1).

Provide a summary of the key impacts increasing the role of the purchasing function
in organisations. (approx 800 words)

There are many impacts affecting companies which have increased the role of the purchasing function within
organisations. Some of the most important to take into consideration are; environmental preferable purchasing
(or the so called Green Purchasing), the recession we’ve been suffering for the last years and the improvement
of information technologies.

1. Green Purchasing.

This way of purchasing is about selecting and acquiring the products and services that
most effectively minimize negative environmental impacts over their life cycle of
manufacturing, transportation, use and recycling or disposal
(http://orf.od.nih.gov/Environmental+Protection/Green+Purchasing/)

Nowadays, companies have to be aware of the sustainability of both, the products

they produce and the products and services they need in order to create those
product. There are procurement externalities, (such as disposal costs, CO2
implications...) which have to be taken into account as consumer expectations and
government regulations are rising day to day in business terms.

For example, existing and planned legislation penalises high energy consumption and
rewards emissions reductions. Such legislation is typified by the EU directive for 2012 that
will include CO2 in aviation and shipping as a cost. So, some companies made their move in
order to save some money and besides improve the image consumers have of them. I.e.
Wal-Mart saved $26 million in annual fuel
cost from installing auxiliary power units to the truck fleet; enabling drivers to control cab
temperature during mandatory ten-hour road breaks without idling their truck engines all
night, wasting fuel.

Hence, by this sustainability approach in the purchasing role, companies will obtain some
good benefits:

- Costs will be reduced from energy consumption reduction, less waste

generation, longer duration of supply and machinery, government regulation
(this avoiding possible fines or receiving subsidies in order to enhance their
energy efficiency, or to install clean energy sources such as wind or solar).
- The risk to the business will be reduced since this behaviour will enhance the
brand reputation, will improve the community relationships and will reduce
litigation reasons.
- Consumer satisfaction will increase whenever a company goes green in
response to consumer concerns.
- Besides, there’s an study that concludes that increased corporate social
responsibility is generally correlated with higher revenues, healthier and safer work
environments, and improved relationships with customers and suppliers
(http://www.ism.ws/files/sr/capsarticle_purchasingscontribution.pdf)

2. Recession

The last years recession starting on 2007 with the collapse of the real state market in the US has been called
The Great Recession by some economists since it affected almost all the countries in one way or another. It has
been basically a Financial Crisis where a lot of banks where shut down because of the amount of highly risky
assets they owned without no knowledge at all, in part for the failure of ratings agencies to properly assess the
risk of such assets. (http://en.wikipedia.org/wiki/Late-2000s_recession#Housing_bubble)

So, with this huge recession many companies have turned their attention to reduce costs within the company,
and one of the paths to alleviate company’s difficult conditions is by focusing on the purchasing role within the
company which will help the company by cost-cutting.
( http://www.cpoagenda.com/previous-articles/winter-2008-2009/features/responding-to-recession/)
Aberdeen Group made a research in which we can read that ninety-one per cent of respondents put cutting costs
in their top three priorities for 2009 (http://www.cpoagenda.com/latest-news/recession-has-positive-effect-on-
procurements-profile/)
Hence, it can be said that the role of purchasing in the company has increased in importance since it has been
one of the main tools used by many companies during the recession in order to reduce the overall costs of the
company and to enhance cost-efficiency.

