According to Weele (2009, p4), effective strategic purchasing is growing rapidly throughout because the organizations have realized it a potent avenue to achieve the company performance in short and long term. These includes attaining their strategic goals, improving the consumer satisfaction, improve the efficiency of the services rendered and many others. Hartmann & Blome (2010, p45) argues that the reason for such is because the quality of goods or raw materials in the organization enhances the organization’s performance. The cost of goods and service procured is also important in determining performance. Various theories are explaining the importance of the role in body growth based on evidence from different organizations across the world.
Effective Strategic Purchasing in the Organization
Petersen (2009, p67) defines strategic sourcing as the activities concerned with the top level management and connected to a long-term decision with the aim of generating massive profit for the company. It is also associated with low-profit, high supply risk items, and supply risk bottleneck goods and services. Bigdeli & Annear (2009, p23) further adds that to great organizations it involves the formulation of purchasing policies in short and long term, partnership sourcing, supplier base, intra-company, trading reciprocal and, globalization and ethical issues. Supply costs are about 40 to 80 percent of the cost of products and services provided to consumers and also contribute 30 to 50 percent of total revenues.
On the other hand, the concept company’s performance is related to the goals and objectives set within a particular period. In this context, there are three possible primary outcomes which include financial, market and shareholder performance. In some, the aspects of production capacity and performance may be simultaneously analyzed (Bigdeli & Annear 2009, p7). Therefore, purchasing is related to all the aspects that add up to organizational performance as affects it financial and market performance.
Purchasing Role in the Organization
Purchasing has obtained popularity and is now viewed as a value adding and strategic role for the firm’s successful performance (Brau & McCarter 2007, p16). As a result, not every organization is capable of avoiding the essential role played by the purchasing function of every business. It features include striving to reduce the cost of delivering unique goods and services to their consumers, protecting the interest of investors in a shaky business environment. The modern organization is viewed through the lens of efficient purchasing and supply chain department (Cachon & Swinney 2009, p19).
Research by Cachon & Swinney (2009, p63) identifies strategic sourcing can be utilized to assess the suppliers, especially company’s things to do with their capabilities and management. All level of firms should develop a strong partnership with strategic partners to ensure a competitive advantage due to the strategic relationship. Further, strategic purchasing activities include various activities such as creating a strategy for acquiring the raw materials, selecting and evaluating potential suppliers, procuring services, and equipment to manufacture their products. Effective purchasing sourcing with a proper structured can influence the core competencies of the firm (Carter & Rogers, 2008, p64). Thus, these decisions should be incorporated to the organizations wishing to leverage their activities with an aim of retaining their competitiveness.
Competitive forces in the modern business environment are exerting heavy pressure on firms to improve the quality, responsiveness continually, delivery performance while working to reduce the costs simultaneously. In response, the management of many organizations are increasingly exploring myriads of ways to leverage their purchasing capacity and in particular, to evaluate the role played by the suppliers in the group. Streamlining the purchasing function has enabled many firms to utilize their financial resources to increase the value added attributed to them. This is essential because it provides an opportunity to be responsive and flexible to changing needs of the organization. On the other hand, effective strategic planning provides space for exploiting their technologies efficiencies, and expertise thus affecting the team performance (Bigdeli & Annear 2009, p24)
Holcomb & Hitt (2007, p23) indicates that the concept of purchasing in the enterprises has evolved from a simple to a complex activity of the management. Further, it has changed from the traditional approach that was more opportunistic and transactional in nature where the management uses procure services as a response to immediate needs. However, Khan & Pillania (2008, p10) view this is out-dated practice and has changed to one that chooses freely from a number of suppliers to one that is potential of meeting those needs in the future. The emphasis is directed to one that uses effective strategies and dedicated plans to enhance productivity. It is important to note that, traditional sourcing purchasing was transactional and sporadic and further treated each activity of purchase as a discrete transaction.
On the other hand, Brau & McCarter (2007, p12) argues that communication process typically entailed complaining about late goods and services, negotiating prices and sometimes disputing the quality of the delivery products. As a result, traditional purchasing method was marked by massive failures. Some of the challenges include contract disputes, cost overruns, poor customer satisfaction among others. Many of the failures have been due were attributed to the inflexibility of the process which failed to respond to business requirements and market pressures.
