1. As a critical business function,
procurement has the ability to influence
corporate profitability when it is
operating at a strategic level in firms.
However, the new President of the Irish
Institute of Purchasing and Materials
Management, Gary Shanley believes the
contribution of procurement at both
operational and strategic levels has yet
to achieve its maximum level.
“Over the past few years’ procurement
has begun to play an increasingly
important role in the strategy of the
firm,” said Shanley. “This is more
accurate than would have been the case
in the past. This leads to an important
question as to what the impact is of an
expanded and strategic role for the
procurement function.”
Shanley claims there are three distinct
types of procurement strategy:
• specific strategies employed by the
procurement function i.e. single
sourcing;
• its role in supporting the strategies of
other functions and of the firm as a
whole;
• the utilisation of procurement as a
strategic function of the firm.
Integrating procurement
strategy
Procurement strategy must be
supportive of corporate and functional
strategies and it is critical that corporate
management acknowledges the vital role
procurement is capable of playing in
developing the competitive advantage of
the firm.
“Corporate objectives and strategy must
be connected to the firm’s future
objectives and further to that, the
objectives of the procurement function
need to be defined,” said Shanley.
Strategic Procurement’s contributions to
corporate strategic planning include, but
are not limited to, the following:
• Monitoring supply market trends;
• Interpreting the impact of these
trends on the firm;
• Identifying the materials and services
required to support company and
strategic business unit strategies.
Procurement as a
strategic function
The movement of the procurement
function from a “passive” or reactive role
to strategic role is becoming ever more
prevalent across organisations and
industries. In many cases, top
management has realised procurement’s
profit-generating capability.
In addition, there are many internal
factors that influence the perception of
procurement, for example, management
style, the depth of procurement’s other
responsibilities, internal politics the
distribution of decision making and the
firm’s profitability. An increased level of
sophistication within the procurement
function enables the firm to fully
integrate procurement into corporate
strategy.
Specifically, strategic procurement can
develop optimal material specifications,
monitor and forecast changes in external
source markets, share information with
suppliers, identify critical materials and
substitutes, identify key suppliers that
can support product design, and
develop material sourcing and
contingency plans to support new
product development and introduction.
Shanley states that in order to integrate
procurement strategies and corporate
strategies, the procurement function
must first develop to a level where it is
recognised as a strategic area of the
firm. “It must assume a proactive role in
working with other functions to formulate
and implement competitive strategy, to
minimise barriers between procurement
and other functions,” said Shanley.
“The opportunity is now there for
Strategic Procurement to act as a
strategic entity and make its strategic
contribution to the success of a firm. It is
likely to only continue in that vein.”
The new President of the Irish Institute of
Purchasing and Materials Management,
Gary Shanley, explains how procurement
has become a critical business function.
The strategic role of
procurement
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