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The firm's purchasing function can use this model to determine strategy so that it can exploit purchasing power and reduce risk - thereby providing a strategic contribution towards gaining competitive advantage.
It has led to the role of purchasing becoming more strategic due to international competition for resources and raw materials on the one hand and lower labour costs on the other. According to Smith (1999), global procurement can also provide strategic advantage by way of gaining knowledge of foreign markets, exploiting tax and currency opportunities and through improved availability & quality.
Firms are increasingly looking to suppliers to create added value.
The act of obtaining merchandise, capital equipment, raw materials, services, or maintenance, in exchange for money or its equivalent.
Classified into two categories: Merchants - wholesalers / retailers, who purchase for resale purposes Industrial Buyers - primary task is to purchase raw materials for conversion purposes Primary goals of purchasing is to ensure uninterrupted flow of raw materials at the lowest total cost, to improve quality of the finished goods, and to maximize customer satisfaction.
In consideration of this statement, the argument presented below is one which opposes the contention that the purchasing function is not strategically important in enabling organisations to gain competitive advantage.
This stance has been taken following a thorough literature review and consideration of the statement relative to pertinent models, tools and techniques.
The work of Porter (1980) - specifically his 5 Forces Model of external factors from which a firm's strategy may in part be derived - led to a realisation of the link between some of the key features of this framework and the purchasing function.
Three of these forces - namely, the bargaining power of suppliers, the bargaining power of customers and the threat of new entrants all implicate a linkage with the purchasing role.
This has resulted in the nature of this process being less transactional and more strategic.
Its importance comes to full recognition when purchasing is involved in make-or-buy decisions or consideration of purchasing in relation to core/non-core issues (Van Weele, 2009). EDI in strategic supply chain: impact on customer service.