An overview of the importance of purchasing and supply management in an organization

Purchasing and supply management professionals focus on ensuring the right products are available at the right time and right place for their consumers. Through initiating process improvements, product improvements and supplier relationship development, purchasing professionals are responsible for garnering cost savings for their organizations without trading off quality. On average, the cost of materials is two and a half times the value of all labor and payroll costs. As a result, companies see great value in purchasing and supply management professionals who are able to increase their savings and improve their costs.

An overview of the importance of purchasing and supply management in an organization

An overview of the importance of purchasing and supply management in an organization

Modern procurement functions operate cross-functionally with a much larger array of activities than in the past, ranging from selecting suppliers, maintaining supplier relationships, developing company supply strategy and forging collaboration between suppliers and intra-company personnel to shape the overall organization.

Hence, this increased contribution towards an organizations competitive advantage signifies an increased importance of the procurement function; the success of the function is now more important to the success of the organization than it was in the past.

While the procurement functions changing role has received plenty of attention by academia and industry over the past few decades, the purpose of this Blog posting is to identify whether this new role equates to a more important role and, this might be most interesting to business students reading this posting, if this more important role has had a positive effect on the salaries of procurement managers.

Two trends have emerged Throughout literature, two trends in the progression of the procurement function emerge that highlight the increasing importance of the function over the last decades.

Interested in supply chain management and procurement? Social and environmental sustainability have become increasingly important in the last decade to both governments and consumers, increasing the importance of the sustainability strategies of organizations Giunipero, Hooker and Denslow, It does so by informing the organizations suppliers of requirements derived from corporate values, and consequently these suppliers will inform their suppliers, creating a compound effect throughout the supply chain Yamak et al, Further evidence of the importance of the procurement function for sustainability measures lies in the responsibility that CPOs have for sustainability.

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War for procurement talent One additional and exceedingly interesting way to analyze the increasing importance organizations place upon skilled procurement professionals is by analyzing procurements wage growth as compared to other wage growth Feisel et al, For instance, salary surveys of procurement professionals in and showed an average 12 percent increase compared to a 3 to 4 percent increase in most other functions Feisel et al, All levels of procurement management, from director to junior manager, experienced strong wage growth in comparison to all occupations in the United Kingdom from to The salaries of all levels of managers in the area of procurement grew from below the national average to above the national average.

Wage growth of procurement managers has also shown strong growth in the United States throughout the past decade. Positions in Purchasing- and Supply Chain Management have enjoyed strong growth sincetotaling an increase of almost 38 percent over the last 14 years.

This reflects the growing value that organizations place upon managerial-level procurement and supply chain management activities, and it agrees with the results by CIPS on UK procurement salaries.

The procurement functions importance will continue to grow Overall, an analysis of wage growth in the United States and the United Kingdom lends evidence for an increasingly valued procurement function. In particular, the higher-level, strategic roles are higher valued by organizations.

The procurement function has seen profound changes within the past decade. As the findings above indicate, these changes come with an increased importance within an organization. Moreover, this multi-decade growth in importance has continued throughout the past decade, it is therefore fairly safe to assume that the growth of importance of the procurement function will also continue in the future.

Today, the procurement function is more strategic and contributes more to competitive advantage than in the past. It still focuses on costs as it did in the past, but because organizations purchase a higher percentage of their costs than in the past the benefit from cost reduction is greater.

Procurement has also gained involvement in product development, through its utilization of external resources to drive innovation. The procurement function is a pivotal tool in the balancing of supply rewards with supply risks.

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The increased value that organizations see in procurement is reflected by the increase in CPOs in the boardroom and by the above-average wage growth which strategic level procurement professionals have experienced in the past decade.We'll discuss the evolution and history of operations and supply chain management through some real company examples, including Ford, Dell Computers and Wal-Mart, in this lesson.

The authors of this Supply Chain Management book / manual have done a fantastic job with providing the basics of Supply Chain Management that beginners can grasp by almost going out of their way in explaining technical terms before going ahead and using them.

An Overview of the Importance of Purchasing and Supply Management in an Organization PAGES 8. WORDS 2, View Full Essay.

What Is the Importance of Purchasing Management? | Bizfluent

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Purchasing and Supply Management Organization Chapter 5 Chapter Overview Purchasing and supply management organizational structure Location of authority – centralized vs. decentralized Purchasing’s position within the organizational structure Scope of purchasing/supply management job function Chapter Overview .

This chapter discusses the roles and objectives of procurement in an organization and in supply chain operations, describes the different types of spending and buying methods, and defines key terminology.

Why Is Purchasing Important? Figure shows how supply management can drive sales up and costs down. The impact on net income and. Role of Procurement within an Organization. Overview. Key Procurement Objectives: OBJECTIVE 1 – Support Operational Requirements OBJECTIVE 2 – Manage the Procurement Process and the Supply Base Efficiently and Effectively.

International Purchasing and Supply Chain Management Institute