QUESTION 3 [20 Marks] "The cost-down programmes that have been set up over the past few years by many large companies have resulted almost without exception, in large purchasing cost savings. Impressive savings have not only been reported in the area of production-related buying but most certainly also in the area of non-production-related buying". In light of the statement provided, reflect and discuss how the procurement function can generate cost savings for an organisation. 1.2 Understanding the Procurement Function The procurement and purchasing function traditionally encompasses the process of buying. It involves determining the purchasing needs, selecting the supplier, arriving at a proper price, specifying terms and conditions, issuing the contract or order and following up to ensure proper delivery and payment in the old days, it was argued that the purchasing function should obtain the proper equipment, materials, supplies and services of the right quality. in the right quantities, at the right place and time, at the right price and from the right source. In this description. the purchasing function was viewed predominantly an operational activity For our purposes, van Weele (2014: 8) defines purchasing as The management of the company's external resources in such a way that the supply of all goods, services, capabilities and knowledge which are necessary for running, maintaining and managing the company's primary and support activities is secured at the most favourable conditions. The purchasing function in this definition covers specifically activities aimed at Determining the purchasing specifications of the goods and services to be bought . Selecting the best possible supplier and developing procedures and routines to be able to do this. Preparing and conducting negotiations with the supplier in order to establish an agreement and to write up . the legal contract. . Placing the order with the selected supplier or to develop efficient purchase order and handling routines. Monitoring and control of the order to secure supply. . . Follow-up and evaluation (settling claims, keeping product and supplier files up-to-date, supplier rating and supplier ranking). The purchasing function does not include the responsibility for materials requirements planning, materials scheduling, inventory management, incoming inspection and quality control. However, in order to be effective, purchasing operations should be closely linked and interrelated to these materials activities. A buyer who is responsible for maintenance, repair and operating suppliers, is often confronted with the "small- order problem." Many requisitions which they receive from internal departments concem the need for simple products of low expense. Handling these requisitions and translating these into a purchase order, however, is often a laborious task if that buyer is to issue a purchase order for every requisition. An alternative may be to arrange for a catalogue agreement with a specific supplier, for example, for the delivery of hand tools. In this arrangement, they may establish the product range, which will be bought from that supplier including the list prices per product. They may agree with the supplier that the latter will provide a web-enabled catalogue to their company, enabling employees and technical staff to order directly from the supplier. Furthermore, they may negotiate a bonus with that supplier tied to the total purchasing turnover for 12 months. Next, they may communicate terms and conditions of this contract to the staff of technical services. Through the online catalogue, employees of this company can order directly from the supplier, without involving the purchasing department. In this example, it is the task of the buyer to develop an overall commercial agreement with the supplier on the one hand and the internal customer on the other hand. In fact, what happens is that the ordering function is Procurement and Supply Management delegated, in a rather controlled way to the internal customer. In this manner it is possible to combine the purchasing power of the organisation with optimal flexibility and efficiency for the internal user 1.3 Strategic Roles Of Procurement There are unquestionable operational and tactical roles of procurement such as agreeing on the price, placing the are all necessary roles but they fall to highlight any strategic dimension. In this section, we explore the mos order, attending meetings, expediting, handing stakeholder queries and handling order acknowledgements. These strategic issues facing the procurement function 1.3.1.Due diligence Due diligence is a structured methodology to help determine it a suppler has the necessary qualities to become a partner of the buying organisation. The term "due diligence" is more usually associated with financial reviews takeover situations. Within a procurement context, it includes consideration of the supplier's . Financial robustness, including working capital . Competence and availability of key resources Reliance and extent of sub-contracting History of legal disputes and itigious actions Experience of partnering relationships Existence of a robust five-year business plan History of insurance claims IT system history 1.3.2. Risk management of the supply chain dentifying supply chain risks and developing acceptable risk mitigation strategies is a hallmark of a strategicaly ocused 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 organisation can manage, and Those risks that must be jointly managed by the supplier and the buying organisation. 3.3. Relationship management he adversarial approach to business life is an outdated concept, a fact that some procurement specialists should alise. The skill of managing relationships with strategic suppliers necessitates attention to, for example: Conducting regular blame free reviews of contract performance A joint commitment to continuous improvement Sharing long-term business goals . Active involvement of senior people at both organisations MANCOSA-Bachelor of Commerce Honours in Supply Chain Management