Purchasing as a Strategic ResourcePurchasing as a Strategic Resource One of the fundamental contributing factors to an organisations competitive advantage and to overall customer satisfaction in the purchasing and supply function which in the corporate environment of today is vital to an organisations longevity. For an organisations to function and have a smooth operation it is essential that their requirements are met in a seamless flow which is directly dependant on the supply of these requirements being supplied at the right time and in the right quantities to ensure optimum utilisation of the organisations resources (Hugo, Weiss-Badenhorst & Biljon, 2006; pp.9-13). Organisations are increasingly looking at purchasing as a strategic approach in attaining and maximising their competitive advantage (Kanhaiya, 2007; pp.2).For shareholder value to be increased the organisation needs to either individually or collectively increase revenues and decrease costs, it is for this reason that purchasing is looked to at an executive level (Johnson & Flynn, 2015; pp.2-3).The purchasing function in my current organisation is integral in not only ensuring that there is continuous operation flow by providing the required raw materials and services to both production and general operations but also in ensuring that the deliverables are achieved at the right cost and quality. In the current economic environment where the customer demands the best quality at the best price, the purchasing function is what enables my organisation to stay ahead of our competitors. The purchasing department that falls under the scope of the supply chain director has successfully maintained and is continuing to ensure that our raw materials procured are at a good quality and is negotiated at the best cost, further to this the purchasing department is also tasked with the responsibility of managing all third party costs which includes contracts and contractors that forms part of the operations.
According to Van Weele (2005; pp.138), organisations are increasingly looking at their suppliers in an opportunistic manner in order to gain a competitive advantage and it is the purchasing functions that is tasked with developing and maintaining supplier strategies that on par with the organisation strategic objectives. To relate examples from my current organisation; our purchasing department has developed good strategies with our suppliers of raw materials, of which ranges from consignment stock arrangements to extended payment terms and specifically ensuring that our suppliers understand the nature and operational constraints in our industry and transversely we understand our suppliers constraints thereby creating a mutually beneficial partnership. Further to raw material suppliers the purchasing function also manages all third party service providers whereby service level agreements are in place and is monitored and measured regularly.
In summary, the organisation’s business strategy in the last decade has been to sell raw materials directly to suppliers in order to build on the strength, value and capabilities of our existing suppliers in the industry and therefore to be competitive. Such an approach is highly competitive and has also had a profound influence on the behaviour of some suppliers in the past years, most notably in the form of low price contracts. It should therefore be noted that the use of non-refundable payments, which were introduced under a 1997 Financial Fair Trading Act in order to encourage suppliers to spend less on staff or the purchasing of goods with reduced costs, is a major feature of our organisation’s business strategy and is essential to maintain the financial independence and integrity of all suppliers and suppliers.
It is critical to note that under the 1997 Financial Fair Trading Act, suppliers and suppliers were not allowed to accept, pay or otherwise dispose of the difference between the price paid and the level of service received. This provision requires a supplier to inform the Department of Supply Management, at the time of acquisition, and then the Department, at no cost to the supplier. However, in any event when the Department determines that the supplier is in a competitive position, it is the supplier’s responsibility to comply with this provision. A supplier acting alone under this subsection may not sell, withdraw, transfer or sell raw materials or any other item on their premises.
For example, a supplier might have agreed to give the Department an advance or discount charge on a supply shipment for ten or more years because it was not in compliance with the requirement of the Department to ensure that a supplier is in compliance with this provision of the Act. This could have been cancelled or altered without penalty or in the case of a supplier’s failure to comply with the provisions of the 1997 Financial Fair Trading Act it could have been in accordance with the relevant provisions of any legislation or regulation it took effect on the basis of this definition of compliance and the order.
Accordingly, we do not recognise the financial neutrality of any of our suppliers in achieving their purchasing objectives, especially when it comes to these purchasing activities which cannot be pursued without undue hardship in circumstances comparable to our current situation. Some suppliers are also being forced to sell products to or from suppliers that can be deemed as the supplier’s primary customers, some suppliers are being forced to sell goods into the supply chain for no reason more profitable then the customers who provided them with the income they require.
What is the basis for our decision?
According to the Department’s financial statements we are aware of three situations where we have recognised the financial neutrality of our suppliers. Two of these situations are identified in Schedule 2. In the third situation we have realised that we failed to achieve our objectives in the same manner and have recognised the lack of profitability of our suppliers through no fault of ours. The department provides us with the following information:
We are aware of no adverse factors that contributed to our purchase of raw materials from source groups other than suppliers that are not within our control.
We are aware that such matters were examined and we are aware of those factors but if there is a change in circumstances resulting in us concluding differently from the approach the department described in this section, the reasons for the change in circumstances will vary.
We have examined what is the financial neutrality of our suppliers and whether this means that, contrary to our previous representations to our suppliers regarding the quality of our products, our suppliers are not satisfied with what we did with the raw material or the quantities in it, or with the quality or quality of the products.
We have reviewed the evidence and we found that although many of our suppliers were subject to competitive pressures or to significant risks, none resulted in satisfactory or sustainable results.
We have examined whether suppliers who are independent of our suppliers are required to pay a specified price for the raw material. For example, a supplier whose suppliers paid a specified price for the raw material for which they were charged cannot