Sample Critical Thinking On Strategic Purchasing Management
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1. Critically assess why the use of e-procurement can increase purchasing strategic contribution to an organization? (1000 words)
E-procurement or electronic procurement is the purchase and sales of supplies, services, and work between the business to business, business to government or business to customers through the internet as well as networking and information systems. The networking systems that act as a medium can be mentioned as resource planning of an enterprise and electronic data interchange procedure (Braim, 2006). The value chain of e-procurement consists of space management, vendor management, e-Tendering, catalogue management, e-Auctioning, purchase order verification, order status, shipping notice, e-Payment, e-Invoicing and contract management (VANDENBEMPT and MATTHYSSENS, 2004). In this paper one of the main questions related to e-procurement has been taken under consideration and discussed critically by using proper evidences about the use of e-procurement in increasing purchasing strategic contribution to an organization (Dwyer and Gupta, 2008).
In the present situation of e-commerce, the internet has regarded as the fourth channel system in order to sell any kind of product. Experts have find that consumers of current day have preferred to buy products from online because it would be more time efficient, quality checked and more options are available for show rather than put the value on price and services as the traditional buyers had done (Cummins, 2009). Notably e-procurement has changed the e-commerce environment as business to business market has moved significantly closer than ever; it also has shrunken the business world. Besides the lower cost of transaction, lower entry cost, improvement in accessing the information in e-procurement procedure have played a huge part in increasing purchasing strategic contribution to a firm (Erridge, Fee and McIlroy, 2001). There is a number of differences in the e-distribution system from the old and traditional channel systems such as reduction of middlemen from the channel, lower and shorter inventory and inventory cycles, a lot secure relationship between the trader and the buyer community, lower prices with a number of verities in display and most importantly a huge response from the consumer segment that has never been seen before. In below figure 1 the spend control and e-procurement have been portrayed (Freytag and Kirk, 2003).
Figure 1: Spend Control & e-Procurement
E-procurement skills have certainly proved to be beneficiary for an organization’s purchasing strategic contribution as there two main discussable impacts of strategic purchasing on performance and supply integration of a firm such as a better strategic purchasing function would allow better supply integration for a firm and secondly strategic purchasing function can create a better purchasing situation for both the buyers and selling firm as the supply chain performance for the organization has been improved (Gantos, 2000). Apart from that the executive officers should identify the key purchasing strategic role that can lead the way of buyer and traders dyads by shifting their focus on information, procedure and cross corporative teams (Tsarenko and Polonsky, 2011). On the other hand by taking resource based views under consideration it can be mentioned by the experts that there is a strong relationship between a certain number of skills and all around performance of the same firm. Some incorporate techniques and managerial skills have the power to predict a definite strategic purchasing approach that can lead to judge the suppliers responsiveness (Gelderman and Van Weele, 2003). Experts have also demonstrated the fact that purchasers with high level of knowledge and skills have a positive impact on financial performance. In terms of quality efficiency operational efficiency and design of purchasing strategy have impacted highly by high skills that can be generated through e-procurement (Heywood, Barton and Heywood, 2002).
The direct sales model of Dell Computer’s had eliminated the retailers and wholesalers as the model was implemented to reduce costing and enhance customer’s valuation. The direct sales model was focused by considering low pricing, delivery speed and customized product that proved to be handy over the traditional sales channel system. By technology driven supply chain the company targeted a large target demographic and outsourced third party warehouse. That is how in case of Dell Computer e-procurement has played a huge part in purchasing strategic management.
In case of value chain framework analysis of an organization e-procurement can add value creation at the organizational level by exploring the primary activities that have direct impact on value creation of the organization. The value creation of any firm can be resulted in lower buyers’ costing or higher buyers’ performance in services or products prospective. Value creation has created a number of opportunities in the virtual market to reconfigure the resources of the partners, suppliers and customers. In case of e-procurement the process of value creation will speed up as companies interaction with the online clients become faster than ever before. E-procurement has also helped in strategic networks that are basically inter-organizational ties between firms (Štiblar, n.d.). E-procurement has taken to form joint ventures, strategic alliances, and long run buyer- supplier’s relationship in an organization. E-procurement is basically helped the network perspective to understand the criteria belong to value creation as the networks of suppliers, partners and customers add virtual space in the market (Paulraj, Chen and Flynn, 2006). Besides in e-business the transaction costs including the cost of monitoring, planning, executing and processing can be reduced through e-procurement. It is one of the most essential strategic decision making that can be performed through the process (McSorley, 2007). Apart from that in e-procurement the reputation, goodwill, transactional experience and organizational trust can lower the cost of exchanges between two organizations engaged in the business (Reason and Evans, 2000). In such a professional way e-procurement can help to increase the long term partnership with other firms by ensuring the specific strategies essential for maintaining the business (Matt, 2009).
Eventually at the end of the paper after describing a lot of aspects related to e-procurement in strategic management in can be stated that there is an eminent impact of using e-procurement on increasing purchasing strategic contribution to an organization. A number of experts’ critical analysis have been presented in support of every description to certify at the present circumstances of e-commerce environment e-procurement has a extensive impact on regulating and managing purchasing strategies (Ogden, Rossetti and Hendrick, 2007). The organizations just have to maintain a series of processes to build a strong e-procurement management in order to improve the present situation of decision making of their respective firms (Pani and Agrahari, 2007).
