procurement and supply chain management

procurement and supply chain management

The Importance of Effective Procurement and Supply Chain Management in Modern Business Operations

1. Introduction to Procurement and Supply Chain Management

Effective PSCM has become a hot topic for researchers because its efficient management leads to a competitive advantage, particularly for those companies on the manufacturing edge. It is clearly recognized that better PSCM practices lead to stronger performance in terms of innovation, products, cost, delivery, flexibility, and quality.

In detail, PSCM comprises elements of strategic sourcing, risk analysis, negotiation, procurement processing, contract management, vendor and supply base management, supplier service levels, and ethical behavior. It is important for an organization to address each of these elements in terms of the robustness, linkages, and control mechanisms to be implemented.

In basic terms, procurement and supply chain management (PSCM) is the end-to-end process of financing, sourcing, buying, purchasing, manufacturing, transformation, logistics, warehouse storage, and the end-user sale of goods and services.

Introduction to Procurement and Supply Chain Management

2. Key Principles and Concepts in Procurement and Supply Chain Management

There are many different models or frameworks that help to depict the key principles and concepts in procurement and supply chain management, but one of the most widely used is the one crafted by the Chartered Institute of Purchasing and Supply, or CIPS. It is referred to as the CIPS “wheel.” This organizational wheel, pre-designed by CIPS, features 10 different professional subject components concerned with procurement and supply management. These are: organization and strategy; management and people; policy and procedures; quality management; relationship management; risk management; sourcing; supply market analysis; negotiation; and finally, contract management. It is a critical factor for good procurement practice that all 10 of these components are combined together in equilibrium inside an organization, to allow its procurement function to operate at an overall high level of performance. This chapter outlines all 10 components of the CIPS “wheel” in relation to the public service organization. However, it may be the case that not all 10 components of the CIPS “wheel” will be fully applicable in a public service context.

3. Technological Innovations and Trends in Procurement and Supply Chain Management

The blockchain offers cost-efficient operational systems. It may provide a clear understanding of the supply chain. Thus, it makes it clear to the customer for what exactly they are paying for by providing a certified “proof of creation” document for purchasing goods and services. DPAs work greatly to make contracts transparent as well. They allow the negotiator in a short time to select the most profitable contracts among purchased products to optimize profits using economic principles. In order to enable the cost-effective use of knowledge within their constraint cost, they work analysis and deliver simple recommendations. Such solutions as blockchain and AI technologies ensure transparency in the procurement process. The requirements of sustainable procurement specification, such as eco-labeling, ISO 14001 and ISO 26000 are left fulfilled by other technologies as well. All of these technological breakthroughs change the servant master’s role for a buyer, supplier, and data analyst, which may affect selection arenas and negotiation strategies.

Tech solutions have a huge impact on all industries. Digitalization provides suppliers with a chance to change their business models. Artificial intelligence, big data, robotic platforms, blockchain, and cloud technologies simplify various processes in supply chain management. The global procurement sector is also introducing some innovations to optimize all processes. For instance, bots are great at choosing suppliers after risk management due to pre-negotiations and negotiations. By reviewing a great amount of contracts, they free specialists to model risks based on the semantic analysis of clauses. Every document is now signed electronically. Such solutions as complete cost recovery and choke pollution prices are offered by startups for ethical procurement too.

4. Challenges and Solutions in Procurement and Supply Chain Management

From the perspective of supply chain risk security, more and more companies in the same industry believe that the effectiveness of supply chain operation management is a key aspect of the performance and strategic configuration in supply chain coordination. Supply chain management is regarded as a key subject of strategic acquisition. To improve the performance of the supply chain as any other main function, while at the same time fixing the relationship and contract-based breakdown structure of each enterprise, external and internal key stakeholders are all attributed to the procurement and supply chain management area. The key contribution of procurement and supply chain management is directly related to the number and overall quality of supply chains within it. The supply chain of every activity up to now has different meanings and importance and invited different decisions and approaches. Although a company cannot be a supplier, there is at least one level position that is needed, whoever it is for the output process.

In addition to declining financial and sales revenue, researchers are inclined to point out that companies not only have to focus on corporate operations but also pay attention to the transparency of the supply chain, the continuous risks of the supplier network, the legal provisions, and the accountability of the supplier. Regarding security in the supply chain, problems for companies often come from upstream of the supplier rather than from inside the company. Supply chain management increasingly becomes the connection part within and outside the company and the main channel that affects the company’s operational management and overall production of products. At the same time, the company is facing a complex and volatile business environment. Efficiently managing procurement and supply chain management allows stakeholders in the company to understand the significant role and importance of risk management.

5. The Future of Procurement and Supply Chain Management

The tension between driving down costs and establishing long-term supply relationships, where suppliers need to make a reasonable return, will generate a professional’s version of the ‘space race’. Procurement and supply management may become a stronger influencer in business decisions in the future – but this will require characteristics which are barely recognized today. For the ambitious buyer, tomorrow’s job could share many characteristics with the role of a specialist consultant. Those individuals currently stuck in the unhappy world of tactical, push the paper procurement tasks can and should be excited about their career prospects if only the business would provide them with training and the support structures to help them consult – rather than just process orders – with suppliers.

The profession of procurement and supply chain management will undergo substantial change in the next decade as organizations further automate and digitize their business operations. Procurement and supply chain managers will need to develop new research and analytical skills to help translate big data into useful, decision-support systems and information. However, technology will never take the total place of the procurement manager’s role. There will always be negotiation, supplier management, the resolution of delivery issues, risk management, and the essential human factors in managing supply relationships. The environment in which the procurement manager operates will affect the way in which supply chains are developed and managed. In particular, the need for responsible business practices, often within the context of legislation, will create unique challenges for the next twenty years.