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It took more than two decades to make us realize that our recent development model is very much unsustainable. Our needs and wants have preceded our means. With increase in population, the consumption of too many resources has skyrocketed which has resulted in more waste, less productivity and irrecoverable harm to the environment. It is, therefore, the need of the hour for business organization to adopt a more rational approach to achieve a sustainable future for this planet and its inhabitants.
One such approach could be critical evaluation of goods and services, careful thinking by both purchasers and suppliers regarding raw material or any other sort of goods or services, is imperative. Purchasing of goods/services or works/utilities plays an important role in terms of how they are bought and from whom they are bought. Decisions pertaining to purchasing can significantly support achieving sustainable development of an organization and other goals which include understanding the worth of natural resources and using them wisely, minimizing the wastage of energy and consuming it wisely, disposing wastes and controlling carbon dioxide level, adding ethical and moral values to trade and striving for social progress.
Concept of Procurement
The approach for a sustainable future discussed above can simply be termed as "Procurement". In general sense, one may consider procurement and purchasing as two terms referring to one action, i.e. acquiring goods and services. Whereas procurement, in fact, is a complex process of which purchasing is only one aspect out of many. It involves acquisition of the required goods or services at the best prices in the appropriate quality and quantity at the required time and place from the trusted sources for the benefit of an organization usually through a contract.
No rocket science is required to understand the concept of procurement and how sustainable purchasing and supply could be beneficial for a business organization. Unlike purchasing, every little aspect of the business is subject to accountability as long as procurement is practiced. For example the British Government spends approximately £145 billion per year which accounts for more than 12% of its GDP. It is a huge sum which is spent on a number of different sectors and projects. The governments have enormous power of purchasing, therefore, it is their responsibility to lead there nations in sustainable procurement by setting examples of transparency and social benefit.
Benefits of Effective Purchasing and Supply
When a government or a business organization is committed to sustainable procurement, it surely can help in controlling the costs both in the short and long run through effective purchasing and supply. A constant and consistent check and balance helps improve the quality. A complex process as it is, sustainable procurement complies with the laws and social norms which helps to avoid any legal actions against the organization or government. An action taken with respect to purchasing and supply in sustainable procurement requires serious consideration which helps lowering the risk level and manages odds of risk if expected. Moreover, the local businesses get involved in this process to provide their particular services and goods, thus, forming a healthy competitive environment.
Importance of Purchaser-Supplier Relationship
The most important factor to maintain sustainable purchasing and supply is the relationship between a purchaser and a supplier. The relationship between the purchaser and supplier is multidimensional and is based on trust, effective communication, cooperation and a positive sense of interdependence. These are critical components and way too much needed to sustain a complex business network of sustainable purchasing and supply. Sullivan and Peterson (1982, p30), described the state of trust as, "â€¦where the parties have trust in one another, then there will be ways by which the two parties can work out difficulties such as power conflict, low profitability and so forth,"
A strong interpersonal relationship between purchaser and supplier helps to maintain a continuous flow of the business. Besides trustworthiness, effective communication plays very important role. Giving and sharing information of mutual interest for the purchaser and the supplier is what communication is all about. The effectiveness of communication raises the determination to fulfill commitments, and enhances satisfaction and performance of both parties. For example, it is a prerequisite for fashion apparel industry that both the purchaser and the supplier constantly keep in touch because of the volatility and change-oriented nature of this sector. This helps lowering the cost of production and handling inaccurate information. Last but not the least, cooperation is the key factor and it directly influences the process of sustainability. A cooperative relationship, of course, is based on trust. In most cases the required information for business organizations is gathered from close business relationships and without a close and strong relationship the purchasers or sellers do not share information and are less inclined to cooperate.
Sustainable purchasing and supply give rise to a competitive business environment. Every firm or organization tries to devise a business plan which results in more than average profit and if an organization succeeds in maintaining this 'more than average' profit, it is said to have competitive advantage over other business organizations. This is the aim of most businesses, that is, to sustain competitive advantage. To elaborate the concept of competitive advantage with an example, let's suppose, there are two firms producing the same item which gives its consumers the same benefit but one firm manages to deliver the same benefit at a lower rate and in doing so it gives its customers and itself higher value of saving and profit respectively.
According to Michael Porter, there are four basic strategies which could be implemented to gain competitive advantage. The cost and differentiation leadership is a broader approach toward competitive advantage. On the contrary, cost and differentiation focus depicts a narrow or minor approach to competitive advantage. The Figure below gives a bird's-eye view of all the four generic schemes proposed by Porter.
Fig. 1, Porter's Strategies for Competitive Advantage
* Cost leadership is simply concerned with minimizing the cost of production so that the firm can offer lower rates to the customers than its competitors. This strategy is practicable only for large business organizations.
* Cost focus strategy targets limited or very few market segments because of the nature of their products which could be very basic ones. Products marketed by such a strategy could be acceptable to and trusted by sufficient customers.
* Differentiation leadership strategy is about differentiating a specific product by any means for the customers, particularly those one who are not price conscious. This strategy targets larger markets. The best examples could be Apple computing and communication devices, Nike sports shoes etc.
* Differentiation focus strategy is quite similar to the differentiation leadership strategy as it also tends cater the unique demands of its customers but the products are not too dear and it targets only one or few markets.
Importance of Selecting Reliable Supplier
The cycle of purchasing and supplying never ends. To gain competitive advantage, it is imperative for a business organization to maintain sustainable supply. Searching a reliable supplier could probably be the toughest part of running a business. For any kind of goods or services which are required by a business organization, it is crucial that they be provided at the right time. This clearly outlines the important role that a supplier plays. Therefore the choice of a supplier must be made after serious thought. The decision pertaining to the choice of a supplier has a direct influence on a business and also directly affects its profit and reputation.
A good supplier understands the needs of the purchaser. The only issue is not just the price paid to the supplier; there are other important factors which require consideration, for example, the speed of delivering the supplies, right quantity and reliable quality of the supplies, considering the supplier's financial stability and the supplier's willingness to deal with his customers as professionally as possible. It is important to carefully determine the number of suppliers required because hiring too many of them could prove to be a hurdle in achieving competitive advantage and hiring very few or only one may result in late delivery of the supplies. The most effective policy that should be adopted while choosing the suppliers is to make sure whether the supplier is capable of matching the short-term as well as the long-term needs of the business organization.
Above discussion is an effort to outline some of the most important aspects of sustainable purchasing and supply. Maintaining and managing sustainable procurement results in mutual benefit of not only purchaser and supplier but also the society in terms of wise use of resources and adopting more environment friendly means of production. The complex process of sustainable procurement makes the business less prone to and resistant to risks. Good relationships between purchaser and the supplier results in additional benefits to both parties. The dependence of sustainable procurement on sustained supply is justifiable. Because continuous supply ensures continuity of business cycle, that's why a reliable supplier is as much important for a business as, is air and water for our survival.