Eskom Procurement Book 2015

THE PROCUREMENT PROCESS

is not effective, this can be traced to various causes including, for example, not enough investment, not performing the proper activities, or mistakes made in performing one or more of the activities. When the procurement process is not effective, procurement management should determine why and take corrective action to make sure that future purchases will be effective. If the purchase satisfied the user’s needs at the proper level of investment, the procurement process can be considered effective and can serve as a reference for future purchases. Thus, although the procurement process is complex, it can be managed effectively as long as procurement management develops a systematic approach for implementing it. A key factor in achieving efficiency and effectiveness in this area is the development of successful supplier (vendor) relationships. In fact, many professional procurement/materials managers agree that in today’s global marketplace strong supplier relationships should be developed to create and sustain a competitive advantage. Some companies go so far as to refer to suppliers (vendors) as partners and/or stakeholders in their company. When vendors are ‘partners’, companies tend to rely more on them to provide input into product design, engineering assistance, quality control, and so on. The buyer-supplier relationship is important and deserves special discussion. The next section provides additional discussion of supplier relationship management. Many successful companies have recognised the key role that procurement plays in supply chain management and that supplier/vendor relationships are a vital part of successful procurement strategies. As mentioned, this is especially true when companies reduce the total number of their suppliers, frequently in conjunction with Total Quality Management (TQM) programmes or Just-In-Time (JIT) production and inventory systems. At this stage, procurement professionals recognise that quality management necessitates quality materials and parts. That is, the final product is only as good as the parts that are used in the process. Also, they recognise that the customer satisfaction process begins with procurement. Another dimension of the supplier relationship is that procurement contributes to the competitive advantage of the company, whether the advantage is one of low cost, differentiation, or a niche orientation. Therefore, the procurement management programme has to be consistent with the overall competitive advantage that a company is seeking to attain in the marketplace, i.e., firms may approach the procurement process differently, depending on the products and/or services provided, target markets, supply markets and so on.

2.6.2 SUPPLIER RELATIONSHIP MANAGEMENT

40 CHAPTER 2