3. Information Technology

For the last years the traditional transaction exchange has shifted to a new more relational
approach, therefore, firms are changing arms-length relationships with ones with more
collaboration and with deeper integration with a fewer number of suppliers.
(http://cife.stanford.edu/online.publications/TR160.pdf)
When a company invests heavily in IT for the Purchasing function, a signal is sent to the vendors
that this function is being viewed in an increasingly strategic manner.
(http://www.sciencedirect.com/science?_ob=MImg&_imagekey=B6V69-3SWV95V-6-
2&_cdi=5809&_user=777686&_pii=S001985019600123X&_origin=search&_coverDate=03%2F31
%2F1997&_sk=999739997&view=c&wchp=dGLbVlW-
zSkWA&md5=d8760d9591bc2013c49da63a902b1d38&ie=/sdarticle.pdf)
When IT investments are successfully implemented, they can reduce buyers' order processing
cycle times and automate many routine procedures, thereby reducing costs and allowing
purchasing personnel to have greater time and ability to engage in more sophisticated vendor
evaluation programs and value analyses, cultivate closer relationships with key suppliers, and
rationalize their supply bases (http://www.sciencedirect.com/science?
_ob=MImg&_imagekey=B6V69-3SWV95V-6-
2&_cdi=5809&_user=777686&_pii=S001985019600123X&_origin=search&_coverDate=03%2F
31%2F1997&_sk=999739997&view=c&wchp=dGLbVlW-
zSkWA&md5=d8760d9591bc2013c49da63a902b1d38&ie=/sdarticle.pdf).
For example, as we can read at the previous paper, Chrysler has used IT investments to improve
its vendor relationships by installing a computerized on-line system that transfers delivery and
quality data to suppliers in real-time. Doing so, Chrysler is making that the use of IT becomes
more general among its suppliers, what will improve their exchange relationships.
Besides, when using information technology, the purchasing function is helping the company to
reduce costs, as long as it will be more efficient maintaining large bases of suppliers, since the
costs of identifying and contacting possible vendors, evaluating supplier’s capabilities and
performance... will be diminished.

1) Identify and critically explore the key skills and knowledge required in a
Purchasing team to maximise the purchasing function’s contribution to the
organisation. (approx 800 words)

For the last decade, purchasing role has evolved from a more clerical activity within the company to a
more tactical and strategic function, therefore the purchasing decision-making has become more
knowledge and competence/skill driven (http://www.impgroup.org/uploads/papers/5851.pdf). Hence,
purchasing professionals used to be mere followers in the company, but now they have to develop their
skills and knowledge and acquire new ones to apply the new strategic approach of the purchasing function
and achieve competitive advantage.
For the three key impacts that are to affect and increase in importance the role of the purchasing function
in the company, the skills and knowledge purchasing managers will need are:

1. Green Purchasing.

In order to deal better with this impact, Purchasing Managers should be aware of which are the regulations
imposed by the governments regarding industry environmental impacts, such as air pollution or pollutant
discharges (environmental and legislation knowledge), and have to be able to look beyond the purchasing
price, since this is not the most important target when we are dealing with green purchasing. So, CPO’s
must take into account costs and environmental impacts over the lifetime of a product or service the
company will need for its final product or service (manufacturing, packaging, transport, energy
consumption, maintenance, disposal).( http://www.pprc.org/pubs/epp/epp_report.cfm?)

Some research (http://www.emeraldinsight.com/journals.htm?articleid=849364&show=html) has settled

that companies with larger volume of purchasing are more involved into green purchasing because they
have economies of scale that make more attractive the turn of purchasing approach from price targeting to
environmental preferable purchasing. To get completely into this new approach, purchasing manager have
to involve suppliers in this environmental commitment. To do, so negotiation and influencial skills will be
needed.

A standard (called The Green Standard) has been created for green purchasers with which they will be able
to efficiently and effectively navigate today's environmentally-sensitive business landscape, while building
value, competitive advantage and social responsibility.
http://www.thegreenstandard.org/Green_Purchasing.html This will help purchasers to differentiate
between companies which are doing grreenwash (with some atractive assertions such as; environmentally-
friendly, green, essentially non-toxic, eco-safe, 100% natural, or Earth smart) and companies that work
under a real green basis which really care about the environment.

