The Contribution of the Procurement Function to a Firm’s Competitive Advantage
Instructions: Your paper should have a clear structure, with:
– a cover page (student number, module title, assignment title, word count (effective, not max), declaration of originality
– an abstract (300 words max, one single paragraph)
– a table of contents
– the main body of the paper – you have full creative control over the structure, but do use section headings to signpost your work
– references list – this is mandatory at Master level
A proactive strategic procurement operation can give the organization it represents a competitive advantage by reducing waste in the value chain. For an organisation of your choice, you are asked to critically examine the contribution that the Procurement function makes to the firm’s competitive advantage.
Table of Contents
Background Information on Starbucks Corporation. 5
The Contribution of the Procurement Function to a Firm’s Competitive Advantage. 5
Strategic Sourcing, Supply, and Procurement 6
Aligning the Procurement Strategy with the Corporate Strategy – Influence of Competitiveness 9
The Influence of Effective Procurement Management on a Firm’s Competitive Advantage. 11
Supply Chain Management – Enhancing Procurement Efficacy and Improving Competitiveness 13
As competition increases,
every business focuses on the development and implementation of measures that
ensure greater competitiveness. Effective management and leadership serve a
major role in the application of strategies that contribute towards the
attainment of a competitive edge. Different companies have understood the need
for the integration of different strategies into the corporate strategy. The
strategies work collectively towards the promotion of success in the
achievement of short-term and long-term organizational goals. The strategic
procurement operation remains greatly important in the promotion of
organizational success and development. The function contributes largely to the
development of a competitive advantage in a firm. This report outlines the influence
of the procurement function on the competitiveness of a company. It integrates different
examples but mainly focuses on the Starbucks Corporation. Starbucks has an
efficiently developed procurement function and corporate strategy in general
that triggers the achievement of a competitive advantage over other competitors
through the promotion of quality improvement, enhancement of performance,
productivity, and profit efficiency. The report outlines the impacts of strategic
sourcing and supply, supply chain management, procurement management, and the
alignment of the strategies on the procurement function. The process reveals that
the strategic procurement function influences the development of competitive
advantage. This research uses credible research material including books, peer-reviewed
journal articles, and credible websites and, therefore, is credible, reliable,
and dependable for future research.
The development and implementation of an efficient corporate strategy plays a significant role in pushing a firm towards the achievement of organizational success. Such a strategy ensures that all business operations work collectively towards the achievement of common goals. The success of a firm is determined by its ability to achieve the set organizational objectives sustainably. According to Johnson, et al. (2013), the efficiency of a corporate strategy is influenced greatly by the effectiveness of all the essential business operations, processes, and systems. These ensure quality improvement, enhanced performance, productivity, and competitiveness. The achievement of a competitive advantage guarantees higher sales, improved profit efficiency, and thus greater returns on investment. Therefore, the implementation of strategies and measures that allow a firm to attain a competitive advantage is essential for business development and success. As Adamides (2015) contends, the procurement function contributes immensely towards a firm’s competitive advantage. Therefore, the development of an efficient strategic procurement operation is essential for the achievement of organizational success and development.
According to Cartlidge (2015), procurement involves a wide range of a firm’s activities including the acquisition or purchase of products and services mainly through the processes of bidding or tendering. The firm must consider the appropriateness of the goods/services in meeting the demands and needs of the firm. Additionally, as Dringoli (2011) posits, the aspects of time, location, quantity, and the quality of the services or products are essential in the process of procurement. An effective strategic procurement focuses on ensuring the products and services are available when they are needed, where they are needed, and in their right quantity and quality. The major advantage of the process, as Rangarai, et al. (2009) note, is the ability to reduce unnecessary waste in the value chain and the improvement of the firm’s competitive advantage. This report offers an extensive discussion of the importance of the procurement function in ensuring the acquisition of a competitive advantage. It integrates the case of Starbucks Corporation’s strategic procurement operation and includes other examples that improve the understanding of the procurement function and its influence on a firm’s competitiveness (Bruce & USA, 2015).
