Eskom Procurement Book 2015

PROCUREMENT AS A SUPPORT AND STRATEGIC FUNCTION WITHIN COMPANIES

TQM with suppliers involves procurement working with key suppliers to initiate and/or grow a TQM programme. This is especially true when companies reduce the total number of their suppliers, frequently in conjunction with TQM programmes or Just-In-Time (JIT) production and inventory systems. Procurement professionals today 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; and procurement plays a vital role in helping suppliers ensure the quality of parts that go into final products. Most firms engage in global sourcing at some level. Why do procurement organisations engage in global sourcing? After all, it is probably easier to work with a supplier down the street than one located elsewhere in the world. Long distances make planning and logistics more difficult; currency fluctuations can change the economics of a transaction; different business cultures and languages can lead to misunderstandings; and the paperwork that comes with international transactions can be cumbersome. In addition, supply issues can increase with long distances. Why go through this? Industry participants consistently say the number one day-to-day pressure they face is a relentless pressure to reduce costs, which largely explains the motivation behind global sourcing. Regardless of the study or survey conducted, the primary reason for sourcing on a worldwide basis is to obtain lower prices. For example, as a cost-cutting measure, Dell moved its European manufacturing outfit from Ireland to Poland. This was no small undertaking and affected almost 2 000 employees. The move was part of a $3 billion company-wide cost reduction initiative [4]. Other reasons for procuring internationally, which differ according to who is being asked, hardly register on the ranking scale. An obvious, but often overlooked reason is that some commodities are only available from certain regions. This makes worldwide sourcing a necessity when those items are required. Also, the supply base to support certain industries, particularly in the US and Europe, is gone and is not coming back anytime soon. Companies like Intel and Apple know that electronics components and contract manufacturers are located almost exclusively inAsia. Firms can have their own reasons for sourcing internationally and these will differ from firm to firm. For most procurement managers, international sourcing is about price. Once in a while it may be about gaining access to new sources of technology, higher quality or introducing competition to the domestic supply base. By and large, however, price reduction is the key driver. While international purchasing can offer attractive cost-saving opportunities, the process requires supply managers to address a wider range of issues in terms of cost, time and complexity. While product cost reductions can arise from global sourcing agreements, there is also the risk of hidden costs, particularly

4.5.3 SOURCING GLOBALLY

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