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General procurement objectives is obtaining the 'inputs' that an organisation need for its operations while reducing the costs of these inputs. For example, a manufacturing organisation may require raw materials or components in order to turn them into products; a retail organisation may require finished goods in order to sell them to customers; and a service organisation may require equipment, information, and people in order to provide services to customers. However, the underlying concept is the same in each instance.
As a result, the main responsibility of the procurement function is to obtain value for money by ensuring that the 'RIGHT' inputs are provided to the organization's operations. Inputs of the 'RIGHT QUALITY’, supplied in the 'RIGHT QUANTITY’, delivered to the 'RIGHT PLACE’, provided at the 'RIGHT TIME’, and delivered at the 'RIGHT PRICE’ are typical descriptions of the 'correct' input. These are referred to as the "five rights of procurement" in certain circles. In a subsequent post, we will go through in details the definitions of the five rights and how to optimise your procurement resources to achieve value for money.
Between now and then, it is feasible to define a number of other broad objectives of procurement activities, as well as alternative approaches to the main job of procurement.
The first key objective is INTERNAL CUSTOMER SERVICE. Procurement offers inputs to the operations of an organisation. As a result, the units responsible for such activities (such as the manufacturing or operations functions) may be considered internal customers of the procurement department. Internal customers services are one of procurement's main objectives. This includes determining and fulfilling their input requirements (as defined by the five rights); providing them with advice and information on the best inputs, sources, and prices that are currently accessible; and so on.
The second point to mention is RISK MANAGEMENT. The organisation is unable to operate without inputs, especially those that are critical to the organization's manufacturing or service delivery operations. If inputs become scarce or a source of supply fails unexpectedly (for example, a major supplier goes out of business), the organisation will face problems and losses, including production delays or shutdowns, customer losses, and additional costs incurred to obtain 'emergency' supplies, among other things. One of procurement's overall objectives is to ensure that risks of supply failure or disruption are minimised and/or 'covered' by contingency plans. This entails keeping an eye on the supply market, predicting demand, avoiding over-reliance on a single source, establishing partnerships with reliable suppliers.
Third, COST CONTROL AND REDUCTION are important considerations. For any organisation to be profitable (which is the primary goal of commercial organisations) or to provide services at a reasonable cost (which is the primary goal of non-profit organisations), it must maintain tight control over its costs. A significant portion of any organization's overall costs will be the inputs it purchases, which is to say, its expenditure with external suppliers. A major goal of procurement is to manage, decrease and/or minimise expenses by continuously acquiring the correct amount at the right price and decreasing or eliminating waste in the purchasing and supply processes, among other things.
Finally, there is the MANAGEMENT OF RELATIONSHIPS AND REPUTATION. When it comes to the organisation and the outside world, procurement is an essential 'interface' or "touch-point" between both. One of the organization's general goals is to maintain good relationships with suppliers, as well as to conduct its operations in an ethical, socially responsible, and environmentally friendly manner, in order to promote and preserve the organization's reputation.
To summarise, the above explains procurement importance as a function to the organisations as the primary goals of the procurement function are to obtain value for money, to uphold the "five rights" of procurement, and to provide value to the organization's overall operations. Adding value to a company's customers will be the subject of our next article, which will explore how to do so and the role of procurement in this process.
By Haytham Etemad
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