Background Information on Starbucks Corporation
The Starbuck Corp. was founded in 1971 and has since expanded to operate in more than 20 000 locations around the world. Its headquarters are located at the Starbucks Center in Seattle Washington. The Corporation is currently a global leader in roasting, marketing, and retailing of refined and quality coffee. The Company prides itself in its quality products and services. Its global success is directly attributed to its significantly efficient corporate strategy. According to Starbucks Coffee, Company (2004), GAO (2004), Fitzgerald, et al. (2005), and Schultz and Gordon (2011), Starbucks’ strategy includes effective leadership and management that focuses on constant quality improvement, product and market development, and an efficient procurement strategy. The Company invests heavily in the development of its supply chain, strategic sourcing, e-procurement, risk management, and sustainable relationships with its stakeholders (Bussing-Burks, 2009). The efficiency of its strategy ensures the achievement of a competitive edge in comparison to other stakeholders in the industry (Schultz & Yang, 2006; Starbucks, 2016). Therefore, it records high profitability, ROE, and shareholder wealth. The discussion of Starbucks’ procurement strategy and its processes will outline the importance of proactive strategic procurement in giving firms a competitive advantage.
The Contribution of the Procurement Function to a Firm’s Competitive Advantage
The strategic procurement function plays a significant role in driving businesses towards the achievement of success. According to Fortune (2016) and Cartlidge (2015), effectiveness of the procurement process places certainty in the development of a competitive advantage of a firm over its competitors. The attainment of a competitive edge over players in the industry guarantees the firm a higher market share, increased sales, higher profit efficiency, and organizational success (Dransfield, 2001; Ungson & Wong, 2015; Sollish & Semanik, 2011). Additionally, it allows the creation of shareholder wealth. Key among the most processes that influence the procurement function in the achievement of the above-mentioned include strategic sourcing, supply, the alignment of the procurement strategy with the corporate strategy, and the management of the procurement operations, and the supply chain management among others (Bower, 2003; Schrage, 2004; Arminas, 2004). The discussion of the above shows the contribution of the procurement function towards the development of a firm’s competitive advantage.
Strategic Sourcing, Supply, and Procurement
The effectiveness of the procurement strategy is determined by the different measures employed for the improvement of the processes therein. Bearden and Morton (2006) assert that among the different processes integrated into the strategy, a strategic sourcing plan (SSP) is paramount for improving a company’s competitiveness. The development of the plan and its understanding by all the key stakeholders in a business offers guidance for the implementation of the acquisition policy. Since acquisition is a central process in the procurement strategy, its effective development and implementation places certainty on the efficiency of the procurement strategy. However, according to Anderson and Woolley (2002), excellent documentation of the SSP in accordance with the vision and mission statements of the specific firm is essential. Additionally, the effectiveness of the SSP in the development of the procurement strategy is defined by its ability to consider consumer needs that are essential for ensuring the success of a firm (Lee, 2008). The broader corporate strategy outlines the customer needs and allows the use of the information in the development of the SSP and the procurement strategy (Starbucks Corp., 2013).
The development of an effective SSP for the implementation of the procurement process requires efficacy in incorporating various plan elements into the process. According to Colley, et al. (2012), Scholes, et al. (2009), and Dringoli (2011), the essential elements for consideration in the development of an efficient strategy include the company’s mission and vision statements, communication, a search strategy, the means of attracting people, and referrals and candidate engagement. These influence the process of SSP development significantly and thus must be implemented viewed with a high level of keenness (Zhu & Chen, 2015; Johnson, et al., 2013). Key in the development of the SSP and the procurement strategy is the mission and vision statements of the organization. According to Beckett, et al. (2011), the mission and vision statements of the SSP should align with the statement of the firm. This makes it possible for the management and the sourcing group to identify the necessary value addition required. Additionally, the communication of the statement to the workforce is an essential process towards the development of an effective SSP, which sets an effective ground for the achievement of success of the procurement strategy and thus the improvement of a firm’s competitiveness (Kanter, 2009; Starbucks Coffee Company, 2016).
Starbucks Corp. has an efficient SSP that works towards the improvement of the effectiveness of its procurement strategy (Bussing-Burks, 2009). According to Schrage (2004), it has created and implemented a plan that aligns its objectives with the company’s mission/vision. The sourcing strategy/plan focuses emphasis on ethical sourcing therefore ensuring the commitment towards corporate social responsibility (Starbucks Coffee Company, 2015). Additionally, the Starbucks Corp. works with a wide range of suppliers who depict the same commitment and deliver quality by the high standards it has set over the years (Fortune, 2016; Schrage, 2004). As such, the SSSP ensures the commitment towards the sustainable sourcing of sustainable products thus allowing sustainability in operations. Additionally, the Company implements the sustainable sourcing plan effectively to maintain good supplier relationships. For instance, Starbucks Corp. rewards the suppliers who show commitment to social and environmental responsibility (Bruce & USA, 2015). The development of such a plan and its impact on the success of the procurement strategy shows its importance in the promotion of quality in sourcing and procurement. Most importantly, through the influence of the SSP, the Starbucks’ procurement strategy remains critically important in the promotion of the firm’s success.
