Eskom Procurement Book 2015

PROCUREMENT AS A SUPPORT AND STRATEGIC FUNCTION WITHIN COMPANIES

to organisational objectives and strategy; and how the organisational objectives and strategy properly reflect the contribution and opportunities offered in the supply chain. Procurement strategy must link with and support organisational goals and objectives. Terms abound in business strategy, i.e., re-engineering, world-class manufacturing, best in class, etc. This proliferation of terms shows that organisations are in a state of constant and dynamic change; however, they do not always capture the processes that occur when developing a corporate strategy. What is a corporate strategy and how is it best defined? According to Richard Vancil of Harvard University, the strategy of an organisation is a conceptualisation of the organisation’s longer-term objectives and purposes, the broad constraints and policies that govern activities and a set of action plans and near-term goals expected to help achieve the organisation’s objectives [1]. The strategy of an organisation is an embodiment of the firm’s long-term objectives and purposes, the constraints that restrict the firm’s activities, the markets within which the firm operates or wishes to operate. It also expresses the firm’s desired position within those markets, its goals and objectives and the action plans required to achieve these goals and objectives. The corporate strategy must contain a specific plan of how the firm will differentiate itself from its competition, achieve long-term growth, manage its costs, keep abreast of and respond to changes in the market, achieve customer satisfaction and remain profitable and, ultimately, meet the expectations of shareholders. 4.3 PROCUREMENT AND CORPORATE STRATEGY It is important that the procurement strategy within an organisation be linked to and support corporate strategy. Often, significant obstacles to the development of an effective supply strategy result from difficulties in translating organisational objectives into supply objectives. In this section we cover linking procurement and corporate strategy; translating corporate objectives into procurement objectives; and translating procurement objectives into procurement goals. It is beyond the scope of this chapter to go into the development of corporate strategies. However, the economics associated with a corporate strategy are important to understand, at least at a high level. In short, an organisation must take in more than it spends on operating costs in the long term if it is to grow and remain profitable. Either increasing revenues or decreasing costs or both can accomplish this. Procurement plays an important role in helping to accomplish both objectives. Through effective procurement strategies an organisation can position itself

4.3.1 LINKING PROCUREMENT AND CORPORATE STRATEGY

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