What is Procurement and Supply Management?
Procurement is a key and strategic function which contributes to a company’s growth and its bottom line. Procurement function serves as a responsible unit for optimization of costs and it delivers more tangible and non-tangible benefits to a business. These might include sourcing and negotiation of large value contracts besides the introduction of innovation of new processes, systems & the management bench marked at Global level.
Procurement can be seen as a strategic function that can work as a tool to improve an organisation’s profitability. The responsibilities of this vary from the sourcing of raw materials and services to the process where how the contracts get managed and how the suppliers are maintained. Procurement often matters since it is accountable for at least 60% to 70% of an organisation’s cost. So even if a small reduction happens in costs, it can lead to a huge impact on profits. Purchasing and supply management professionals are also given the responsibility for negotiating terms with suppliers that can benefit both the parties.
This aspect not only affects the revenue and sales but also affects the relationship between an organization and a supplier. A strong base in negotiation skills and the ability to foresee long term business relationships are two very important aspects prominent supply and purchasing management professionals rely on. Other than managing costs, fruitful contracts also focus on the quality of materials along with how and when they will be delivered.
Time also plays an important factor of deals which are successful as the materials have to be available as per the schedule.
By the initiation of Process improvements , improvements in product & supplier relationship development , professionals who are purchasing are responsible for getting cost savings for their companies without trading off quality.If you can see as an average , the cost of materials will be three and a half times the value of all labour and payroll costs. This result will lead to where organisations can see great value in supply and purchasing management professionals who have the capability to increase their savings and also improve their costs.
One- off purchases can be costly and unusual. Organisations requires supplies on a regular basis and this as a result will involve maintaining intimate relationships with the suppliers. This method of supply and purchasing management can bring and add huge amounts of value to a business. This working method on a long term basis with the supplier, Supply and procurement management professionals can gain higher cost savings, increment in competitive advantage and perfect match in schedules. Maintaining relationships of a longer nature will cause a benefit to both supplier and purchaser and also a certain amount of trust is built which enables both parties to succeed. Another important factor here is understanding the potential risks and developing innovative strategies also serves as an important aspect of procurement and supply management. Risks which can arise out of a potential nature can include transparency & fraud, intellectual property and materials which are defective. Procurement and supply management professionals compulsorily put a risk mitigation plan if there is a delay in the supply process or there is a change in schedule.
Communicating, negotiating skills, developing relationships,etc serve as the most important skills for Procurement.