For a company to operate effectively all departments must work hard to achieve their goals. Among the most relevant department is the procurement department, which facilitates the acquisition of materials to be used in a company. Below are the reviewed functions of the procurement department.
Function of procurement department
Procurement department is in charge of checking the requisitions from customers or those who intend to buy or sell. This department is in charge of choosing the appropriate supplier for issue of enquiries. They are in charge of issuing tenders and enquiries to suppliers. They obtain quotations from the suppliers Boone (2002, pp 68). They analyze the quotation from different suppliers and conduct a bidding process. They select and approve the tendering process by carefully scrutinizing the suppliers’ quotations.
They play a role of negotiators as they bargain with the intended suppliers. Procurement departments are in charge of checking the legal conditions of the whole contracts. After that, they follow up the supplier to make sure the products are delivered in time. The delivery is to ease pressure on the production department who should not worry about availability of the raw materials. Procurement department verifies and passes the suppliers bills to make sure the payments are done immediately. They are the correspondence dealing with suppliers or carriers. They solve the problem of rejection, shortage, or damage of raw materials Carroll (2002, pp 232). The statement from the store helps in dealing with any problem related to product. They make sure that products follow the right procedure till the reach in possession of the final user.
They participate in record keeping as they are in charge of maintaining purchase records. Procurement department helps in maintaining vendor performance data. They regulate the purchasing activities in an organization according to Christopher (1994, pp132). They brief the departments concerns in case delays occur. They link the suppliers to the company and make sure products needed are available for the company to function. They are the education resource centre for the company since it has records on the prices, sources of supply among others. Procurement department has got all documents related to purchasing of any product by company.
Definition of P2P process and KPI to measure P2P process
The main purpose for pay-to-pay (p2p) process is for productivity and cost saving. It also achieves the lower processing costs in addition to adequate controls. It contributes positively towards working capital goals. They provide a clue for effective decision support. The main elements that help in achieving the goals is to consolidate some activities of the P2P process through all possible means by making maximum use of shared services. It ought to have an active supplier and category management process Christopher (1998, pp 87). To come up with a support process management and monitoring by the aid of appropriate key performance indicators. The transaction processing should be automatic as much as possible.
KPI to measure P2P process
- Start by selecting KPIs in line with goals and objectives. KPI model is a support equipment that monitors the performance of the P2P model since KPI is actually driven by goals and objectives.
- Stay focus on what to measure: it is important to target only on the measures that will help in achieving the objectives Trent (2009, pp 67).
- Performance measure should be in proportion to the kind of efforts required to in collecting information.
- KPI outcomes are driven by actions. KPI always indicates the level of performance. If there is poor performance showed by a KPI then it should be acted upon immediately. In shared services, a subset of KPI is used in conjunction with service level agreements (SLAS) and reviewed by internal customer. KPI should be tailored to the needs of the recipients. Every recipient has subsets of the KPI. The means of communication should be tailored to meet the requirement of the recipient.
Kraljic model
The main objective is to help purchasers to utilize the supply security and reduce costs by making the most purchasing according to Gelderman (2010, pp 98). It is from this that procurement becomes a strategic activity and not a transitional activity. It involves the four steps purchase classification, market analysis, strategic positioning, and the action planning.
1). Purchasing classification
Purchasing classifications starts by identification of commodities, components, products, and services depending on the supply risk and profit impact. Supply risk is high when the raw materials are scarce. In some instances, the government could affect the instability of raw materials Cooper (1994, pp 121). Logistics can be affected by the number of suppliers, it can be less or high number of suppliers. Profit impact is high when the product adds value to the organization output. It usually happens when it has high proportion of the output or maybe when it has an impact on the quality.
Strategic Items
Strategic items are very crucial to the process or to the buyer. They are characterized by supply risk caused by scarcity or face some difficulty in delivery. There is existence of higher level of interdependency. There is balanced power between the buyer and the seller. The most recommended purchasing strategy is the strategic alliance. This alliance has early supplier involvement and has long-term focus.
Non-critical items
They are the products that are easy to find and bought with little impact on the financial results. The quality is always standardized. There is a low level of independency with a well buyer-seller balanced power situation. The recommended purchasing strategy will reduce time and money spent on the product. This helps in enhancing product standardization and efficient processing.
Bottleneck items
These are products that are supplied by one supplier and their delivery is unreliable. They have a very low impact on the financial results. Buyer-seller power situation favors the supplier who dominates in a moderate level of interdependency according to David (2000, pp 189). The recommended purchasing strategy is the volume contract. The stockiest keeps a little stocks and looks for potential supplier.
