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Ramsey (2001) states that 'It is possible for Purchasing to generate and protect competitive advantage, but it is extremely difficult, and will tend to be the exception rather than the rule in all sectors of the economy. Consequently it may be stated, with confidence, that purchasing activities are intrinsically operational rather than strategic in nature.'
In response to Ramsey (2001), Mol (2003) counter argues, that 'the field of strategic management has enough positive things to say about the strategic potential of purchasing to conclude that purchasing is strategically relevant. In fact, purchasing can even be said to have become more relevant in recent years as firms have outsourced more activities and increasingly look towards suppliers to create added value. This indicates strategic advantage not only resides within the firm but also between the firm and its partners.'
In today's global marketplace, focusing on strategic management has evolved as the most essential tool to gain competitive advantage. Organizations across the different industries are closely monitoring and implementing strategies to ensure the optimum utilization of resources in various stages of the business so to achieve organizational effectiveness and profitability (Pearce & Robinson, 2011). Internal resources of a business-like workforce, processes, technologies, management etc., are vital to achieve organizational objectives and ensure success; however, the importance of purchasing resources has emerged as the most significant part of strategic management. According to Weele & Raaij (2014), the effectiveness of a production unit or processes largely depends on the smooth and flawless procurement activities that make it critical for organizations to focus strategically on purchasing or outsourcing for raw materials, technologies, processes or any other supply. This paper critically evaluates arguments given by John Ramsey and Michael Mol, who consider purchasing as strategic irrelevant and relevant, respectively. Considering procurement in logistics, this study details the purpose of the procurement function and its role in the organization and further describes the processes involved in procurement and their wider relevance to the organization's supply chain processes.
Purpose of Procurement in Logistics: Importance and Role
Understanding the importance of procurement
Procurement is considered a key element in the supply chain or logistic management of an organization as it determines the effectiveness of the production process and the success of the business. Most commonly, procurement is described as the purchasing of raw materials required for the production process or ensuring the availability of required resources for the operational or manufacturing processes (Giunipero, Hooker & Denslow, 2012). Indeed, for a business focused on production or manufacturing products, the availability of raw material is the most crucial function to ensure just-in-time production and on-time delivery of the goods. This is where; procurement in the supply chain often holds importance in the perspective of operational activities rather than strategic and supports the statement given by Ramsey (2001).
On the contrary, increasing global business activities and the emergence of new markets have forced global organizations to focus more on cost savings or cost leadership through reducing of cost of production or cost of business operations so to maximize profits and gain a competitive advantage. The emergence of new markets and competition in the supply chain have dramatically provided bargaining power to organizations to look for low-cost procurement or purchasing raw material (Knoppen & Sáenz 2015). Organizations consider this as opportunities to reduce their cost of production and keep marginal pricing for good or services so as to attract a larger number of customers and gain profits when the volume is higher.
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