As the Starbucks Corp. focuses on the continued dominance of the global market, the integration of numerous strategies into its operations plays a major role in the process. Its strategic procurement operation strategy influences the continued development of its competitiveness placing it on an elevated ground as a global player. According to Kanter (2009), Starbucks depends greatly on its procurement strategy among other strategies for the constant development of its strategy. In the past, the implementation of the strategy has ensured continued growth and sustainability by addressing concern of unpredictability and unreliability of its supply chain. In the latter years and early years of the 90s and 2000 respectively, Starbucks was experiencing a significant annual growth rate due to high demand for its products and services (Schrage, 2004). However, the management was increasingly concerned about the sustainability of its growth citing the future of its supply chain as unpredictable and thus unreliable. Therefore, there was a need for the Company to protect its supply chain through the development of an effective procurement and sourcing strategy. Over the years, Starbucks has focused on identifying and nurturing of coffee supply partners who can meet the growing demand and the high standards of quality (Schrage, 2004; Allen, et al., 2015).
Further, by investing in its strategic procurement, Starbucks Corp. has achieved significant success as a competitor in the beverage/coffee business. Theodorakopoulos, et al. (2015) asserts that the achievement of a competitive advantage was influenced by the development of a healthy relationship with the suppliers. The procurement strategy, which ensured the development of such a relationship continues to enhance the Company’s competitiveness. Therefore, Starbucks continues to focus on product and market development, which improve its market share and dominance (Haim, 2015; Coyle, et al., 2012). Most importantly, the Company has focused mainly on the protection of its brand through the selection of suppliers who share the same commitment and values. Through its procurement strategy, Starbucks develop a system for attracting suppliers and rewarding farmers that show commitment to environmentally and socially responsible coffee farming. Additionally, the program ensured that farmers invested on responsibility, relationship with employees, and responsiveness and responsibility in order to assist the Company to meet its demand and thus continue recording growth. Therefore, the procurement strategy has played a major role in the promotion of the Company towards increased competitive advantage and sustainable production and development.
Aligning the Procurement Strategy with the Corporate Strategy – Influence of Competitiveness
The influence of the procurement strategy should not only impact on the processes but also on the procurement team. According to Dransfield (2001), a motivated team improves the effectiveness of the strategy and allows the achievement of the strategic goals. The management and leadership of any firm should ensure that the team remains highly motivated through the application of different measures. Dringoli (2011) contends that the process is of great significance in the promotion of organizational development and success. While Asefeso (2012) supports Dringoli (2011), the author points out that constant training and ensuring the team is well-informed plays an important part in the development of motivation. Additionally, there is a need for the management to equip the workforce with the essential skills, resources, and inspiration for the effective performance of the procurement duties. Pablos (2015) argues that these alleviate mismanagement, waste, and inefficiency in operation. The success of the Starbucks’ strategic procurement operation is greatly influenced by its extensive investment in employee and stakeholder development. According to Starbucks Coffee Company (2016), it ensures the effective management and leadership of the procurement team thus ensuring the development of a skilled, motivated, informed, and equipped team.
The creation of an effective work environment and the application of good management and leadership skills and styles ascertains the development of a motivated, skilled, and resourceful team (Russill, 2010). Such a team causes a significant improvement in performance, productivity, and quality improvement. However, in the case of the procurement team, it guarantees a reduction in waste in terms of inefficient procurement that may result to schedule risks, inefficient transportation, overproduction, overstocking, and defects and rejects among others (Lee, 2008). These wastes impact the profitability of a firm in a major way. However, curbing the wastes gives the fir a competitive advantage. For instance, the Starbucks Corp. has recorded significant success in the reduction of wastes due to its effective alignment of its procurement strategy with the corporate strategy (Dringoli, 2011). The focus its management places in inspiring, motivating, and training its procurement team assures constant efficacy in all processes therein. Similarly, Apple Inc., invests greatly in the development of a motivated, well-trained, equipped, and resourceful procurement team which has in the past contributed towards the achievement of the Company’s objectives. The team helps in the reduction of wastes in organizational procurement processes and operation systems.
