The importance of Sustainable Purchasing and Supply for Organizations in Gaining Competitive Advantage

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Introduction

Most scholars and non-scholars assert that the concept of managing the purchasing and supply chain is modern phenomenon. However, literature recognizes the management of the purchasing and supply chain as an ancient phenomenon that railroad organizations used periods prior to the fiscal 1900 (Gryna 2001, p.416).

As the purchasing and supply chain phenomenon continuously gained stature, individuals trained in the decisive procurement decision-making techniques. Such individuals were absorbed to play different roles including purchasing and supplying raw materials to support business operations (Gardner 2001, p.30).

Thus, despite the vexing organization problems, it is apparent that integrated and sustainable organizational supply chain management strategies help businesses to gain competitive advantage over other market rivals.

The paper discusses the importance of sustainable purchasing and supply for organizations in gaining competitive advantage. The paper first discusses the concept of procurement followed by the benefits derived by businesses for effectively managing the purchasing and supply chains.

The paper discusses the importance of a good purchaser and supplier relationship, and the concept of competitive advantage. Finally, how the selection of a reliable supplier is an important issue in creating competitive advantage is discussed.

The concept of procurement

In all organizations including the oil and gas industry, the department of purchasing forms a central component when returns, credit, and purchasing orders are processed. In such corporations, the procuring processes materialize to be very complicated.

For instance, in the oil and gas industry case study the procurement procedures incorporate the acquisition of both the services and products from either a single or multiple suppliers (Chase, Aquilano & Jacobs, 2000, p.33).

The procurement process incorporates making decisions concerning the procedures on how to receive the commodities requested, the actual acquisition of services and goods, as well as when and how to pay for the commodities.

According to the case study, the procurement cycles often warrant that the corporation obtains suitable services, supplies, materials, and equipment of high value and amount from suitable sources at the best prices.

Procuring affects the business activities and integrates various departmental units in an organization instead of the purchasing division only (Carr & Person 1999, p.499). Thus, procurement includes all the four supply chain management parameters namely delivery, production, sourcing, and planning.

The benefits of effective purchasing and supply to a business

Effective management of an organization purchasing and supply chain tends to generate numerous business benefits. Proper management of such a chain enhances the organization or business competitive performances in the global markets.

Besides, effective purchasing and supply chain management ensures that the in-house functions in any corporation become assimilated directly and are successfully correlated to the peripheral supply channel members and suppliers operations (Carter et al. 2000, p.17).

Moreover, when the purchasing and supply chain is integrated as observed in the gas and oil industry, it enables the procurement managers to have information linkages athwart all the departmental units and functions of the organization.

The most notable associations relate to the shared information and undertaken activities such as the processing of special orders, statuses of the accounts payable, profiles of suppliers, data on order revisions, transactions received, as well as the trailing of the incoming purchases via delivery routing (Beamon 1999, p.277).

Given that effective management of the purchasing and supply chain instigates when the business requires services and goods, the process of effectively procuring such commodities reduces the non-value added activities while increases the internal client response rate.

For example, effective management of the purchasing and supply chain ensures that all business aspects are incorporated in the daily management of the organization including the provision of the current business and market information to the buyers and sellers (Chase, Aquilano & Jacobs, 2000, p.35).

From the case study, the availability of such information to both the contracting parties tends to minimize the administrative costs and time taken to find this business information. In fact, time and costs saved could be used by the organization to research on the novel methods of improving the procurement processes, building business associations with the existing suppliers, and developing new supply sources.

Given that the procurement system warrants that the required goods and services will be delivered to the company at the stipulated price, place, and at the correct time, effective management of the purchasing and supply chain offers additional benefits to the business (Carter et al. 2000, p.19). The benefits include:

The ability to develop the level of business competitiveness via looking for inventive commodities that add value to the assumed activities
Effective management of the purchasing and supply chain ensures that the organizational efficiency is improved through ensuring that all suppliers integrated in the procurement system meet their set deadlines
Effective purchasing and supply further enhances the flow of cash in a business organization given that it assists in securing constructive terms of payments and commodities prices
The just in time supply chain strategy is normally integrated in the effective purchasing and supply system hence helping business entities to competently manage the placed demands
In organizations where the purchasing and supply chain is managed effectively the business will be able to minimize the accruing wastes through choosing low-priced inputs which produce minimal wastes
Literature on procurement further shows that effective purchasing and supply assists business organizations in improving their productivity while reducing the incurred costs through mass procurements that offer the economies of scale opportunities

The importance of a good purchaser and supplier relationship

The sustenance of good supplier-purchaser associations materializes to be an important business aspect. As a partnership, good supplier-purchaser affiliations enhance the win-win conditions, which take care of both the contracting business entities interests.

