Eskom Procurement Book 2015

PROCUREMENT AS A SUPPORT AND STRATEGIC FUNCTION WITHIN COMPANIES

to be competitive on both the quality and pricing of its products and services. Reducing the costs of materials and services is an area where procurement plays a vital role and thereby helps to improve corporate profit margins. In many cases, procured goods and services provide a major opportunity for reducing costs within an organisation and for improving return on assets. Many firms, however, do a poor job of accomplishing this. It is frequently the result of a poor link of procurement strategies to corporate strategies. In some instances a limited understanding or awareness by procurement of corporate strategies causes the lack of accomplishment. In other cases procurement has not been included in the development of the corporate strategy. Perhaps the greatest underlying cause of this problem is that top and senior management within organisations often fail to understand the strategic importance of procurement to the organisation and/or how to effectively develop an integrated sourcing strategy that supports organisational objectives. However, many successful firms, including UPS, IBM, Dell and Honda, have recognised the importance of procurement in helping to achieve organisational goals and objectives and have developed organisational strategies to include procurement in the process of developing and linking these strategies [2]. Linking procurement strategy to corporate strategy is essential, but many firms do not have mechanisms in place to link the two. Effective contribution from the procurement group means more than just a response to a directive from top management. It implies input into the strategic planning process so that organisational objectives and strategies include procurement opportunities and problems. One of the major obstacles to the development of an effective procurement strategy lies in the difficulties inherent in translating organisational objectives into procurement objectives. In most cases, organisational objectives can be summarised under four main categories: survival, growth, financial and environmental. When it comes to procurement objectives, however, these are normally expressed in a totally different way, such as quality and function, delivery, quantity, price, terms and conditions, service and so on. One challenge facing the supply manager is the effective interpretation of corporate objectives and how these link with procurement objectives. A second challenge deals with the choice of the best action plan or strategy to achieve the desired objectives. A third challenge deals with the identification and feedback of procurement issues to be integrated into organisational objectives and strategies. The development of a procurement strategy requires that procurement management be in tune with the organisation’s key objectives and strategies and also be capable of identifying, creating and realising opportunities relating to

4.3.2 TRANSLATING CORPORATE OBJECTIVES INTO PROCUREMENT GOALS AND OBJECTIVES

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