‫اللهم صل على محمد وآل محمد وعجل فرجهم وسهل مخرجهم واجعلنا من محبيهم‬

Value-based Procurement
The theory used in this dissertation is the value chain theory

Why value-based procurement?

Nowadays, managements within increasingly concern cost and how to convince their people to
reduce their spending.

This research contributes to the others’ work on Procurement strategies as a practice among
employees within organizations, it undertakes the analysis of reality of purchasing attitude and
discusses the impact on ultimate spending within Gulf Air Company.

The aim of this dissertation is to evaluate Gulf Air’s existing procurement strategy and to
develop a model for procurement which is appropriate to Gulf Air’s current market position.

The main issue concerning senior management at any kind of environment is cost. This reveals
to focus on procurement value and how managers and their subordinates behave when ordering
to buy products or services to run company’s day to day business. This research will investigate
procurement and value consequences.
Value based procurement is requiring to buy goods or services that make a better
value. For example, if a company called “ABC” offers to make goods that cost 1 million
Euros but gives up 2 million Euros when adding that to the revenue, then company ABC
bid has a net value of 1 million Euros. Whereas, if the goods offered by company “DEF”
costs 5 million Euros but returns more than 20 million Euros when adding that to the
revenue, then company “DEF”’s bid has a net value of more than 15 million Euros.
White (2008).

Organization structure.
The structure of an organization influences the ability of its individuals to interact, as well as to perform
their processes. Traditionally, organizations have used a functional organization structure in which
individuals are organized by speciality. Such a structure can inhibit horizontal communication and co-
ordination, leading to inaccurate and slow decision making. To avoid these problems, some managers are
developing a product structure with a strong reliance on cross-functional teams
Source: Applying value-based management to procurement
Ellen J. Dumond

http://www.lucidus.co.uk/valueproc.html
Porter states that ….
Slag states that
These and other companies: Chrysler, Ford, GM, Avex, BASF, Bose, Honeywell, and IBM are re-
engineering themselves to meet the challenges of today’s environment[3-5]. The strategies of these
companies have two common tenets: first, they focus on the creation of value for the customer and,
second, they rely on the contribution of procurement.
Source: Applying value-based management to procurement
Ellen J. Dumond

Mohammed Mahdi 07219970

Department of Management, School of Business, California State University,
Fullerton, California, USA
1995

In this paper the author used to work as a Manager Purchasing and Logistics for his current
organisation. He liked this position, as it gifted an added value of skills and empowered the
background. He’s now working as a Contract Management Manager, looking after contracts,
which comes within Procurement domain.

Procurement seems to be an active and vital area where, specialists face challenges and have the
opportunities to innovate. In Procurement stakeholders may participate present themselves as an
effective team, who helps organisation to do more with less.

Nowadays, there may be a new concept of procurement to show this domain as a significant role
player to rationalize spending of the organisation. Hence, executive management may be
required to support this area in particular to help apply effective instructions to support cost
reduction and select better ways of supply. Especially, companies that face turbulent times due to
the recession and financial crises. Despite that as a principle, any organisation insistently need to
conduct procurement to be the safeguard of its solvency.

From aforementioned, understandably, it’s noticed that Procurement area represents a strategic
significance to the senior management in organisations. In this point, the research will also
investigate this phenomenon to illustrate and treat this significant involvement.

Furthermore, involving procurement in high executive decisions that shift managerial special
instructions to practices, whereby, staff think more than once before buying or choosing a
product or service.
References

http://www.lucidus.co.uk/valueproc.html

Organisations nowadays started to think of cost cutting, and how to align with service
and goods quality and ultimately how to meet their expectations and target efficiency.
Doing more with less has become a new way of thinking for most organisation
managements round the world, this leads to understand that the procurement
functionality owns an increasing importance, that in order to enhance this functionality,
it notably has general impact. This literature review assumes that the ideal functionality
and proper management of the procurement can achieve more than what is traditionally

Mohammed Mahdi 07219970

applied. This area is surrounded by significant factors; such as; buyers, suppliers,
customers etc.

Important Topics:

Procurement Policies

Contract Management

Purchasing Mechanism

Required tools, software etc

Organisational structure

Procurement design

Relationship management

Bureaucracy

Centralization and Decentralization

Culture and employee practice

Effective negotiations

Unilever reports exposed that commodity costs at the consumer goods company, has increased
by 2.7 billion Euros in 2008. According to the writer of Unilever’s article, the firm has managed
to save 1.1 billion Euros despite the increase in commodity costs. The company made the
savings through the transformation of its European supply chain, the article adds.
"UNILEVER CUTS COSTS." Supply Management 14, no. 4 (February 19, 2009): 9. Business Source Premier, EBSCOhost (accessed November
18, 2009).

you may use the following articles too:

Cooper, R. and R. Slagmulder. 1999. Interorganizational Cost Management.
Productivity Press.
Cooper, R. and R. Slagmulder. 1999. Supply Chain Development for the Lean
Enterprise: Interorganizational Cost Management. Productivity Press.
Cooper, R. and R. Slagmulder. 2003. Interorganizational costing, Part 1. Cost
Management (September/October): 14-21. (Summary).

Mohammed Mahdi 07219970

Cooper, R. and R. Slagmulder. 2003. Interorganizational costing, Part 2. Cost
Management (November/December): 12-24. (Summary).
Cooper, R. and R. Slagmulder. 2004. Interorganizational cost management and
relational context. Accounting, Organizations and Society 29(1): 1-26.
Callioni, G., X. de Montgros, R. Slagmulder, L. N. Van Wassenhove, and L. Wright. 2005. Inventory-
driven
costs. Harvard Business Review 83 _3_: 135.

Vocation

Mohammed Mahdi 07219970