Procurement: Core or Support Function? - Africa’s premier report on the oil, gas and energy landscape.

Procurement: Core or Support Function?

By Blessing Adagbasa

Most organizations operate with a Procurement department tasked with acquiring goods and services essential for their production and service delivery. From basic necessities like stationery to crucial inputs such as raw materials and key service providers, the Procurement department’s responsibilities span a wide spectrum. Its role is pivotal in ensuring organizational success.

Within any organization, various functions collaborate to achieve business objectives. The primary functions typically revolve around generating revenue or facilitating the organization’s income generation process. These functions often include manufacturing/production, sales, and marketing. Conversely, support functions are not directly involved in revenue generation but exist to provide necessary services to the core functions.

Given this framework, the question arises: should the Procurement function be classified as a core or support function? To answer this, it is essential to analyze the roles of core functions and compare them with the traditional and evolving roles of procurement.

Production Input Sourcing: The production function is fundamental to organizations as it takes raw materials and converts them into finished products, a process that remains consistent across different types of businesses. Subsequently, the sales and marketing functions focus on distributing these final products to customers and securing payments. Given this, the production function is widely acknowledged as a core function in most organizations.

If production is considered a core function, it is crucial to recognize the inception of the production process. Typically, the production process begins with the procurement of raw materials and necessary services. The sourcing of inputs marks a critical initial stage in production, and the Procurement function assumes responsibility for procuring and delivering these production inputs. Therefore, Procurement emerges as an indispensable function within the production process and is inherently core to the business.

Cost Reduction and Margins Optimization: Let us examine another crucial aspect of the Procurement function: cost optimization. For organizations to maintain competitiveness and enhance profit margins, the Procurement function must secure goods and services at prices that confer a competitive advantage in the market. Managing input costs stands out as a primary value proposition of procurement, directly influencing the bottom line.

Efficient input cost management, facilitated by procurement, holds the potential to reduce the overall cost of production. Consequently, such cost reductions often translate into improved business profits. It is undeniable that maximizing profitability ranks as a central objective for many businesses, underscoring the significance of effective procurement practices in achieving this goal.

Business Continuity and Security of Supply: The threat of supply shortages presents a substantial risk to business continuity. Procurement professionals play a critical role in mitigating this risk by actively seeking alternative sources to minimize operational disruptions caused by supply chain interruptions or the unavailability of essential materials and services needed for production.

To ensure the security of supply, procurement professionals employ various commercial strategies. These strategies may include establishing alternative sources of materials or services, securing advance commitments from suppliers, and implementing other proactive measures to maintain a steady flow of resources into the production process. By adopting such strategies, businesses can better safeguard against the adverse effects of supply shortages and enhance their resilience in the face of unforeseen disruptions.

Legal and Regulatory Compliance: In most countries, regulatory frameworks are in place to set guidelines for the production and distribution of goods and services within their jurisdictions. Many of these regulations also extend to the sourcing of materials and services necessary for the production process. The Procurement function plays a crucial role in ensuring compliance with these regulations and implementing processes to mitigate identified risks within the supply chain.

Procurement professionals are responsible for understanding and adhering to the applicable regulatory requirements governing the sourcing of materials and services. They establish and enforce procedures to ensure that suppliers meet these regulatory standards and that all procurement activities align with legal and compliance obligations.

By proactively addressing regulatory compliance and risk management within the supply chain, Procurement helps safeguard the organization against potential legal liabilities, reputational damage, and operational disruptions. This ensures that the production and distribution of goods and services proceed smoothly within the boundaries of the established regulatory framework.

In summary, Procurement is indispensable to the core operations of a business, and organizations aiming for sustainable success must recognize it as such. Viewing procurement as an integral part of the business, rather than merely a support function, is essential for achieving business objectives effectively.

Procurement should be given a seat at the table during strategic decision-making processes, as it directly influences the bottom line by managing input costs that impact overall profitability. By acknowledging the pivotal role of Procurement and prioritizing its involvement in key business discussions, organizations can optimize their operations from the outset, ensuring a solid foundation for success. In essence, the journey of a business begins with Procurement, highlighting its significance in driving long-term prosperity and growth.

Adagbasa is a Procurement Manager in the Nigeria Energy Sector

 

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