CH (1)

Procurement is the business management function that ensures identification, sourcing, access
and management of the external resources that an organization needs or may need to fulfil its
strategic objectives.

‘Supply chain management is the management of the flow of goods and services and includes all
processes that transform raw materials into final products. It involves the active streamlining of a
business’s supply-side activities to maximize customer value and gain a competitive advantage
in the market place.’

Strategic roles of procurement

The strategic ability and contribution of procurement is the differentiator that sets the function
apart from a transactional modus operandi.

1. Due diligence is a structured methodology to help determine that a supplier has the
necessary qualities to become a partner of the buying organization.
2. Risk management of the supply chain Identifying supply chain risks and developing
acceptable risk mitigation strategies is a hallmark of a strategically focused procurement
operation. All supply chain risks fall into one of three categories:
 Those risks that only the supplier can manage
 Those risks that only the buying organization can manage
 Those risks that must be jointly managed by the supplier and the buying organization
3. Relationship management The adversarial way of business life is an outdated concept, a
fact that some procurement operations need to realize
4. Continuous improvement of supplier performance All sectors of the economy have
competitive challenges, sometimes from off-shore organizations. The procurement
community have a strategic role to motivate suppliers to continually improve their
performance.
5. The supplier’s investment in ‘right first time’ An organization’s reputation for quality
is a prime business consideration.
6. The supplier’s investment in inventory The rapid business approach to just-in-time has
focused attention on who pays for inventory in the supply chain pipeline.
 7. The supplier’s investment in procurement expertise It is a strange phenomenon that
when buyers visit potential suppliers they often fail to probe the supplier’s investment in
procurement expertise.

Procurement as organizational buying

Those buyers of goods and services for the specific purpose of industrial or agricultural
production or for use in the operation or conduct of a plant, business, institution, profession or
service.

The strategic scope of procurement

The strategic scope of procurement will vary according to the nature of the organization’s
business activities

CH (2)

There are three basic steps to achieving this strategic fit, namely:

1. Understanding the customer and supply chain uncertainty

2. Understanding the supply chain capabilities
3. Achieving strategic fit.

What is business strategy is all about is, in a word, competitive advantage.

Strategy development

Prescriptive are concerned with how strategies should be formulated, rather than how they
actually are.

There are three types of Prescriptive

1. The design school

2. The planning school
3. The positioning school

Descriptive representing how, in reality, strategies are formulated rather than how they ‘ought’ to
be made.
 1. The entrepreneurial school
2. The cognitive school
3. The learning school
4. The learning school
5. The cultural school
6. The environmental school

Configuration The configuration school emphasizes two aspects of strategy. The first describes
‘organizational states’ and their surroundings as configurations. An organization ‘state’ implies
entrenched behavior. Configurations are therefore relatively stable clusters of characteristics
relating to a particular school.

Levels of organizational strategy

1. Corporate strategy
2. Business strategy
3. Functional/operational strategy

Growth strategies

1. integration strategies
2. Intensive strategies
3. Diversification strategies

Integration strategies

Vertical and Horizontal

Intensive strategies

1. Product innovation and development

2. Market penetration
3. Market development

Diversification strategies

Concentric Conglomerate Horizontal

Vertical integration strategies reflect the extent to which an organisation expands upstream into
industries that provide inputs

Backward integration seeks to ensure continuity of supplies by owning or controlling suppliers.

Horizontal integration focuses on expanding operations by acquiring other enterprises

operating in the same industry or merging with competitors. Examples of horizontal integration
are mergers, acquisitions and takeovers aimed at:

■ reducing competition

■ increasing economics of scale

■ transferring and integrating resources and competences.

A strategic business unit (SBU) has been defined as: An operating unit or planning focus that
groups a distinct set of products or services that are sold to a uniform set of customers facing a
well-defined set of competitors.

Porter’s competitive strategy Competitive strategies are based on some combination of quality,
service, cost and time. Porter’s typology identifies three strategies that can be used to give SBUs
a competitive advantage.

Cost leadership – operating efficiencies so that an organization is the low-cost producer in its
industry

Differentiation – attempting to develop products that are regarded industry-wide as unique

Focus – concentration on a specific market segment and within that segment attempts to achieve
either a cost advantage or differentiation.

Procurement strategy relates to the specific actions that procurement may take to achieve the
objectives of the business.

Strategic management refers to the processes of strategic analysis, formulation, evaluation,

implementation, control and review.
Strategic analysis The tools of strategic analysis include environmental scanning, Porter
analysis, scenario analysis, organisational appraisal, critical success analysis, gap and strengths,
weaknesses, opportunities, threats (SWOT) analysis.

Important environmental factors Important external environmental factors relating to the

strategy of an organisation are sector, industry and macro-environmental.

Sector relates to whether the enterprise is located in the private, public or voluntary sectors of
the economy.

An industry can be defined as a group of companies within a sector offering products or

services that are close substitutes for each other.

Macro-environmental factors These are the changes in the political, economic, social,
technological, environmental and legal environments that directly or indirectly affect the
organisation, both sector and industry-wise, as well as nationally and globally.

Strategy formulation Strategy formulation at corporate, business and functional levels relates to
the:

■ Formulation of a vision statement

■ Preparation of a mission statement

■ Derivation of objectives

■ Application of SWOT analysis.