Emerging Issues and Trends in Supply Markets
a) Greater supplier collaboration
With the increase in a number of companies deploying spend management systems that automate or make it possible for employees to have self-service for tactical procurement activities, procurement departments are likely to find mundane supplier activities waning. This will provide professionals across the source-to-pay process increased time for focussing on higher value addition from vendors, including suppliers of services.
Working in coordination with suppliers to develop innovative solutions is second nature to much of the retail and manufacturing sectors. Procurement needs to reposition itself as a business enabler through proactively analysing spend data patterns as well as supply markets. Procurement needs to deliver its understandings and recommendations that enable business managers to make chief decisions on how to meet their financial objectives.
Vendors have the likelihood to welcome this shift; they would rather focus on value too. Both sides have always held collaborative supplier relationship management as a goal, but we just never had time to do it. Now it should become more widespread.
b) Global sourcing
Offshore outsourcing in today’s business and the scope of outsourcing covers practically all areas of the business department that include manufacturing, product services, human resource management, and research and development (Carter and Yan, 2007). Firms concentrate on their core capabilities, reduce staffing levels, reduce management problems, and improve manufacturing flexibility through various types of outsourcing. In this context, procurement deals with contradictory nature of business decisions such as make vs. buy control vs. flexibility, unit cost vs. total cost of ownership and benefit vs. risk.
Among many underlying drives for procurement outsourcing, firms strive to search for the best price or seek efficient ways of acquisition from outside sources. With the growth of globalization and international trade, easy access to low-cost resources from overseas makes global sourcing as an important stream in procurement practices.
c) Strategic procurement
As firms’ supply chain becomes longer, two clear trends have been emerging.
- Each firm has a smaller contribution for its finished products. Thus, value creation is based on what others have already done (i.e., the procurement components) than what it does within for value creation and delivery.
- Competitive advantage depends on greater value delivery.
This necessitates more intensive product and process innovation. Prajogo et al. (2008) show that procurement is one of key value chain processes which significantly impact quality and innovation regardless of a firm’s strategic direction in their empirical study on Australian firms. In fact, suppliers as key strategic partners require a good understanding of their customer’s business processes and needs. Greater innovation potential involves open and timely information sharing (Henke and Zhang, 2010).
This requires organization-wide efforts of sourcing and procurement planning and implementation (Baier et al., 2008; Cousins and Spekman, 2003; Prajogo et al., 2008).
Better coordination among cross-functional departments results in effective procurement decisions and outcomes. Thus, long-term strategic procurement planning involves both senior management and functional specialists in the areas of marketing, purchasing, operations and distribution as well (Paulraj et al., 2006; Tassabehji and Moorhouse, 2008).
d) Increased Outsourcing
When seeking to globalize and lower costs, outsourcing is the way many organizations are headed to. It makes them able to extend their network of expertise in specific areas including logistics and manufacturing in a cost effective way while focusing on core competencies in-house.
e) Sustainability
Environmental concerns and government regulations demand organizations both in private and public sectors to achieve a high level of green commitment. Green oriented procurement is a proactive strategic initiative to promote sustainable business outcomes which are far beyond traditional process improvement concepts. Firms also have taken sustainability into a prime consideration in their operational level as well. Accordingly, purchasing firms turned their focus from low-cost purchasing to enhanced customer satisfaction by adding more values to their product, and a firm with green orientation is translated into developing environmentally sound products in today’s competitive market environment (Hong et al., 2009; Zhua and Sarkis, 2004). Green sourcing is also considered an important sustainable procurement practice. Joo et al. (2010) empirically showed that socially responsible sourcing practices could result in significantly better performance than other competitors in their study on specialty coffee companies.