Procurement Principles and Management in the Digital Age PDF

Procurement Principles and Management in the Digital Age Twelfth Edition Part 1 Procurement objectives and development Chapter 2 Strategic procurement and...

Procurement Principles and Management in the Digital Age Twelfth Edition Part 1 Procurement objectives and development Chapter 2 Strategic procurement and supply chain management © 2022 Pearson Education Limited. All Rights Reserved.  Objectives of this chapter To explain the growth in the strategic role of procurement and supply To identify the supply chain concept and to consider alternative ‘supply chain’ models To explain the concept of strategic management To identify various forms of procurement strategy aimed at gaining competitive advantage and to examine influences on strategic choice To follow the supply chain concept, investigating events from the primary supplier to the ultimate user To provide an overview of the future of procurement © 2022 Pearson Education Limited. All Rights Reserved.  Introduction We shall demonstrate how procurement is becoming a key contributor to business planning, especially in planning supply chain sustainability and resilience. In this chapter we will also provide an overview of the latest strategies for the future of procurement. © 2022 Pearson Education Limited. All Rights Reserved.  Case study ‒ UNICEF UNICEF has revealed it achieved over $363 million in savings over a range of medical supplies. Strategic procurement, price and information transparency, special contracting terms, multi-year arrangements and partner collaborations, such as joint forecasting and coordinated procurement, were critical to achieving these savings. Other projects have included a mobile phone app that uses real-time data to facilitate faster delivery and improved management of supplies.(Hart, 2020) © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.1 The scope of the purchase function Note: The examples are for the purpose of illustration only. A complete statement of the scope would be very lengthy, and would vary greatly between one organisation and another. © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.2 Organisation structure and the flow of goods © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.3 A managerial recipe undergoing change Source: Adapted from P. Grinyer and J.-C. Spender, Turnaround: Managerial Recipes for Strategic Success, Associated Business Press, 1979, p. 203 © 2022 Pearson Education Limited. All Rights Reserved.  Practice note Some companies are introducing strategic improvement plans with their suppliers identifying areas for considerable improvements leading to the elimination of problems. Such a vision might include: ‒ nil defects; ‒ nil delivery times; ‒ nil administration errors; ‒ nil transaction costs; ‒ nil set-up costs; ‒ nil disputes. Members of the supply chain would work together to achieve such objectives. © 2022 Pearson Education Limited. All Rights Reserved.  CLASS ACTIVITY How can the supply chain members ensure that they achieve such objectives? © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.6 Prescriptive and emergent approaches to the three core elements Source: Adapted from Lynch, R. (2002), Corporate Strategy, Harlow: Prentice Hall, with permission from Pearson Education Ltd © 2022 Pearson Education Limited. All Rights Reserved. Table 2.1 Examples of tools of analysis © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.7 STEEPLED analysis © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.9 Strategic management competitive factors Source: Based on Porter, M (1990), Teece, D J, Pisano, G and Shuen, A (1998) and Hill, C and Jones, G (2012) © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.10 The Boston Consulting Group product portfolio matrix Source: Adapted from The BCG Portfolio Matrix from the Product Portfolio Matrix, ©1970, The Boston Consulting Group © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.11 The basic SWOT ‘cruciform’ © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.12 Developing the SWOT cruciform © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.13 Directions for strategy development from Ansoff © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.15 A framework for strategy development © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.16 Some influences on strategy decisions Note: *Strengths, Weaknesses, Opportunities, Threats © 2022 Pearson Education Limited. All Rights Reserved.  CLASS ACTIVITY How can organisations ensure agile procurement and resilience to gain competitive advantage? © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.17 Characteristics of agile organisations © 2022 Pearson Education Limited. All Rights Reserved.  Case Study ‒ FLSmidth In the mining and cement supply chains, disruptions are the norm. So, when China went into lockdown in response to the Covid-19 pandemic, FLSmidth was able to switch to Egypt and Turkey because decentralisation was already part of its business model. This is enabled by technology that is driving down costs, and by more nearshoring. However, the decentralised supply chain must be part of a centralised system, which is responsible for standards, data, knowledge sharing, guidelines and controls to ensure overall sustainability and resilience. © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.18 A model of a manufacturing company’s materials systems © 2022 Pearson Education Limited. All Rights Reserved.  