According to Van Weele (2012) purchasing involves:
“managing of the company’s external resources in a certain way that the supplies of all goods, services, capacities and knowledge that is necessary to operate, maintain and manage the company’s primary and supporting activities is secured under the best possible conditions” (Translated from Van Weele 2012:8).
Van Weele introduces the purchasing process to be performed in six steps:
Deciding the purchasing specification (quality and quantity) for the products and services that are necessary to procure.
Choosing the best possible suppliers, and develop procedures and routines to be able to make the best choices.
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Prepare and carry out negotiations with the supplier with the aim of establishing an agreement and writing and formal contract.
Make an order with the chosen supplier and develop efficient orders and handling routines.
Monitor and control the orders to secure the supplies
Follow up and evaluate (Assessment)
The figure 8 illustrates the sequence of each step in the purchasing process model. This is a schematic overview of the main activities in purchasing (Van Weele 2012).
Figure 8 The purchasing process (Van Weele 2012)
Van Weele (2012) claims purchasing is important for business, and that usually the largest part of the costs is related to cost of goods sold (COGS) and sales revenue of a company is due to purchased goods and services.As a consequence the lack of a well-defined purchasing policy and a poor structure on the purchasing process can lead to lack of control. This might cause unexpected financial loss due to extra purchasing costs. Van Weele presents the DuPont-analysis to show the benefits on a company’s rate of return on the net amount property/belongings through proper purchasing. He points out three ways how this might occur:
Through a reduction on all direct material costs. This will lead to immediate improvements in the company’s sales margin, which in return is going to affect the rate of return on the net amount of the company’s property positively. This can be
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done by decreasing the number of suppliers, improved product standardization and by searching for replacement materials with more benefits.
Through a reduction of the working capital in the company. This might be positive on the capital’s turnover rate in the company/firm. Which can be achieved by improved supplier quality, leasing instead of buying equipment and reducing materials in storage by making “just in time” agreements with the suppliers.
Through improving the company’s income generating potential. A solution to achieve increase income is to challenge suppliers to innovate new products and process improvements, which can lead to new customer values that in return increase the profit margin. Since much of the innovations in many business sectors come from the suppliers, purchasing managers are challenged to mobilise their suppliers expertise and to involve themselves with the suppliers technical experts early in new product development processes.
3.4.1 Green Purchasing
Green Purchasing (GP) is a sequence of considerations in supply chain management. It is to identify the products causing negative impacts and replacing them with more environmental friendly products. GP involves reducing environmental impacts and maximizing resource efficiency. In other situations it might consist of looking at costs beyond purchasing prices and consider the environmental and social impacts of a certain product or service instead (Yeoman 2007). GP can be defined in various ways depending on which objective is to be achieved and in recent years there has been a steady growth of environmental initiatives in corporate practices. This has made it essential to perform more significant academic efforts to develop typologies of motivations and strategies, which has resulted in a larger body of literature (Hamner 2006).
Min and Galle (1997) introduces Green Purchasing strategies, the figure 9 illustrates the different strategies and trends within GP. The first step would be choosing whether if source reduction or waste elimination is goal, but one can also have a holistic approach and choose both strategies. The figure shows that the road towards GP can be travelled through many paths and therefore can be customised to fit each companies own environmental needs. In other words there are no “one size fits all” solutions.
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Figure 9 Green purchasing strategies and trends (Min and Galle 1997)
According to Min and Galle (1997), the Green Purchasing practices today seems to be “reactive”, what this means is that companies try to avoid violations of environmental regulation, instead of being proactive by integrating environmental goals in their long-term corporate policy. The relationship between green purchasing and supplier quality assurance is weak. Min and Galle propose developing a more aggressive, and proactive environmental audit programs to achieve a greener purchasing policy. They suggest guidelines to an audit program:
1. Identify applicable environmental statutes.
2. Develop standard checklists for environmental compliances.
3. Organize an audit team comprised of both internal management and outside third- party inspectors (e.g., private contracting consultants).
4. Maintain records related to handling, storage, use, and disposal of waste. 5. Assess the nature and degree of potential violations and liabilities. 6. Develop a corrective action plan and monitor its progress (1997:16).
Carter et al., (2000) claims that environmental or green purchasing has a positive effect on firm performance, such as purchasing recycled packaging is a low cost alternative compared virgin material. This is due to development of reverse logistics infrastructure and recycling
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factories. Purchasing packaging light weighting products does not only reduce costs, but can also reduce transportation cost by increasing the amount of products that can be shipped at the same time. Guinipero et al., (2012) argue that companies that are responsive to eco-oriented issues perform better in the global marketplace. Being green can provide competitive advantages, and by intensifying production through ecological responsiveness companies can reduce environmental impacts, as well lowering the input and waste disposal costs.