Leverage items
Leverage items are items that have a high percentage of profit of the buyer with very many suppliers. The buyers enjoy the freedom of switching suppliers since the quality is standardized. The buyer with moderate level of interdependency dominates the laverage items. The most recommended purchasing strategy is the tender, vendor selection. It also comprises of targeted pricing, umbrella agreement with preferred suppliers. The call off orders is just placed for the sake of it since they are for formalities.
1) Market analysis
Investigating how much power the supplier has and how much buying power you have as their customer. Market analysis can be done by the use of porter’s five forces analysis. Porters 5 include supplier’s power, competitive rivalry, and buyer’s power, threat of new entry and threat of substitution.
2) Strategic positioning
It is the classification of products or materials that were identified in the first step depending on the supplier and buyer power analysis. It is supposed to be tallied in the purchasing portfolio.
3) Action plans
Develop a good plan on materials that will be needed on regular basis depending on the matrix table in step 3.
Exploit: Using the buying power to secure good prices and build a long-term relationship with suppliers. It is done so to reduce the supply risk that might arise on the important items. It is to the advantage of the buyer to make a deal with a good supplier and not all.
Balance: This is the neutral path taken between the exploitation approach and diversification approach.
Diversify: This involves reducing the supply risks by seeking an alternative supplier or alternative products.
4) How e-procurement makes effective process for Non-Production Procurement
E-procurement is the electronic means of purchasing products and services and it is part of overall strategic. The e-procurement includes strategic sourcing or supplier rationalization, the automation of supply chain and random participation in one or more market place. Every organization spends some substantial amount in purchasing non-production products travels, office supplies, and services. A well established supply chain needs team work that need streamlined and support technology. This will help in synchronizing information along the chain of distribution. As they strive for competitive advantage, today’s organizations are increasingly reliant on deeper, more complex interactions with their business partners. E-procurement has the potential to reduce significantly on the buying costs. Many fields are now moving towards that direction including marketing, innovative company. The collaborations of organizations to come up with appropriate way of improving their channels are on the rise. An organization should set some amount to stimulate such programs. It saves the buyers time to pursue strategic initiative like total cost of reduction.
6. Benchmarking for P2P process, value stream map
The process reduces the transaction costs by almost 50 %. It reduces a lot of paper work and it saves time. It also attains complete and accurate visibility of the liabilities. It creates a touch less processing. It prepares the function for the off shoring or the outsourcing. It is in charge of creating an optimal environment fro dynamic discounting hence leading to saving a lot of money. It maximizes the working capital management.
Characteristics P2P
P2P is mainly restricted to information technology and mainly in purchasing field. The accounts processes are standardized and more efficient than the normal ones. The use of paper work drops as invoicing becomes automated Gattorna (2003, pp 154). It is effective due to less handwork involved in it. It brings clearly the idea of procurement having no relationship with the finance. The visibility into the business invoiced provides a base line for a review of the procurement strategy.
Performance of P2P
The cost of invoice transaction process lowers significantly, as the maximum time to process an invoice reduces significantly. It leads to reduced accounts payable costs through a better productivity. It enhances the invoice visibility to all the stakeholders. Paper work is eliminated across the invoice, receipting process and the approval process. The one time payment can be realized in this manner. The average cost reduces and time spent in transactions is reduced. It is easy to purchase for the buyer and suppliers to adopt this process.
Value stream mapping
The first process is the current state map describing the services being offered to then customers. The process continues with the future state map, which shows how the process will improve the future by waste reduction and process improvement. It is the high look at the company’s flow of goods or services from the company to the customer. It involves capturing of metrics such as cycle times, defect rates, headcount, inventory level, and change over times among others. In the process bottleneck should be located. It should be able to identify the opportunities for improving in future. It should have limited time to come up with a process and be able to locate problem areas. The stages can be summarized as understanding what happens, then examine the process map to determine where the problems are. These will include waste, error and duplication or parts of the process that can flow better if
7. Performance measurement and management
The importance of performance measurement guides in accountability and fiscal decision-making system. It helps agencies to be able to use performance information positively and effectively mange their resources. It can be used by managers for performance measurement as an integral part of their strategic and operation management. Performance measures are developed as part of the strategic planning process with the agency’s goals, objectives, and strategies aiming at satisfy the customer. It will guide them in reviewing performance measures to determine whether they relate their activity to the customers’ satisfaction Fernandez.
Performance measures can provide an opportunity to forecast outcome in the future. It serves as a basis for planning future agency actions. It gives the agency an opportunity to come up links between performance and funding. The LARs informs decision makers of the internal process in what direction to undertake. It states how it can help establish cause and effect relationship between performance, agency actions, and funding.