Therefore, purchasing department not only deals with the processes of obtaining the required material for production but also the acquisition of items in the right quantities, right time and place and source. This gives purchasing department a tremendous potential to multiple the company profits and enhancing the performance in all levels Krause, (Vachon & Klassen 2009, 15).
Effect of Effective Strategic Purchasing
Schiele (2010, p34) explains that, strategic sourcing in the organization enable the department to take advantage of a range of benefits making it become the preferred mode of reducing the risks involved, improve the quality of goods and services, timely and fast delivery of goods and services, decrease the price, as well as creating a better supplier relationship in a bid to enhance effectiveness and efficiency of all the products offered in the organization.
Effective strategic purchasing has become a popular technique for the improvement of company performance among other aspects. The term quality refers to the totality of all characteristics and features of the product that can satisfy the consumer needs. Strategic purchasing related to the quality of the goods and services that ensure success of any organization (Selnes, 2013, p65). Therefore, the aspect of excellent quality significantly contributes to firm profitability and growth. This is through increased customer retention, sales, business sustainability and others (Pressey, Tzokas & Winklhofer, 2007, p18).
Because organizations products change over time, and it is crucial for the purchasing department to establish relationships with their company supplying them with products or services to effectively satisfy the changing needs. This is from various perspectives such as new product development, design, manufacturing stages and manufacturing technology and far lower price. Such moves have the capability, in the end, to develop the necessary infrastructure capabilities to meet the evolving demands of the firms (Paulraj, & Chen, 2007, p23).
Ireland & Webb, (2007, p90) argues that strategic purchasing focuses on the real price passed to the customer, it benefits the organization and its suppliers. It happens because the buyers have the opportunity to negotiate for lower cost and high-volume purchases. Thus for the company it helps them reduce the pricing of their products sold thus making them competitive and productive. Therefore, strategic purchasing is proven effective due to its ability to cost reduction and subsequent rise in productivity and return on investment. Therefore, it is essential to consider effective strategic purchasing as a driver for firm performance.
Further, it allows the organization to shares sufficient information in real time with an objective of slashing the cost of minimizing inventory, materials, expediting deliveries, and reducing shortages of their company. Strategic purchasing contributes to costs reduction by consolidating purchases with all the suppliers and increase the volume. Strategic purchasing can also be important in gradually reducing the ordering price of requesting orders thus reducing stock handling costs (Johnson, 2014, p54).
For the company to be competitive, it must produce high-quality products and services to make it competitive. For this to happen the purchasing department must be able to have faster delivery of the required materials. Within a supply chain management, the most important are reliability, speedy delivery among other essential requirements for increased profitability, competitive differentiation as these are used as a measure of the company performance. Delivery time, lead-time and on time delivery are essential to compete of evaluating purchase effectiveness, as its increase is likely to have a dramatic impact on the performance of the company (Helfat & Winter, 2009, p23).
For instance, a short lead-time leads to improvement to corrective action systems, shorten the time of solving the problem. The shorter the period, the higher the probability of unearthing the cause of implementing effective measures. The chain of activities leads to increased capacity and sales leading to improved performance (Hartmann & Moser 2008, p18). It also signifies the difference between product sales and detecting a competitor move in the business. For example, if a company is capable of delivering goods months or weeks before the rival company does it, there are an enhance chances of surpassing him. For future, the enterprise must make its purchasing structure effective regarding delivering the required items to maintain both the quality and consumer Paulraj & Lado 2004, p64).
Theoretical Foundations
A study by Paulraj & Lado (2004, p18) on the taxonomy of purchasing function looked into various company performance based on multiple clusters of purchasing function that forms create different level of relationship depending on the categorization. All clusters classified under strategic purchasing has the capability to contribute towards the higher performance of the organization. For example, strategic acquisition leads to great improvement of the supplier performance, as part of firm’s performance. Thus, there is a need for purchasing function to come up with a new structure to train skills from top management down to junior employees. This is because they are the core contributor in the business and provides daily direction to all the activities.
