketing/sales/22378-20111007-marketing-strategies-organisational-buyer-behaviour.html) To...
References: Croxton, K L,(2002) “International Journal of Logistics Management”, The; Volume: 13 Issue: 2
Lonsdale, C, (2013),”SP&SM Lectures Notes Week 1 to Week 10”, University of Birmingham Business School
Lonsdale, C, (2013), “SP&SM Lectures Case Studies, Vodafone, Novartis, Rushmore University Hospital Trust” University of Birmingham Business School.
Lonsdale, C., & Watson, G. (2005). The internal client relationship, demand management and value for money: a conceptual model. journal of Purchasing and Supply Management, 11(4), 159-171.
Lonsdale, C., & Watson, G, (2003), “Managing the Supply Base within Supply Networks, A Module Reader for Students”, University of Birmingham
Please join StudyMode to read the full document