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
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