How procurement and supply management relate to the objectives of the organisation (Strata)
While there are several roles of the procurement and supply chain management at Strata, all these roles must relate to the company’s objectives. The procurement and supply management supports organisational objectives by ensuring that there are goods, supplies and services for daily operations of the company.
The procurement and supply management aims to contribute to the company’s profitability by controlling costs of supplies, goods, services and operations.
The department also strives to establish reliable sources of supply and encourage favourable business relationships with external stakeholders. This results into the most favourable supplier engagement and enhances process improvement among business partners.
Strata has clearly stated objectives. However, individuals in the procurement and supply management must determine organisational expectations. For instance, the Chief CEO leads Strata. The Chief Operating Officer (COO) and the Chief Financial Officer (CFO) report to the CEO on all matters related to organisational performance. Strata plans to facilitate its growth for the next 20 years by developing products that meet and satisfy customers’ requirements.
This shows that individuals in the organisation are responsible for decision-making processes to facilitate procurement and supply management. Moreover, this relationship also indicates that employees in the department of procurement must consult widely with other executives. Therefore, the CFO must ensure maximum returns on any investments.
When identifying procurement and supply objectives, managers must account for the company’s objectives and ensure that procurement and supply objectives are consistent with other strategic objectives of the company.
Strata focuses on meeting diverse needs of its customers effectively. Consequently, the company assesses the whole supply chain to ensure that it meets various needs of stakeholders. Therefore, the relevance of the procurement and supply management has direct impacts on the company’s profitability and efficiency.
Description of the purchasing functions – core activities in the purchasing processes
The Procurement Director leads the main purchasing functions in the company. There are two divisions in the purchasing function, which include General Procurement and Aerostructure Procurement.
The General Procurement function accounts for all procurement activities in production equipment, manufacturing and production processes, consumables and all other general services, which support organisational tool production processes.
On the other hand, Aerostructure Procurement function focuses on procurement activities for all the necessary raw materials and standard hardware components used in the manufacturing of aerostructure products.
Procurement is a fundamental element in an organisation (Monczka, Handfield, Giunipero and Patterson, 2008). It accounts for over 60 percent of Strata’s expenses and has a direct impact on profitability of the organisation.
The two fundamental objectives of procurement activities are to ensure availability of materials for production at all time at competitive prices and continuous production. The procurement function accounts for product and service procurement at the right source, the right time, the right quality, the right price and at the right quantity.
There are core activities in the purchasing process, which involve the following aspects.
- The procurement department must conduct categorisation and selection of suppliers through effective tendering processes. Organisations must enter into partnership based on their products and services and expenditure on the company.
- The purchasing department procures goods and services through competitive bidding processes in which suppliers submit their proposals and quotes for consideration. The selection process ensures that only qualified suppliers are selected for high value purchases. The tendering process is a highly structured process, which involves a technical panel and business experts with members drawn from the Procurement department and the requesting department. This group evaluates all submitted proposals based on the pre-defined criteria for selection (Pooler, 1997).
- For repetitive services or similar product requirements, the procurement department prepares a long-term contract rates and provides a supply schedule to avoid repetitive quotes for the same products or services. This results into cost-saving and efficient delivery.
- The procurement department ensures that enough supplies are available for the organisation. The department monitors the minimum and maximum number of basic materials for production.
- The purchasing function involves a review of suppliers’ performances based on timely delivery, value and product or service quality.
- The purchasing department reviews purchased orders, terms and conditions with the strategic suppliers to ensure maximum benefits for the company.
- The department also conducts periodic assessment of organisational procurement effectiveness.
The relationship between the organisation and its major suppliers
Strata strives to maintain a good relationship with its major suppliers. It manufactures aerostructure parts and supplies the product to the leading airline companies globally. Therefore, the company strives to manufacture quality products to meet diverse needs of its customers. It intends to enhance growth for the next 20 years. In this respect, Strata must maintain strategic relationships with its major suppliers based on the quality of products and overall impacts on the manufacturing process. Strata has identified three critical issues in purchasing processes. These include decision-making processes, the supply system and buyer-supplier relationship.
Current studies have shown that it is imperative for organisations to adopt collaboration strategies in business relations (McHugh, Humphreys and Mclvor, 2003). The company’s decision to adopt a closer partnership with its major suppliers is a beneficial one and has major outcomes for suppliers in terms of continued business and profitability based on long-term relations.
A closer relationship and collaboration with major suppliers could result in beneficial impacts on the company’s operations and financial performance (Burnes and New, 1997).
Such kinds of relationships have resulted in purchasing paradigm shifts as companies seek for beneficial relationships.
Therefore, it is imperative for any organisation to re-examine the nature of the relationship and benefits derived from the supplier-buyer relationships because some critics have argued that organisations can only achieve “success at the expense of others like competitors, suppliers, and customers” (McHugh et al., 2003). Therefore, Strata aims for collaboration with its major suppliers for mutual benefits.
Organisations understand powerful buyers’ influences on their business activities. Such buyers can negatively affect the company’s profitability if they focus on enhancing their bargaining power. On this note, Strata understands the relevance of good communication, consultation and employee engagement in decision-making and purchasing processes. This is critical for Strata because decision-making on purchasing processes could have long-term effects on its operations.
Criteria used to select suppliers
The company selects suppliers carefully to allow it to stay ahead in a competitive business environment (Hugos, 2011). Strata uses the following criteria to select its suppliers.
- The suppliers’ capabilities to meet demands across various geographical locations
- Suppliers must meet critical aspects like on-time delivery, product quality, flexibility and affordability.
- Past performances of suppliers
- The length of the contract also influences choices of suppliers i.e., short-term or long-term contracts
- Strategic advantages that the company can derive from suppliers
- Opportunities to minimise costs through consolidated processes
- The suppliers’ financial status
References
Burnes, B., and New, S. (1997). Collaboration in Customer-Supplier Relationships: Strategy, Operations and Function of Rhetoric. International Journal of Purchasing and Management, 33(4), 10-18. Web.
Hugos, M. H. (2011). Essentials of Supply Chain Management (3rd ed.). New York: Wiley. Web.
McHugh, M., Humphreys, P., and Mclvor, R. (2003). Buyer-supplier relationships and organization health. Journal of Supply Chain Management, 39(2), 15–25. Web.
Monczka, R., Handfield, R., Giunipero, L., and Patterson, J. (2008). Purchasing and Supply Chain Management. Michigan: Cengage Learning. Web.
Pooler, V. H. (1997). Purchasing and Supply Management: Creating the Vision. London: Springer. Web.