Supply chain resilience A definition of supply chain resilience is the adaptive capability of the supply chain to: ‒ prepare for unexpected events; ‒ respond to the disruption; ‒ recover from the disruption by maintaining continuity of operations at the desired level. © 2022 Pearson Education Limited. All Rights Reserved. Supply chain resilience (Continued) Covid-19 highlighted the biggest technology challenges, which prevented many from meeting rapid changes in demand due to: ‒ lack of real-time visibility of data; ‒ issues with flexibility of processes; ‒ problems performing analytics. © 2022 Pearson Education Limited. All Rights Reserved.  Digital technology and resilience Digital technology will improve resilience in the following ways: ‒ ensuring new efficiencies; ‒ increasing end-to-end visibility; ‒ improving flexibility and responsiveness; ‒ lowering supply chain costs and reducing risk of shortages; ‒ enabling advanced analytics in order to streamline product portfolios, focusing supply chains on a few key, profitable products. © 2022 Pearson Education Limited. All Rights Reserved.  CLASS ACTIVITY What are some of the emerging trends in supply chain? © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.19 Emerging trends in future supply chains © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.20 Supply chain resilience prerequisites © 2022 Pearson Education Limited. All Rights Reserved.  Research Business Continuity Institute’s (BCI) 2019 ‘Supply Chain Resilience’ report showed that 12.2 per cent of supply chain disruptions occur among tier three suppliers and beyond – yet more than two-thirds of organisations (67.7 per cent) fail to question the business continuity arrangements of suppliers within those tiers. In contrast, companies that had performed sufficient due diligence before Covid-19 took hold typically had alternative suppliers from other nations and regions waiting in the wings,in preparation for such an occasion (Elliott, 2020). © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.21 Supply chains and the principal ‘flows’ © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.22 A simplified supply chain or value stream © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.23 The value stream of a soft drink can © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.25 Types of supply chain Source: Based on Hughes et al., 1999 © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.25 Types of supply chain (Continued) Source: Based on Hughes et al., 1999 © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.25 Types of supply chain (Continued) Source: Based on Hughes et al., 1999 © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.27 Hierarchy of objectives in an organisation All Mission Statement Mission Embracing Purpose, business area, key values in qualitative terms Goals General Goals Desired future – state where we want to get to Specific Objectives Objectives Specific targets – what we need to do Detailed Strategic Plans Strategy Whole organisation Targets Broad direction Long term (3–5 years) Implementation Tactical Plans Tactics Targets e.g. Procurement Medium term (1–2 years) Active Operational Plans Operational Departments’/units’ Targets plans detailed activity/targets/sources over short term (1 year) © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.28 Functional objectives © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.29 Procurement strategies for competitive advantage © 2022 Pearson Education Limited. All Rights Reserved.  Research Artificial intelligence (AI), bots and predictive analytics are all transforming procurement and can help to automate end-to-end processes, save time and improve accuracy. In a recent survey, digital technology provider Jaggaer found that 20 per cent of companies worldwide still relied on paper, while only 50 per cent had digital knowledge, despite the fact that companies with automated digital processes can have 30 per cent fewer full-time staff costs (Hogg, 2019). © 2022 Pearson Education Limited. All Rights Reserved.  Research (Continued) A ‘Strategic Procurement Benchmark’ survey found that 62 per cent of CPOs (chief procurement officers) have a completely integrated strategic vision for procurement. The research again draws a link between the level of a procurement’s strategic business alignment and stakeholder penetration, claiming that this is the key indicator of performance and how much value it creates. Digitisation is also perceived as key, but is not without its challenges: 83 per cent of CPOs have implemented digital tools but, of these, 43 per cent are not seeing added value (Small, 2020). © 2022 Pearson Education Limited. All Rights Reserved.  CLASS ACTIVITY What is the impact of technology on procurement? © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.30 Impact of technology such as AI on procurement © 2022 Pearson Education Limited. All Rights Reserved.  CLASS ACTIVITY What are some of the emerging trends in Procurement? © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.31 Key trends in procurement © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.32 A compendium of current thinking for key factors for future procurement © 2022 Pearson Education Limited. All Rights Reserved. Figure 2.33 Smart procurement prerequisites © 2022 Pearson Education Limited. All Rights Reserved.  Self-assessment tasks 1. Outline relevant models for assessing the external environment. 2. Detail key prerequisites for sustainable supply chains. 3. Highlight three characteristics of future procurement. © 2022 Pearson Education Limited. All Rights Reserved.