The importance of communication in the effective procurement process
The Covid-19 pandemic and the Russia-Ukraine war have made procurement of production materials difficult and hindered supply chain operations. Changes in material availability have put purchasing functions to test in terms of their ability to communicate and solve material-related problems effectively. This has increased the need for effective communication between stakeholders during the procurement process to ensure efficient problem solving and correct and timely deliveries.
Effective internal and external communication is the key in enabling a successful procurement process. Clear and well-structured communication enables companies to effectively manage complex procurement activities and handle problems efficiently. My thesis researched the procurement process from a supplier relationship and supply chain risk management point of view. The thesis commissioner is a bus body manufacturer that produces highly customisable products making the procurement process an integral part of the company’s operations.
During the research, it was discovered that communication with the internal and external stakeholders was one of the most important aspects in making the procurement process effective and efficient in mitigating issues in the supply chain. Multiple communication-related problems were observed in the case company’s procurement process which had a negative effect on the procurement process.
Well documented processes are the foundation for effective operations
One of the problems that affected the communication in the case company was that the company’s documented procurement process was not up to date, and it did not consider the current supply chain challenges. This was observed to have negative effects between the design and purchasing functions’ communication and co-operation. Especially communication was affected due to the lack of detailed procedures on how to communicate demand and problems accurately between the functions.
The thesis findings show that in a manufacturing company, a well-documented procurement process provides a stable foundation for multifunctional co-operation, communication, and problem solving for operational procurement activities. Without clear communication and structured processes that support the company’s operations, the procurement process’s effectiveness will suffer because of internal mistakes and poor communication, resulting in ineffectiveness.
Product specification has an immense effect on the success of the purchased products
From the purchasing function’s point of view, the internal stakeholders play a vital role in the procurement process because they have the best knowledge of the specifications needed for the materials. Due to the internal stakeholders’ knowledge, they have the most control over the product specifications in the procurement process. Cheverton et al. (2010) present that the product specification step of the procurement process can have an immense impact on the price of a product, and it can also limit the number of possible suppliers.
The thesis discovered that in the case company the internal stakeholders hold the power over the product specifications. This makes it important that the stakeholders start discussions with the purchasing function well before the products are specified and chosen to avoid over-specification, which is likely to increase the price and limit potential suppliers. This means that the overall suitability of the purchased products is dependent on effective multifunctional communication before the products are purchased.
Communication is the key to managing external stakeholders such as material suppliers
External stakeholders, in this case, the material suppliers play a significant role in effective procurement processes. To combat the problems caused by the Covid-19 pandemic and the Russia-Ukraine war, clear and well-structured communication with material suppliers is needed to mitigate the issues created by increased transport times, production times, and lack of components.
As the material availability has been negatively affected, purchasing organizations’ communication about the demand for supplier’s products in the form of forecasts and increased communication towards the suppliers were identified in the thesis as the most important ways to keep the procurement process effective and to combat supply issues. The supplier survey which was conducted for this thesis showed that the additional communication and increase in forecasting were both seen as the solutions to mitigate the supply chain problems.
Based on the thesis findings it can be said that communication is a large part of an effective procurement process. Problems in the communications with the stakeholders are likely to increase costs and make problem solving difficult. Poor communication also hinders the companies’ ability to identify and adjust the procurement operations and processes to consider the new situation with the material availability and supply chain issues that have a negative effect on the companies’ operations.
References
Cheverton, P. & Velde, J. P. v. d. (2010). Understanding the professional buyer: What every sales professional should know about how the modern buyer thinks and behaves. Kogan Page.
Vuorinen, T. (2022). Development of purchasing process to improve supplier relationship management and mitigate supply risks. Turku University of Applied Sciences, Master’s Thesis.