2. Critically explore the impact of e-procurement on purchasing relationships with suppliers (1000 words).
E-procurement and purchasing are related to each other and they denotes how materials are procures along with services and supply of materials. E-procurement is a procedure of Supply Chain management that has certain impacts on the purchasing relationship with the suppliers (Tassabehji and Moorhouse, 2008). It is a procedure of buying materials for manufacturing through online portals, which makes the task of supply chain easier. It is important to understand the impacts of e-procurement in the relationship with the suppliers to apply the technology and method of supply chain for the betterment of the organization. Some of the impacts are studied in this section that is discussed in details in the sub-sections below.
There have been several studies conducted to know the impact of e-procurement on the purchasing relationship with the suppliers. By reviewing the literatures regarding e-procurement it has been found that discussion have been conducted on superficial level. By it is found that there is not enough attention paid on the differentiation of the objects and situations (Chao and Cheng, 2012). The strategies of e-procurement are not developed to adopt various situations of procurement. In the earlier stage the procurement process fails to draw distinctions that raise some contradictory statements. But later on some philosophers considered the differentiated theory and developed new ideas about the distinction of the procedures that is required for e-procurement. The new theory developed introduced empirical data that supported increase market orientation. But such overflowing information led to the need orientation aids that would be simple in nature (Loader, 2015). The overflowing information was responsible for purchasing relationship with the suppliers. It has been found that three basic differentiation views were developed to understand how the differentiated views of using procurement applications impact the relation. The first is procurement objects are differentiated that are of different nature, distinction between the transaction phases of procurement in which staffs comes in collaboration with the suppliers. Third one is the distinction drawn in the presentation methods of the results.
Private networks: With the use of the private networks that is inter-organizational collaboration of between the buyers and suppliers, with the use of the internet technologies, are highly dependable on the existing relationship between the customers and the buyers (Cox, Harris and Parker, 1998). The relationship totally depends on the trust. This is because the easy use of the private network provides flexibility in choosing the suppliers for the products. By using the VPNs it is easy to step into e-procurement system with low investment. This increases the competition in the market and makes the relationship between the buyers and customers short life (Shevchenko and Shevchenko, 2005). Therefore the term of the electronic relationship cannot be dictated by any hub companies. It all depends upon the presentation of the company in the e-procurement market.
E-Marketplace: It has been found that in case of low level lock in application of standardisation and low complex objects there is an existence of a short term relationship of adversarial. Via e-marketplace, suppliers can enjoy the cost benefits for short term. But for high complex objects there is a need of long term relationship. Due to low complexity of the electronic market place there is a presence of alternatives for the suppliers. If there is any conflict with the supply of the products the purchaser can easily chose another supplier for the products with the help of the e-procurement technique (Croom and Brandon-Jones, 2007). Hence, due to the presence of the e-marketplace, the relationship between the purchaser and suppliers is of short term.
E-catalogues: Like electronic market place, Electronic catalogues also exerts certain impact on the purchasing relationship with the suppliers in e-procurement method. Since the use of the e-catalogue system on a frequent basis for procurement objects of low involvement, isolation of the affect on relationship with the suppliers for objects of low involvement are worthwhile (Quesada et al., 2010). With the use of single vendor system, that provides access to the services and products of one single supplier helps to reduce the number of supplier and makes the relationship between the purchaser and supplier stronger (McKie, 2001). With the use of the multi vendor system, the number of suppliers can also be decreased by scrutinising the purchasing habits of the buyer and making him have a concise list of suppliers. But by analysis both the system it can be understood that the single vendor system is more appropriate for building a good relationship because it is more effective in reducing the number of suppliers.
It has been found that there are certain changes in the relationship with the suppliers that are properly distinguished in this sub-section to make it more simple for the readers to understand (de Boer, Harink and Heijboer, 2002). The following are the changes in the relationship that are described in the points below:
During the phase of the objects of low involvement, adversarial relationships are found. These types of relationships are not affected by the e-procurement system. The adversarial behaviours remain the same with the involvement of the e-procurement system as well as without its involvement.
During the development phase, the partnership relationships are intensified with the use of the e-procurement system (Morris and Morris, 2002). This is a necessary change for the betterment of the objects of high involvement in the developing phase of the system.
During the industrial phase the system develops the adversarial relationship by developing the business relations with the purchasers. Using the e-catalogues helps to build a stronger relation and better partnership relation with few suppliers (Reason and Evans, 2000). Hence, the relationship is reinforced to be stronger.
E-procurement system helps to develop the relationship between the customers and suppliers during the industrialisation phase by reinforcing partnerships for objects of high involvement.
If a real life example of impact on purchasing relationship with the suppliers is being considered, it is better to take the example of any company that uses the system of e-procurement for purchasing the materials and making the supply chain management for the company easier. Through e-procurement system, these companies can by materials and even choose a substitute product from the list through this way very easily. The e-procurement system provides a variety of choice for the buyers that loosen up the relationship between the buyers and the suppliers. Because of the option of changing the supplier to any problem in the supply and cost of the products, the purchasing relationship with the suppliers becomes short lived. For example, Johnson and Johnson can choose any supplier for its materials depending upon the price and quality of the products and services provided by the suppliers and makes the relationship flexible.
In present days it can be seen that the e-commerce system along with the internet services are changing the way of purchasing drastically. Buying of products through internet has led to the terms like e-procurement and e-purchasing. That has given a growth of need of good communication in the high growing competitive market. It has made the purchasing relationship with the suppliers more and more flexible and the terms of the relationship have shortened down. Though it has certain negative aspects it has some positive aspects like, with good services and quality of products, the suppliers can build a good relationship with the customers.
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