The Influence of Effective Procurement Management on a Firm’s Competitive Advantage
The effective management of the procurement processes allows the achievement of the objectives of the strategic procurement operations of an organization. The process includes different processes that work collectively towards the development of an efficient system of operation. Booth (2010) and Ukalkar (2012) assert that the management of the strategic procurement processes boosts transparency allowing an effective interaction between the Company, its stakeholders, and the suppliers. Even when the process is critical for organizational development, Russill (2010) argues that the procurement team and its management should have a clear understanding of the process. Starbucks Corp. invests intensely in the management of the procurement process to ascertain the success and the greatest influence of its procurement strategy. According to Kanter (2009), the effective management of the procurement process in the Company allows transparency, accountability, and procurement efficiency. These values play a major role in promoting organizational development by setting a good environment for enhanced relationships and the achievement of procurement and corporate goals (Schrage, 2004). The impact gives the firm a competitive advantage causing an increase in sales, growth, and profitability.
The management of the procurement process ensures that the procurement team and the stakeholders work towards the attainment of strategy objectives. Consistency and transparency in the pursuance of the objectives is critical. According to Asefeso (2012), success in the process is determined by the application of different managerial techniques and strategies. Sollish and Semanik (2011) and Louth and Boden (2014) argue that success in the management and excellence in the processes can be achieved through the implementation of procurement supervision, processes analyses, benchmarking, and reporting among others. The process of supervision during the implementation of the strategic procurement processes places certainty in the management of the operations. Additionally, the supervision ensures that all processes integrated into the procurement strategy are performed and completed in accordance with policies and the best procurement practices for the elimination of risk in an organization. However, according to Allen, et al. (2015), there is a need for the management to ensure that all the players are informed of the supervision processes. In the management of its procurement processes, the Starbucks Corp. ensures the efficient management of the procurement strategy to improve the effectiveness of the processes and enhance the achievement of the set procurement and overall firm goals (Bussing-Burks, 2009).
The procurement managers focus on the analysis of the processes therein and monitoring of the key performance indicators (KPIs). In the discussion of procurement management, (Tumuhairwe & Ahimbisibwe, 2016) and Ferri, et al. (2016) point out that analysing the processes of procurement and the different strategies or measures applied in a company is important for outlining their effectiveness. Therefore, the importance of the analyses and measurement of success through the observation of the KPIs’ performance in promoting the success of procurement operations is undeniable. The improvement of the activities of the operations depends greatly on the effectiveness of the methods applied. However, the management should focus on the determination of its success in managing procurement. For instance, there is a need for identifying the factors that reveal the success of the procurement managers and processes. Starbucks Corp. outlines the success of its innovative and proactive procurement strategy by pinpointing its effectiveness in the achievement of the objectives (Haim, 2015). For example, that the implementation of its strategy has ensured the constant growth and development, solved the concern of unreliable and unpredictable suppliers, and created stronger relationships with suppliers and stakeholders depicts the effectiveness of the strategic procurement operations (Oh, et al., 2014).
Supply Chain Management – Enhancing Procurement Efficacy and Improving Competitiveness
Supply chain management (SCM) promotes procurement efficacy and pushes businesses to achieve a competitive edge. Holden (2012), Louth and Boden (2014), and Melvin (2012) assert that procurement requires an efficient infrastructure that guarantees the delivery of the acquired or purchased goods. While there is a close link between procurement and the supply chain, the two are significantly different. According to Coyle, et al. (2012), procurement involves the act whereby a business meets its products and services needs by purchasing to undertake and implement its model. The process involves product and services quality development, price negotiations, purchasing, and checking stock among others (Holden & Thompson, 2015). On the other hand, the supply chain consists of all activities and persons for getting the required products and services to the consumers. The chain involves of people who gather the materials, transporters, storage facilities, and manufacturers among other facilities. The two functions work collectively towards the improvement of quality, efficiency, and productivity, all of which play a crucial part in the development of competitiveness. Ensuring efficiency in the supply chain boosts the procurement function ability to meet the objectives of the company. Therefore, the management of the supply chain plays a significant role in improving the effectiveness of the procurement function and thus enables it contribute largely to the development of a competitive advantage in a company (Bower, 2003). The management of Starbucks invests heavily in SCM and thus maintains a highly efficient strategic procurement operation, which constantly improves its competitiveness.
of an effectual corporate strategy ensures organizational development through
the enhancement of performance, improvement of quality, productivity, and
profitability. Such a strategy integrates different functions that work
together towards a common purpose. As the business world continues to record
increasing competitiveness, every business strives to implement strategies that
allow it to compete effectively. The achievement of a competitive advantage determines
the success of a firm. The implementation of an efficient procurement strategy ascertains
the improvement in competitiveness. The Starbucks Corp. employs a strategic
procurement function that considers the importance of effective management of
the supply chain, procurement management, strategic sourcing, and aligning the
strategy with the corporate strategy in triggering the development of a competitive
advantage. The integration of the different strategies continues to give the
Company a competitive edge, which makes it a global leader in the coffee
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