2. Recession

After the recession the whole world has been into (some countries are still in serious problems), the skills
companies are looking for in their purchasing managers have shifted pretty much in the last 2-3 years.
Before the recession, the main skills a purchasing manager should haver were; to be good communicators
and have commercial wit. During the recession, the main skill pursuit by companies was to be able to
reduce overall purchasing costs (which in some companies mean the 60 per cent of the total cost). To
achieve this objective, negotiation skills were highly required for CPOs.
http://findarticles.com/p/articles/mi_hb6503/is_4_36/ai_n28802523/pg_7/

But, once we can say that the recession is over, the skills required in this new environment have changed as
well. The most sought after skills nowadays to deal with the new economic environment are contract
management, forecasting and relationship management (
http://www.procurementleaders.com/news/latestnews/1613-post-recession-recruitment/ )
. With this skills what companies expect from their purchasing managers is that they be able to
anticipate possible future changes in economy (forecasting), to improve the acquaintance of the
company with their suppliers to add value to the supply chain (relationship management) and to better
assess and mitigate risks when doing a new contract (contract management).

3. Information Technology.

During the last decade the world has changed with the dissemination and magnitude that the internet has
achieved, and the importance IT has for any company. Purchasing departments deal with a huge amount of
information everyday. They must track the performance of suppliers and know the status of purchase
orders. Beside, purchasing managers must have an easy access to all this information in order to measure
supplier delivery performance, supplier quality and price movements. But, to achieve all these
improvements for the purchasing departments, purchasing managers must have the necessary knowledge
and awareness to use the necessary data-processing equipment and the appropriate software that fits better
with the needs of the company. http://books.google.com/books?id=_i-
63rUoik4C&pg=PA221&dq=information+technology+purchasing&hl=es&ei=xZVqTcj8LMaJhQfx9rDtD
g&sa=X&oi=book_result&ct=result&resnum=2&ved=0CC0Q6AEwAQ#v=onepage&q=information
%20technology%20purchasing&f=false

Therefore, the purchasing manager will need several skills to manage this kind of specific software and be
able to learn and addapt to changes and evolutions, and also will have to be really skillful in the usage of
more common softwares and tools like databases (MS Access), spreadsheest (Ms Excel), Email (MS
Outlook), wordprocessing (MS Word)... and last but not least (and maybe the most important), they have to
do a good use of the internet and exploit all its benefits.http://www.schools.nsw.edu.au/learning/k-
6assessments/csa6ictskills.php
 2) Analyse the implications of these requirements on the leadership and
management of the purchasing function. (approx 1400 words)

The purchasing role of the past may have been focused primarily on administrative tasks, away from
the more high-profile areas of program delivery. But there is now a need to transform the role into an
important corporate management function, one which is both strategic and transactional, and
contributes significant value to the organization.

Leadership means grasping the opportunity and participating in the process to influence the shape of
things to come in procurement. It means to involve all the group into a sense that all what they do is
interrelated and is developing towards an objective already defined by the leader.
Leaders within a group must be efficient rather than effective, this is, as Peter Drucker said:
“management is about doing things right, leadership is about doing the right thing”. Meaning that it´s
more important efficiency than efficacy.
The procurement/purchasing manager will be responsible ultimately for the outcome of the group,
but by noticing the diverse talents of her/his team members, he/she can get the job done by involving
and allowing others to reach their full potential for the benefit of the group and the company. The
objective is to maximise the talent that is available, not by focusing first on positions, but by
recognizing individual interests and strengths, wherever they may be in the group.
http://findarticles.com/p/articles/mi_qa3993/is_201001/ai_n53080624/pg_2/?tag=content;col1

From the point of view of the management in the purchasing function it has to be said that the role of
this department within the company has changed very much for the last year. Savings were
considered the most important factor in procurement, and tracking lower
negotiated prices the best method to measure the contribution of procurement to the organization.
Companies kept their suppliers at a distance, responding to them on the basis of
individual transactions. Companies made only limited investment in suppliers and found
little value in sharing information with suppliers. There was just no reason to share strategy. And
stricter controls and penalties for mistakes were reactions to supplier performance—there were no
incentives at all. Purchasing organizations and information management were in place solely to
support the transaction processing of the procurement department.http://www.competence-
site.de/downloads/44/f8/i_file_10335/Practices.PDF

