Eskom Procurement Book 2015

PRINCIPLES OF SUPPLY CHAIN AND PROCUREMENT MANAGEMENT

The second idea is premised on the notion that supply chain management integrates supply and demand management within and across companies. Unfortunately, many organisations pay attention only to what is happening within their firms and therefore fail to understand the importance of the entire chain of activities that ultimately delivers products to the final customer. Consequently, this has led to disjointed and often ineffective supply chains. As noted, the main purpose of this chapter is to discuss the principles of supply chain management and procurement. However, procurement will be discussed from the perspective of integrated supply chain management. Procurement plays a critical role in the implementation and management process of supply chains. New developments in managing supply chains are forcing procurement departments to implement new practices and adopt new ways of handling the interface between buyers and suppliers and to integrate internal and external production and product development activities. For the individual procurement officer, this can often be a difficult process of unlearning old practices and adapting to new realities. 1.2 THE RELATIONSHIP BETWEEN SUPPLY CHAIN MANAGEMENT AND PROCUREMENT Supply chain management can also be described as the integrated management and control of the flow of information, materials and services from the suppliers of the raw materials, through the factories, warehouses and retailers, and finally to the end customers [9]. It includes systems management, manufacturing and assembly, sourcing and procurement, production scheduling, order processing, inventory management, warehousing and customer services [10]. Procurement is only one aspect of supply chain management and involves ensuring that goods or services get to the customer at the right time, price, quality, quantity and place [9]. Procurement is thus defined as a process that involves the acquisition of property, plant and/or equipment, goods, works or services through the purchase, hire, lease, rental or exchange from any source other than the buying organisation [11]. It encompasses the purchasing function, stores, traffic and transportation, incoming inspection and quality control and assurance, supply market research, supplier management and improvement and negotiation and contracting. It is referred to as performing the five rights: getting the right product quality, in the right quantity, at the right time, for the right price, from the right supplier [12, 13]. Figure 1.1 illustrates the relationship between supply chain and procurement.

3 CHAPTER 1