Procurement officers play an essential role involving the purchase of various resources of an organization. They help an organization to make informed judgments when making investment decisions. One of the numerous functions of a procurement officer is to advise an organization on the right supplier of raw materials. Both the exchange and consortia are basic methods of purchasing cold steel for steel-dependent companies. Therefore, there are numerous factors to consider before deciding whether to buy using exchange programs versus consortium.
There are numerous advantages of using exchanges as a procurement method for steel. Transactions as a means of procurement are associated with a reduction in the costs incurred by searching for desirable parts (Ibem, & Laryea, 2015). The exchange offers reliable parts. As a result, it saves the company time and money. There is also possibility for spare capacity in trades. Mostly, exchange takes advantage of the global market. Therefore, the organization benefits from reduced costs of steel components and materials due to the global market space. There is a lot of competition from different suppliers in the global market atmosphere.
However, there is stiff competition in the exchange method of procurement. The international market creates competition, and it only favors large scale and well-established companies. Thus, a company may suffer from reduced profit margins due to stiff completion. Nevertheless, the exchange may not have some of the suppliers that a company needs. The transaction does not provide aftersales and value-added services.
The procurement consortium is another method that applies to steel procurement. It involves two or more organizations that team up so that they can purchase their resources as a block (Crossley, Lynch, Hurrell, & Edwards, 2016). The organizations in a procurement consortium join their product and services required to realize the advantage of economies of scale from the external suppliers. The form of agreement in the procurement consortium can either be formal or informal.
There are several advantages of using procurement consortium. It helps an organization minimize risks of transportation and storage of resources. The combined purchasing effort in consortium helps the organization to procure the right products in terms of quality and quantity. Therefore, the organization will be able to produce the best quality product due to high-quality raw materials. It will also be able to increase its customer base through timely and quality delivery. The organization will also be able to deliver its products in the right place. The cost of the products will increase in the process. There is accountability in the procurement process when an organization adopts the procurement consortium approach. Unlike the exchange approach, the procurement consortium offers regulatory requirements for the organization's needs. It ensures that the suppliers meet specific requirements, and they are always compliant with the set regulations.
However, the procurement consortium has two drawbacks. First, members of the consortium have limited liability. Any misconduct of a partner in the consortiums can adversely affect other members. Secondly, the consortium can be a non-legal entity. Therefore, some organizations will find it challenging to work with a non-legal body.
Therefore, the procurement consortium will be the best approach for the organization. The company deals with steel that is bulky and requires relatively high transportation costs. The joint procurement can help the organization with the transportation charges as well as the quality requirements for the raw steel. The joint purchase can also help the organization meet its timely production and deliveries.
Crossley, A., Lynch, J., Hurrell, S., & Edwards, R. (2016). Assessing the Suitability of Supplier Consortia for Public Procurement Contracts. In Working Conference on Virtual Enterprises (pp. 189-199). Springer, Cham.
Ibem, E. O., & Laryea, S. (2015). e-Procurement use in the South African construction industry. Journal of Information Technology in Construction, 20, 364-384.
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