Question

Discuss the strategic, tactical and operational roles of the procurement.

Answer 1

Procurement

Procurement is the process of finding and agreeing to terms, and acquiring goods, services, or works from an external source, often via a tendering or competitive bidding process.

Strategic procurement

Strategic procurement is an organization-wide process. It requires input from all departments and functional areas for an organization. Organizations should set up a strategic procurement team. This team sets the overall direction for procurement, aligned with the business strategy. The team will then use the data from the strategic procurement process to develop and implement a strategic procurement plan.

Tactical Procurement

           Firstly, let us define what a tactical plan is. It is a plan that is crafted with the aim of achieving goals that are short-term in nature, short-term generally meaning within a year’s time or less than that. A tactical plan is used to pursue shorter-term goals that can add up to achieving the strategic (and more long-term) goals of the company. A tactical plan is mainly concerned with delegating responsibility to the workers and explaining what they need to do and how they need to do. The time frame for a tactical plan is much shorter and the scope is generally much narrower than it would be for a strategic plan. A tactical procurement plan is usually created by top level management within an organization or without an organization’s procurement department. Tactical procurement plans are oftentimes necessary in order to achieve the strategic plan of the company.

Operational procurement

    Operational procurement refers to the procurement of goods and services that are required to sustain an organization’s day-to-day business operations. You may also hear it referred to as MRO purchasing, which refers to maintenance, repair, and operations because these purchases are necessary to keep the business running.

Procurement life cycle

        Most of the organizations think of their procurement process in terms of a life cycle.[citation needed] Different consulting firms and experts have developed various frameworks. Some of the most common steps from the most popular frameworks include:

Identification of need and requirements

          analysis is an internal step that involves an understanding of business objectives by establishing a short term strategy (three to five years) for overall spend category followed by defining the technical direction and requirements.

External macro-level market analysis

          Once an organization understands its requirements, it should look outward to assess the overall marketplace. A key part of a market analysis is understanding the overall competitiveness of the marketplace and trends that are likely to impact the organization.

Cost analysis is the accumulation, examination and manipulation of cost data for comparisons and projections. A cost analysis is important to help an organization make a make-buy decision.

Supplier identification includes identifying particular suppliers that can provide the required product or services. There are many sources to search for potential suppliers. One good source is trade shows. Modern procurement software often incorporates a supplier catalog for standardized goods and services.

Non-disclosure agreement (NDA)

        It is quite normal to request vendors to sign an NDA prior to engaging with them. This protects the organisation where sensitive information is shared with multiple potential vendors ahead of releasing detailed requirements which often point to strategic decisions a firm has taken.

Supplier communication

         When one or more suitable suppliers have been identified, an organization will typically conduct a competitive bidding process. Organizations can use a variety of competitive bidding methods including requests for quotation, requests for proposals, requests for information, requests for tender, request for solution or a request for partnership. Some institutions choose to use a notification service in order to raise the competition for the chosen opportunity. These systems can either be direct from their e-tendering software, or as a re-packaged notification from an external system. During this step direct contact may be made with the suppliers. References for product/service quality are consulted, and any requirements for follow-up services including installation, maintenance, and warranty are investigated. Samples of the product/service being considered may be examined, or trials undertaken. Organizations should do a risk assessment, total cost of ownership analysis and best value assessment before selecting the final suppliers/solution.

Negotiations and contracting

        Negotiations are undertaken that often include price, availability, customization, and delivery schedules. The details are outlined in a purchase order or more formal contract.

Logistics and performance management

         Supplier preparation, expediting, shipment, delivery, and payment for the product/service are completed, based on contract terms. Installation and training may also be included. An organization should evaluate the performance of the product/service as they are consumed. A supplier scorecard is a popular tool for this purpose. When the product/service has been consumed or disposed of, the contract expires, or the product or service is to be re-ordered, the organization should review their experience with the product/service. If the product/service is to be re-ordered, the company determines whether to consider other suppliers or to continue with the same supplier.

Supplier management and liaison

        Organizations that have more strategic goods or services that require ongoing interfaces with a supplier will use a supplier relationship management process. Strategic outsourcing relationships should set up formal governance processes

Operational Role of Procurement

1. The first is managing internal transactions for ordering and receiving goods and services, and handling procurement data. The primary goal here is to maximise the efficiency of transaction-flow and reporting.
2. The second is support for vendor engagement and contracting processes. Procurement’s roots are in regular price negotiations for raw materials, packaging, tools, consumables, components and other regular purchases. It is largely a tactical and transaction-focussed process.
3. The third area is “value-based strategic procurement that can translate into bottom line improvements to the corporation …to ensure that the Procurement strategy is aligned with, and that it rolls-up to, the overall corporate strategy.
4. Procurement is increasingly responsible for buying non-traditional services such as consultancy, audit, training, and legal.
5. Procurement now challenges specifications developed by its own internal customers–and in some cases, even the basic need for a purchase.
6. It may draft or even own the organisation’s strategy for buying goods and services with high transaction volumes, such as travel, office supplies and MRO (maintenance, repair and operation). In some cases
7. It may support or lead outsourcing projects