Procurement Management
A partnership between two organizations is successful if both are able to optimize their operations and benefit from each other’s successes. Procurement and contract management is one area of the organization that can be maximized while reducing costs by using e-business solutions and outsourcing. Procurement and involves the purchase or ownership of goods and services at the best possible cost, the right quantity, quality, place, time and the right source for the benefit of groups or organizations. Procurement involves the decision to buy goods and services under the conditions of scarcity.
Procurement involves contracting wherein two parties with different purposes interact. If procurement practices are effective, they can increase the profitability of the organization. Effective procurement practices result in the reduction of cash flow problems by taking advantage of discounts when buying in bulk only from trusted and quality suppliers (Kalakota & Robinson 2001). Procurement contributes to the organization’s profitability therefore it is a centralized operation (Sifri 2003). This results in reduction of costs and standardization of practices.
The procurement of operating resources is done in coordination with the financial accounting department. The managers of the organization will have to determine the priorities of the planned project. It is in this context that replacement investments are given more importance than expansion projects. The quantity of investment procurement depends on the availability of financial resources. Operating resources are important to the organizations because they are composed of goods and services necessary to the daily tasks of employees.
Examples are office supplies and janitorial services. Operating resources cost low but acquired in high quantity. Effective management of operating resources will result in savings for the organization. A considerable percentage of a company’s funds are spent on purchases that are not relevant to the production process (Garrett 2007). Due to the routine purchase of operating resources, their acquisition is not included in the official procurement processes of the company. Since majority of these purchases are performed by employees, there is limited control and accountability.
Although management may be aware that a considerable amount was spent on these items, it is also highly possible that management did not know the exact details of the purchase or how they have contributed to the achievement of company objectives. Without supervision of this process, the organization cannot work on its inefficiencies or implement cost reduction strategies. Operating resource procurement is a form of controlled chaos the organization continues to operate amidst the disorder of the process.
If the company does not know where the funds were spent, it does not have power and control of the procurement process. There are several reasons why managers of organizations will consider outsourcing a function of their business operations. An organization will be more likely to pursue outsourcing if there were several factors for doing so such as the need for cost reduction and selling assets to the supplier. This is typically the reasons for a company that is under a financial crisis. One of the reasons for outsourcing is to acquire new skills.
The organization may discover that the skills of their employees are no longer enough in a given business function. As a result, the improvements to the function will only be minimal. The organization can provide a solution to this problem by turning over the function to an outsource service provider that specializes in that business function and is considered to be competent in that area (Bragg, 2006). The organization can expect that the outsource service provider has experienced and skilled staff adopting the new developments of technology and updated with the most current procedures.
Companies that might need this kind of expertise are those requiring high level competencies in computer and engineering functions (Bragg, 2006). One example of an organization that has acquired successful partnerships with other businesses is Redbox. Redbox is a leading movie rental kiosk company that took advantage of the Internet technology, the small size of DVDs and developments made in terms of data processes systems (Pal 2008). The company used these to provide service and product innovation in the industry of movie rentals.
Redbox has brought its movie rental kiosks closer to consumers by adapting to their busy lifestyle. Movie rental kiosks are found in retail locations such as restaurants, grocery stores and drugstores. A trip to any one of these locations allows the consumer to do different things at once. The fully automated movie rental kioskt maximizes the small size of the DVD to provide consumers with a wide selection of popular and frequently watched movies.
The target market of the company is a group of consumers who knows the importance of convenience and instant satisfaction because of the wide selection of movies (Dantes 2009). Since the movie rental kiosk does not have employees like a regular video store, Redbox offers cheaper movie rentals. The concept of Redbox is unique and revolutionary. Redbox has proven that it listens and responds to the needs of consumers. Redbox has partnered with various retail locations to serve the needs of their customers.
The retail stores also benefit from the partnership because the presence of Redbox movie rental kiosks can increase customer traffic and sales. Both parties have a greater opportunity to generate profits. Redbox has also partnered with Flextronics in the development of new movie rental kiosks. Redbox is in need of an outsourcing company for the development of a new and optimized supply chain (Red Orbit 2009). The company believes that Flextronics can help the company develop and create more kiosks for their consumers in order to implement an aggressive marketing strategy.
After producing the kiosks, they are stored in warehouses until they are ready to be shipped. Redbox contacts the warehouses regularly for scheduled shipments. The company uses the supply chain of Flextronics to manage the demand for kiosks. The company can see what units have been shipped and how many will be shipped in the following week. Redbox and Flextronics enjoy a successful partnership because of the mutual benefits they enjoy.
References
Bragg, S (2006) ‘Outsourcing: a guide to– selecting the correct business unit– negotiating the contract– maintaining control of the process’. http://www.plume-noire.com/movies/resources/movie-rentals.html
