2.6 by other parts of the company, such as

2.6       PROCUREMENT BEST PRACTICES

 

This section provides a review of procurement best practices (PBPs). It
commences by providing the background information on PBPs. Then, reflects on
the elements of best practices and finally identifies and discusses the
barriers that inhibit the implementation of PBPs.

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2.6.1                
The basis of procurement
best practices

 

Endeavors to maximize organizational resources for competitive advantage
resulted in the evolvement of the PBPs (Garcia, 2009:8). A comprehensive
definition of a best practice is offered by Bragg (2013:1), where it is
considered to be:

·        
any improvement over
existing systems and procedures, even though some confine it to the few
high-end and very advanced (e.g. world-class level), purchasing maturity levels;

·        
anything that increases the
existing level of efficiency, such as switching to blanket purchase orders and
the use of procurement cards;

·       
anything that leads to improved
levels of reporting for use by other parts of the company, such as target
costing or direct costing reports;

·       
a system that reduces the
number of transaction errors, such as automation (electronic data interchange (EDI));

·       
An excellent contributor to
the fulfilment of an organization’s strategy that links functions more closely.

However, it is not easy to define PBPs as organizations and individuals
differ considerably in their efforts to formulate definitions. Therefore,
developing and sustaining PBPs is not an easy task for organizations
(Fitzgerald, 2002). This is because the adoption of the practices is time
consuming, entails breaking down barriers in internal resistance, demands a new
approach to suppliers, and demands considerable investment in good leadership,
people, training, analysis, measurement and technology (Booth, 2010:70).

Several studies have been conducted on PBPs, by among others, Cox (1996),
Nelson et al., (2005), Bernardes and
Zsidisin (2008), and Burt, et al., (2010).
However, not all modern organizations have fully adopted PBPs in order to reap
the benefits that are brought by its application (Rudzki et al., 2006:4). Most organizations underestimate the positive
impact that the application of PBPs can have on the bottom line of an organization
(Blanchard, 2010:56). Some organizations realize the potential that the
procurement function has, but sometimes do not maintain the practice and
eventually remain stuck in the elementary stages of development (Nelson et al., 2005: 12). The few that
constantly strive to embrace PBPs rely on the expertise of the procurement
function to drive profitability improvement programs that translate into
innovation and increased value creation (Cousins, Lamming, Lawson & Squire,
2008:8).

2.6.2                
Elements of procurement
best practice

 

The application of procurement best practice often requires big changes
in organizations; changes that are difficult and expensive, as will become
clear in the discussion below.

2.6.2.1          
Strategic commitment from
senior management

Strategic commitment from senior management is a vital aspect that is
required to enhance the implementation of PBPs. The procurement function on its
own cannot achieve anything without the strategic commitment of senior
management. This is because the procurement objectives and policies should be
aligned to the corporate goals, structures and strategies to be effective (Burt
et al., 2010:17; Rudzki et al., 2011:12). Handfield et al., (2011) stressed that the
procurement policy alone, no matter how precise it may be, will not be
influential in urging organizations to develop to the strategic level if there
is no senior management commitment. Senior management can only recognize the
strategic value of procurement if they understand their procurement plans and
strategies, and have high expectations from them. It is only when the
procurement function is regarded as a competitive asset of the company that it
can exceed the expectations of senior management, thereby contributing to
revenue enhancement and improving total cost derived from the procurement
objectives.

2.6.2.2          
Translating corporate goals
into procurement objectives

PBPs can be improved when organizations translate corporate goals into
procurement objectives (Du Toit, Erasmus & Strydom, 2010:500). According to
Sollish and Semanik (2012:2), organizations that conduct their procurement
according to best practices align their procurement strategies with their
overall organizational goals, thereby creating and sustaining a competitive
advantage for the whole organization (Ireland & Webb, 2007). The objectives
should be well defined, quantifiable and have consistent milestones that are
aligned to the corporate strategy (Rule, 2007:10). Rudzki and Trent (2011:12)
propose that the starting point is to decide what the function wants to achieve
and how it plans to achieve it. Human resources also need to be dedicated to
the attainment of the objectives. Therefore, new objectives, reflecting the
required changes, need to be incorporated into the annual, written performance
objectives of the relevant employees. Thereafter, procurement management needs
to connect personal objectives to financial rewards to serve as motivation for
employees. It is important to get understanding, commitment and compliance from
everyone involved to realizing the set objectives. If some people are not
familiar with or enthusiastic about the objectives, they may lose sight  of 
the  long-term  plan 
and  this  might 
derail  the  transformation campaigns.

Therefore, it is vital to formulate realistic and high objectives that are
going to stretch individuals’ potential. Table 2.4 displays the procurement
objectives.

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