For example, when a business organization fairly, honestly, and courteously treats the suppliers, chances that quality services and products will be delivered at minimal costs are high (Carr & Person 1999, p.504). Besides, good supplier-purchaser affiliations enable the business suppliers to respond swiftly to the special requests as well as emergency cases raised by the purchasing organization.

Conversely, a collaborative approach with suppliers enables corporations to have adequate time for marketing their products. Good teaming with the business suppliers enables parties to meet the set purchasing and supplying deadlines. The inventory and productivity rates could thus be increased or maintained without any material wastage while costs are minimized.

Finally, good purchaser-supplier affiliations enable business entities to remove wastes and identify opportunities but not merely increasing profitability through shifting the margins. Therefore, given the timely response, risks could be managed in an appropriate manner and the organization would derive sustainable competitive advantage (Beamon 1999, p.282).

The concept of competitive advantage

Companies gain competitive advantage through numerous ways, particularly via taking advantage of their capabilities and industrial competencies. Supply chain management is one of the areas through which a company can gain competitive advantage (Beamon, 1999, p.278).

Firms such as those found in the energy and oil industry invest heavily in the supply chain management in order to ensure the provision of quality services and products delivery.

The distribution of oil and gas is critical in the success of such businesses. Besides, the timely supply of the business input becomes integral in the final production and provision of the final product to the customers. Therefore, the role of purchasing and supply is an integral part in the success of these companies.

The competencies in the oil and gas industries lie on the safety, waste management, and packaging strategies. Therefore, sourcing for the components that take into consideration the safety and quality aspects are critical. In fact, safety, waste management, and packaging are important components of the business capabilities.

According to Chase et al. (2000, p.36), there are safety, waste management, and packaging standards set by firms in the industry for the purchase of the materials and timely distribution of the final product.

In addition, there are ethical standards that must be met by these companies particularly those concerning environmental protection. The procurement processes that take into account these standards as well as the effective and efficient deliveries of products and services will increase the competitive advantage of the company.

How the selection of a reliable supplier is an important issue in creating competitive advantage

The procurement process in most companies is complex and encompassing, given that it covers almost every stage in the business processes. Therefore, the effectiveness and efficient manner in which procurement is handled is critical for the success of the business. Generally, effective procurement helps the businesses to reduce costs and categorize those products that satisfy the customer needs (Carr & Person, 1999, p.498).

In other words, those components, which finally make quality products that satisfy the need of customers, originate from the procurement process. The procurement managers have the responsibility of identifying the best supplier that would provide quality components.

Besides, the purchasing and supply department must focus on sourcing for material components that are less costly, of unsurpassed value and ensure apt delivery. That is, successful procurement of supplies as well as the distribution of commodities will enable the firm to minimize risks, uphold value, and minimize expenses in the purchasing and supply chain.

The suppliers’ capabilities help a company to attain competitive advantage by producing products that add value to the customers (Gryna, 2001). Effective cost management, and sourcing for the right components have influence on the quality of services being provided and the final products that the company offers to the customers.

In essence, most companies are looking for effective ways through which they can add value to the quantity of components, parts of their products or services to give attention to the area of interest and competence. In essence, the strategy improves the quality of services and products that in effect increases competitive advantage.

Conclusion

The procurement process that ensures timely delivery, cost minimization, and quality products is critical for the success of any business. Efficient supply chain management ensures reduced costs that translate into improved profitability.

The aim could be achieved through economies of scale, increased products demand through just-in-time supply strategy, and improvement of the cash flow through secured prices and constructive payment terms. These qualities improve the business competitiveness via ensuring that the products and services provided by the company add value to the customers.

Within the oil and gas industry, efficient chain management is critical in ensuring that the companies attain safety standards, waste management, and ethical standards. Hence, the purchasing and supply managers must have quality standards in terms of business management skills, sound, rational, interpersonal skills, and be able to communicate efficiently at every business stage.

Businesses must invest heavily in the procurement processes to attain the competencies that will increase competitiveness.

References

Beamon, BM 1999, “Measuring supply chain performance,” International Journal of Operations & Production Management, vol.19 no.3, pp. 275-292.

Carr, AS & Person, JN 1999, “Strategically managed buyer-seller relationships and performance outcomes,” Journal of Operations Management, vol.17 no.5, pp. 497-519.

Carter, PL, Carter, JR, Monczka, RM, Slaight, TH, & Swan AJ 2000, “The future of purchasing and supply: a ten-year forecast,” The Journal of Supply Chain Management, vol.36 no.1, pp. 14-26.

Chase, RB, Aquilano, NJ & Jacobs, RF 2000, Operations management for competitive advantage, Irwin Publishing Co., Chicago, IL.

Gardner, D 2001 “Logistics in the supply chain: traffic world,” Journal of Commerce, vol.265 no.3, pp. 30-31.

Gryna, F 2001, “Supply chain management,” Quality Planning & Analysis, The McGraw-Hill Companies, Inc., New York, NY.

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