CHAPTER ONE

INTRODUCTION

1.1             Backgroundto the Study

Purchasingdepartments are increasingly seen as highly valued strategic contributors tothe organisation because of their ability to impact product design and quality,cost of goods sold, cycle time, and hence, the firm’s reputation,profitability, and competitive position (Wisner, Tan & Leong, 2008).

Searchingfor the right sources of supply is often seen as one of the core responsibilityof procurement and supply managers. Because this purchasing function poses agreat deal of risk and reward if effectively executed, it represents one of themost challenging of all procurement tasks.

Overthe past decades, a lot of factors have combined to drive the organisations toapproach sourcing more strategically. These factors include changing globaleconomic climate, increasing number of global competitors, demands by customersand government for organisations to become more environmentally focused, risingcost of materials and energy, and the desire to deliver new products quicklyand cheaply.

Withthese trends, the recognition that tactical sourcing will not succeed indeveloping a supply base that will yield the benefits of strategic sourcingbecame clear. Strategic sourcing takes the concept of sourcing a step furtherto go beyond just source identification and selection to include managing thefirm’s external resources in ways that support the long-term goals of the firm.Its scope includes the make-or-buy decision, supplier identification andselection, managing and improving supplier relationships and capabilities,monitoring and rewarding supplier performance, and developing supplier tiers.