But nowadays it's quite different. The way purchasing managers relate with supplier has changed.
Previously purchasing managers simply placed orders, they did not build a relationship with them.
This is a very important change as long as suppliers are an important part of the business's success,
therefore the have to be treated the same way. The main goal of this relationship is to get the best
prices with a supplier that will secure a steady customer in the future.
http://www.epiqtech.com/Purchase-Procurement-Management.htm

Another change relates with the workforce. The employees within the department are more
experienced in the sector the company works in and are better trained for the job. By hiring
individuals who are experts in their field and who are then trained in the procurement process of the
company, suppliers feel more comfortable doing business with the buying firm.

Now, sticking to the impacts already commented, we'll see how leadership and management will deal
with them:
1. Green Purchasing
When procurement leaders want to turn their overall purchasing policy to a greener one, some
leadership skills will have to arise and they will have to be able to make some decissions that might
even go against the company such as stop saving money when changing from one supplier to another
more expensive in order to keep the environmental concern.

So, the CPO will have to perform some tasks in order to realise if his/her “green plan” for the
company is working as expected. Meaning that (as Wall-Mart did on July/2009;
http://www.massin.eu/wp-content/uploads/2009/12/Supplier_Sustainability_Assess.pdf ) the company will
stablish a road map with the steps to be followed measuring and evaluating the non-polluting steps
that the company is going through when using products or services from the very moment of their
creation. This is, they'll evaluate if their suppliers and the company itself are behaving as “green” as
possible and how efficient they are being when trying to achieve this goal.

From the management point of view, working with this “green” goal implies to modify the way day-
to-day activities will be brought off. As Wall-Mart is already performing, a better management of the
waste will be considered, measuring the energy and greenhouse gas in the supply chain can help find
opportunities to cut fuel and utility costs and create innovative products that save customers money,
look for suppliers with science-based certifications and verifications will help find supply chain
efficiencies...

2. Recession

An economy in contraction means less development, expansion, and growth for individuals and
organizations alike. Therefore, at this point what CPOs are more likely to seek is a cost reduction in
the overall purchasing function.

To do so it will probably need a change in the strategy of the department, and therefore a change in
suppliers or at some point of the supply chain in order to reduce costs. Also reduce or completely
eliminate some expenses without capital expenditures like travels, coffee machines or reducing the
number of people invited to a meeting.
http://www.procurementleaders.com/news/latestarticles/procurement-prepare-downturn/

Hence, new management tasks will develop or arise again, since the employees of the department
will have to do some new research to find out what suppliers will give the company a better price and
at what point of the supply chain it is possible to find a step or task that will be susceptible of being
targeted as a possible cost reduction.

3. Information Technology.

Many of the expected advances of the next ten years, from value maximization of the supplier
relationships to strategic development, are possible because of real-time information flows.
Companies will use global information from their buying or industry groups to stay ahead of
fluctuations in supply and demand.http://www.competence-
site.de/downloads/44/f8/i_file_10335/Practices.PDF

Along with the information flow, the software to be used in the purchasing process will be very
important and procurement leaders will have to implement this technology in their departments.
Moreover, these leaders will have to decide which will be the software the procurement department
will use and will have to get the group trained in order to be capable of using such software. Although
these softwares will usually be quite standarized, therefore procurement managers won't have to be
highly trained or paid since they are easey to learn and everybody in the department will be capable
to use it.

In the day-to-day behaviour it will suppose a big change in the way the department will work since
new tools such electronic invoice, e-procurement and the use of a big amount of different tools will
be implemented, and over all these IT systems, the most importatn; the internet.

Besides, it's possible that when using information technology the company will be able to eliminate
some non-value-added supply chain operations. And with e-procurement we'll help the company to
reduce inventory levels