Eskom Procurement Book 2015

PRINCIPLES OF SUPPLY CHAIN AND PROCUREMENT MANAGEMENT

hold large inventories to ensure uninterrupted material flows but this can lead to increased costs and the tying up of capital that could be used more appropriately elsewhere. • Procurement must ensure an uninterrupted flow of the materials, supplies and services required to operate the organisation. This prevents stock-outs or late deliveries of materials, components and services, which can be extremely costly in terms of lost production, reduced profit or revenue and customer goodwill. Procurement also plays an important role in improving the organisation’s competitive position. Procurement does this by identifying opportunities in the supply chain that can contribute to revenue enhancement, asset management and cost reduction. Procurement can source goods and services at the lowest total cost of supply, provide access to new technologies, and then design flexible delivery arrangements, fast response times, access to high-quality products or services and product design and engineering assistance [10, 12, 21].

1.6 LEVELS OF PROCUREMENT MANAGEMENT WITHIN AN ORGANISATION Three levels of procurement typically exist within an organisation.

1.6.1 STRATEGIC PROCUREMENT MANAGEMENT

Strategic procurement planning takes place at the highest management level. It involves devising long-term plans that must be aligned with the vision and mission of the organisation. Strategic procurement objectives enable the organisation to ensure the availability, at competitive prices, of the inputs that are needed to produce the finished products that the organisation delivers to its customers; ensure that the organisation is located in an area that enables it to gain easy and efficient access to physical resources; decide on the shape and size of the procurement function and the level of authority or seniority assigned to procurement management; institute procedures through which specific needs are reported; and select new suppliers and develop and maintain long-standing and mutually beneficial relationships with them [20]. Positions at this level of management include the procurement director and the procurement manager or merchandise director, in the case of a retail organisation. The procurement director is the most senior or top-level executive within an organisation’s corporate level or major division, such as a Strategic Business Unit (SBU). The director has formal authority and is responsible for managing the organisation’s or the SBU’s purchasing, buying or sourcing functions for the procurement of goods and services from external suppliers [10]. In some organisations, the top position within the procurement function is the procurement manager and not the procurement director. This depends on the organisation’s structure.

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