The procurement is an important business activity of an organization, no matter it is a manufacturer, trader, wholesaler, or retailer. This is also true in the LED light industry. An organization normally buys its needed materials, supplies and services from its suppliers to support its daily organizational activities. It relies heavily on its procurement.
Back to several decades ago, the process to acquire raw materials and services for a firm was considered a burden. Its importance was not noticed by the managerial team. At least, they considered it less important than other activities within the company. The procurement was considered a low-level activity, and was normally granted to the non-managerial team to execute and process. Hence, the purchasing orders were normally generated in unimportant departments, with few tracking activity on them.
The modern procurement is very different from the old way, especially in the high-tech industries, such as the LED tube industry. In the old way, the goal of purchasing was to find the supplier who could supply the needed resource at the lowest price. This out-of-date business philosophy on the procurement changed significantly in the last two decades, especially in the LED bulb industry. For an LED light manufacturer, the procurement is no longer a simple business activity to acquire the desired resource. The purchasing is firstly considered a critical part of the supply chain management, the modern focus of which is to emphasize the partnerships between buyers and suppliers. From the view of an LED light manufacturer China, the procurement is an important business activity at a strategic level. The appearance of the term procurement is a significant mark in the development of the purchasing. Its strategic role is differentiated from the old idea of the purchasing, even though in the daily business people use these two terms interchangeably.
For an LED bulb manufacturer, the increasing importance of the procurement is due to some factors. The basic of these factors was built gradually based on two recognitions. One is the substantial dollar volume of the procurement of an LED light supplier; the other is the potential dollar savings contributed by a business activity at the strategic level to manage the purchasing activity. The truth is that the purchased services and materials have become one of the major parts of the cost for an LED tube supplier. Take the LED light industry in Shenzhen for example. The purchased goods and services cover about 55% of the sales volume. By contrast, the direct labor cost in the production of the LED tube only accounts for 10% of the sales volume. On the analysis of these figures, it is obvious that the strategic management of the procurement is very significant to the success of the firm, as it can contribute potential savings.
For the past two decades, the idea of the outsourcing has dominated many industries, especially for an LED bulb supplier. The outsourcing is the emphasis on the cost of the purchased goods and services. An interesting result of the outsourcing is that nowadays firms spend more money on the procurement, and the amount increased significantly. Basically for an LED light manufacturer, the goal of the procurement at a strategic level is to pursuit potential savings. It seems contradictory that the expense on outsourcing is increasing. This is because that an LED tube manufacturer buys not only the raw materials and basic services for production. In the LED bulb industry, the firms spend huge amount on the purchase of the very high value-added content. They introduced the collaborating concept with the suppliers, to focus resources on their core competencies.
At present, the practice of the outsourcing already brought the procurement activity from a sole task to a collaborating level. An LED bulb manufacturer pays more attention on the supply base management. This management covers the activities on effective cooperation with the suppliers. For instance, an LED light supplier uses the first-tier suppliers to complete sub-assemblies, and relies on the logistic supplier to achieve on-time delivery of the finished components for the next level assembly line. These activities used to be processed and completed by the manufacturer itself. Now it becomes the key aspects of the effective and efficient procurement strategy, to develop and coordinate the relationships in the supply base.