Performance measures can be used by agencies for various purposes to improve agency operations and communication. Improvements in management controls over performance measurement, it can be used to produce good management information for the agency. It can be used to operationalize the strategic plan through action plan, implementation plan, and business plans among others. It also operationalizes the legislative appropriations by operating the budget. It also reassesses the agency’s progress in achieving their goals and objectives. It guides them in the review of actual performance and expenditures. It evaluates the performance of the staff. It helps in developing and refining agency rules and procedures.
In preparing the performance, measures it should start with solicit management and the governing body’s comment as it provides direction to the process. Involve operational staff to give hand in identifying measures for which timely and meaningful information that can be collected at a reasonable cost. The inclusion of staff members in the budget at an early stage because they will help in giving explanations about performance data Lambert (2008, pp 24). Communicating as earlier as possible with staffs is the best way in solving a problem. The staffs equip themselves with enough details on the performance data. Their contributions are very important in decision-making. Customers and external parties can be used to test the measures, validity, and relevance.
8. Apply performance management to P2P process for Non-Production Procurement
It is like a new world class sourcing organization. It monitors outsourcing and the off shoring transactional procurement process across the region. Strong performance management, with clear KPI’s should be driving results guiding the team and stakeholders towards achieving certain organizational objectives Meerson (2011, pp 98). . There should be a good environment with a lot of stress on group collaboration and strong tea m work.
P2P has presented legal and security challenges to business organization. The existence of P2P has done it good to businesses, which do have the systems to measure the performance requirement. P2P has different application and each application has its own performance requirement. Therefore each P2P application has its own appropriate performance management. In order to succeed it should have a good performance management strategy that has the power to identify P2P applications and be in a position to control their bandwidth utilization Gattorna (2003, pp 88).
The packeteer use traffic management system to identify P2P and guides the business in identifying the appropriate policy management strategies. The strategies can be from total application block to a small bandwidth, immediate and fast access to bandwidth. The packeteer offer security to the business application that might be sharing the network and its resources with P2P traffic.
The objective is to monitor the application performance issues in real time and consider taking appropriate action. It also monitors the bandwidth utilization by user group or individual user Hines (2004, pp 300). It facilitates the measurement of application response times and quickly troubleshoots issues. Accurately and correctly, classify the network traffic using more advanced technology of layer 7.the system will be able to monitor P2P with deep level inspection in addition to behavior monitoring. It also assists in running historical reports for advanced trending and capacity planning.
9. Centralized and decentralized procurement within organization
Centralized procurement is a process where all materials needed by a company are bought through one department according to Jimmerson (2009, pp 121). A purchasing manager who supervises all activities in it heads the centralized department. It is meant to avoid duplication of orders, overlapping, and non-uniformity in the company. It is used to control the quality of material brought to the store. It purchases materials for all the departments.
It enables a company to buy bulky materials leading to low prices due to quantity discount. Centralized purchasing avoids reckless purchases and minimizes the investment on inventory Christopher (1998 pp 98). It is economy in recording and systematic accounting of materials. Centralized purchasing has many advantages including the quantity discounts from the suppliers. The purchasing department in an organization maintains the quality of the products. This makes the company or the organization to have uniform products. It is among the best way in controlling corruptions from the department, one department performs purchasing. It also helps other departments in selecting appropriate suppliers.
Decentralized procurement
It is where every department is free to make a purchase. It takes place when the departments are operating independently. There is no purchasing manager so one is in charge of controlling the company purchase Meerson (2011, pp 354). In this type of procurement, defective materials can be detected immediately. The placement of order can be done very quickly and no heavy investment is needed at initial stage. Materials bought are of the right quantity and right quality for every department easily. Materials can be purchased locally at the time they are needed. It has some disadvantages like multiple purchasing. It leads to poor quality of products bought since it is done on departmental level. It is expensive since there is no quantity discount, as materials bought do not qualify for the discount. It is likely to bring rivalry in the company since every department will need some finances allocated to them for the purchase of the products.
10. Air cargo’s industry procurement current situation
With new information technology like the communication on the internet, procurement has been reduced in the airline industry Morrison. The e-business has come of age; all transactions are being done via internet. It has made payment safe since no carrying of cash as old days. Most of the transactions are e-procurement. All cargo-handling machines are modernized with less manual handling. Cargo handling has advanced with machines modified to be able to handle cargos.
This is an overall improvement in the sector. It targets efficiency due to internet availability in almost all areas of the world Morrison. & Winston. Internet became the best infrastructure to business in the world not only air cargo but also all businesses transactions. Internet lowers break-even point and makes the cost structure very much flexible. It integrates ser vice solutions from multiple suppliers leveraging marketplaces. In-flight services process requires intensive data interchange between n the airline and the caterer. It has increased transparency of supplier base. The airline industry is highly complex with e-marketplace on transaction and procurement processing costs Morrison, Winston & Maheshri.
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