'...purchasing activities will have to become an integral part of strategy at all levels of an organisation.'
Value is only added in brief periods of time, whilst costs are rising continually. Supply chain management should aim to maximise the net added value and minimise total costs incurred, through reducing the overall length of the supply chain. If the speed and certainty of an operation are increased, service will improve, total costs will be reduced and the net value be maximised. ('Supply chain management', CIPS, 1999)
If there is going to be one threat common to all businesses over the next ten years it will be the globalisation of the market place, resulting in competition the like of which has not been witnessed before. Directors will need to tackle far more complex forms of competition, not simply competition on price but on total value. This means looking at how value could be added and costs saved along the entire value chain. One of the largest implications of this change is that purchasing activities will have to become an integral part of strategy at all levels of an organisation. In order to cope with the increasing pressures on all resources, intellectual, financial and material, strategic alliances will be formed between suppliers and customers. These alliances will be mutually beneficial for the participants and will be the means for all to gain competitive advantage. This tighter integration between suppliers and customers will result in 'blurred edges'. As resources are shared among interdependent organisations, 'value chains' will replace the concept of 'lean supply chains' which have tended to over-emphasise cost reduction.
We're moving from the concept of a purchase to the concept of a project. A purchase is short term. A project is long term. A purchase gives the supplier a one-off gain. A project gives the supplier a continuing interest. A purchase loads the risk on the buyer's side. A project divides the risk between the partners. A project also moves the supplier up the value chain from being a mere provider to being a partner, a consultant, one of the team. (Bonfield, 1999)
Value chains are built on the principle that the purpose of all processes taking place along the supply chain is to add value to the product or service. Any activity that does not add value should be examined carefully to see if process redesign could remove it. In a world where value chains are competing, the practice of testing all activities for value added must be continued across company boundaries. Assessing and evaluating your partner's performance in a value chain will need to become more precise. Negotiations will also become more complex as you seek to build these mutually beneficial relationships. Non-core activities will be shared through these new strategic relationships with suppliers and customers. The same companies will also collaborate in the non-competitive phases of a process, such as pre-product research and development.
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