Strategic Purchasing And Supply Management

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Introduction In recent times, it is believed that Strategic Purchasing and Supply Management (SPSM) play an important role in the activities of a company. One of the important goals of a company is to achieve a high level of profit. This is why, it is vital for every company to achieve such benefit which are usually achieved through the reduction of costs. In other words, firms should always strive for the best in terms of “value for money” from their suppliers in order to achieve a long-term stable growth in the market. Furthermore, this reduced cost by companies can be used as increased dividends on their shareholders or be reinvested in these companies by spending them on research and development (R&D) which will strengthen companies’…show more content…
Such kind of management helps organizations successfully engage with their suppliers in a long-term period and get advantages from these relationships. According to Watson and Lonsdale (2003), there are a number of problems that can affect a firm’s performance during this process which can be called demand management problems. As a result of these, the value for money derived by the organization in the purchasing process will be affected. There are six main problems a firm can suffer from in the course of their management as highlighted by "Watson and Lonsdale"(2003) and will be explained below. Product or service over-specification Value for money is calculated in terms of functionality and cost. Therefore, the best value for money for individual organization is a trade-off between this parts. That is why it is important to come to an arrangement on a value for money proposition. A lot of firms faced with the problem of over-specification of the products or services by internal clients. Premature establishment of specification Another problem of internal demand management is premature establishment of specification. When internal clients apply the supplier’s offer before the firm had a chance to negotiate with supplier it may lead to a serious problems, as such situation puts supplier in a strength position with respect to the firm. Such a fatal mistake was made by the Lord Chancellor’s Department (week 1
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