It is essential for the team to understand that purchasing needs to be proactive as opposed to being reactive to the problems and solutions to obtain a competitive advantage. Supplier partners enhance business performance and productivity. For example, Ford’s gain of competitive advantage over their rival General Motors was as a result of his proactive actions leading to the formation of a strategic partnership with his suppliers (Vickery & Droge 2007, p101). According to James (2007, p23), It is impossible for firms to come up with a design, produce available products while disregarding the portion played by the supply of material. Thus, strategic purchasing is essential to the identification of optimum numbers of suppliers, deciding the relationship, total cost management and acquiring bargaining power which is the of drivers on enhancing competition in the firm (Paulraj & Lado 2004, p23).
Conclusion
In conclusion, effective strategic purchasing has a bearing on certain factors that includes the quality of products and services offered. It also affects the pricing, timely delivery, supplier relationship that is the primary determinant of company’s performance. On the other hand, defective sourcing leads to substandard goods and services, wastages, more cost incurred and this could translate to a loss of business to the rivals. Strategic procurement is attractive to the company management because it is connected to important decision making paramount to improving dimensions of firms performance.
References
Bigdeli, M.. & Annear, P. L., 2009. Barriers to access and the purchasing function of health equity funds: lessons from Cambodia. Bulletin of the World Health Organization, 87(7), 560-564.
Brau, J. C.. & McCarter, M. W., 2007. Information sharing and supply chain performance: the role of connectivity and willingness. Supply Chain Management: An International Journal, 12(5), 358-368.
Cachon, G. P.. & Swinney, R., 2009. Purchasing, pricing, and quick response in the presence of strategic consumers. Management Science, 55(3), 497-511.
Carter, C. R.. & Rogers, D. S., 2008. A framework of sustainable supply chain management: moving toward new theory. International journal of physical distribution & logistics management, 38(5), 360-387.
Helfat, C.E.. & Winter, S.G., 2009. Dynamic capabilities: Understanding strategic change in organizations. John Wiley & Sons.
James, K., 2007. An analysis of research into the future of purchasing and supply management. Journal of Purchasing and Supply Management, 13(1), 69-83.
Holcomb, T. R.. & Hitt, M. A., 2007. Toward a model of strategic outsourcing. Journal of operations management, 25(2), 464-481.
Ireland, R. D.. & Webb, J. W., 2007. A multi-theoretic perspective on trust and power in strategic supply chains. Journal of Operations Management, 25(2), 482-497.
Johnson, P. F., 2014. Purchasing and supply management. McGraw-Hill Higher Education.
Khan K, A.. & Pillania, R. K., 2008. Strategic sourcing for supply chain agility and firms' performance: A study of Indian manufacturing sector. Management Decision, 46(10), 1508-1530.
Krause, D. R.. Vachon, S., & Klassen, R. D., 2009. Special topic forum on sustainable supply chain management: introduction and reflections on the role of purchasing management. Journal of Supply Chain Management, 45(4), 18-25.
Paulraj, A.. & Chen, I. J., 2007. Strategic buyer–supplier relationships, information technology and external logistics integration. Journal of Supply Chain Management, 43(2), 2-14.
Paulraj, A.. & Lado, A. A., 2004. Strategic purchasing, supply management, and firm performance. Journal of operations management, 22(5), 505-523.
Petersen, K. J. 2009. Strategic purchasing, supply management practices and buyer performance improvement: an empirical study of UK manufacturing organisations. International Journal of Production Research, 47(10), 2649-2667.
Pressey, A.. Tzokas, N., & Winklhofer, H., 2007. Strategic purchasing and the evaluation of “problem” key supply relationships: what do key suppliers need to know?. Journal of Business & Industrial Marketing, 22(5), 282-294.
Reuter, C., Foerstl, K. A. I., Hartmann, E. V. I., & Blome, C., 2010. Sustainable global supplier management: the role of dynamic capabilities in achieving competitive advantage. Journal of Supply Chain Management, 46(2), 45-63.
Schiele, H., 2010. Early supplier integration: the dual role of purchasing in new product development. R&d Management, 40(2), 138-153.
Selnes, F., 2013. An examination of the effect of product performance on brand reputation, satisfaction and loyalty. Journal of Product & Brand Management.
Van Weele, A. J., 2009. Purchasing and supply chain management: Analysis, strategy, planning and practice. Cengage Learning EMEA.
Vickery, S. K.. & Droge, C., 2007. The effects of product modularity on competitive performance: do integration strategies mediate the relationship?. International Journal of Operations & Production Management, 27(10), 1046-1068. Journal of Operations Management, 25(4), 901-917.
