Commercial and Procurement - Case Study Example

1.0 INTRODUCTION This section on Literature review discusses the issue of supplier selection. The choice of supplier or contractor for any project possesses a lot of value as it has the power to significantly impact the performance of the project and its timely completion. For every project undertaken, it is important that the client considers a host of variables and issues to identify the criteria that need to be considered when selecting a supplier/contractor for their project. The most suitable supplier/contractor will be the one that would help deliver the project that meets the client/customer needs and priorities.  Many times, the client is faced with problems on the subject of whether the company should select a single supplier or multiple suppliers and what are the possible reasons behind a particular selection of a contractor or supplier. There are a number of options for the client management to choose suppliers. The literature review presents some of the following selection criterion for the clients. The major issue that the management needs to be concerned is that they need to select the best suited supplier configuration which matches their purposes. In the wake of a huge demand gap facing the global economy in every sector, it is important that the management of the client company carefully and wisely handle the supplier selection decision, (Murdoch, and Hughes, 2008). 2.0 LITERATURE REVIEW Usually there are four types of configurations possible – Single supplier, prime contractor, best of breed and panel formation.   In the case of a sole supplier, the single supplier will cater to the entire demand of the client company. The main advantages of selecting a single sole supplier are that the supplier is solely responsible and provides seamless service. However, there can be some compromises made in the product quality since no one provider can be perfect in all areas, (Dempsey, 1978). Moreover, at times, the sole supplier strategy can be a failure seeing to the huge demand forecasted by the nature of project and it becomes impossible that a sole supplier can meet their demands in a short span of time. Secondly, in the case of a Panel arrangement, there will be a list of possible suppliers who will have to work in continuous competition. In this case, the completion of work is not usually guaranteed and there are a number of small contracts of the work over a long period of time which makes the whole process tedious. This arrangement is usually employed in the case of single application development, purchasing and consulting work. It includes periodic work which may show inconsistency as well, along with varying requirements, (Weber, Current and Benton, 1991).  Thirdly, the Best-of-breed arrangement consists of a number of multiple suppliers and the client as the head contractor itself. The head contractor is responsible for the final selection of all parts, equipments, purchasing etc.  This also involves low risk outsourcing strategy, which has been popular through Europe and the US. High levels of completion for better quality at low prices motivate the suppliers to perform better and employ continuous improvement techniques in their system, (Morledge, Smith, and Kashiwagi, 2006). However, this arrangement requires tedious management of multiple suppliers within the project stipulated time span and at the same time meeting huge demands of the client on every front of the project. Moreover, many times, the managers of the client company responsible as the head contractor are not competent enough to head as the main contractor since they have never experienced such events which make the Best of Breed arrangement not suitable at times.     The last arrangement - Prime contractor arrangement is one of the most widely used arrangements employed by clients. This arrangement has consistently proved itself in meeting high demands with constant quality levels within a very short time period. The Prime contractor arrangement is a group of several sub contractors headed by a main contractor, who controls all the major activities. It is another form of supply chain contracting. The head supplier is responsible and contractually accountable for the whole contract, and can use any number of sub-contractors to complete the project on time. Moreover, supplier’s who are expert in their fields can be selected by the head contractor alone or in agreement with the client, (Degraeve and Roodhooft, 2000). This arrangement also allows the client to recommend its own suppliers with which it has already worked previously. This arrangement also helps the client management to avoid the tedious self management of multiple suppliers. It also helps to integrate the different expert skills of various suppliers under one head and reduce time lag of demand gap for the client management. However, the arrangement can suffer delays in achieving the milestones set by the client management due to the lack of cooperation and trust between the head contractor and sub contractors. 2.1 Supplier Selection strategy In the process of selecting the suppliers, there are certain policies that should be followed in order to select the best supplier which could meet the demands of the company, (Simpson, Siguaw, and White, 2002). This section of the paper identifies some issues that the client should look for in order to select the best supplier. 1.      Domain Expertise – The client company should look for the domain expertise of the supplier and its ability to maintain and relate the concerned professional knowledge that is required by the client. At the same time, the capability of the supplier to comprehend the business of the client and apply new facilities in order to render better results should also be investigated during selection. 2.      Behavior management and leadership – Identifying leadership qualities in the management group of the supplier and the ability to motivate their work force to deliver and meet targets is another issue that the client company should look for while selecting the supplier or the contractor. 3.      Sourcing – this is one of the most important aspects the client management should look for. The capacity and ability of the supplier to gather and access resources required for the timely completion of the work is significant. The client should be able to examine the supplier affirmation on economy of scale, superior infrastructure and superior procurement practices, (Masterman, 2002). 4.      Process Improvement and IT integration - Process improvement is the potential to integrate changes to the operational chain in order to meet remarkable development objectives and high demands of the client. The track records of the supplier company can assist the client management with significant information about the company previous performance. Moreover, the ability of the supplier to integrate modern IT techniques in its operational chain signifies the level of change management the supplier is willing to implement in its business, (Lucas, 2001). 5.      Efficient operational techniques - Maintaining efficient operations management within the production chain will offer an overall development and enhancement of the system, (Lucas, 2001). The client management must pay attention to the fact that the supplier implements modern techniques to assist progress in the field of quality and meeting demands on time. Techniques like benchmarking and Total Quality Management have resulted in advancing the operations management to a next level. TQM is a set of management techniques those can be applied to all levels in the organization, geared to guarantee the organization constantly meet up or surpass customer requirements. Techniques like TQM ad benchmarking, places strong attention on process measurement and supply chain controls as means of continuous improvement. CASE 1: Deare and Company  1. Overview – with its headquaters located in Georgia, USA, Deare and Company is one of the leaders in the industrial equipment manufacturing sector. Construction and project engineering equipments, and Power supply equipments are the sectors where the company specializes.  2. Company’s sourcing strategy – the company employs single and multiple sourcing strategies for buying components. However, it has started to reduce the number of multiple supplier sourcing strategy presently due to complex tracking and material quality issues.  3. Supplier selection process: The company uses a five stage plan for supplier selection. It is described in brief as follows: Developing a Business Plan to gain management approval based on project benefits, future opportunities, financial requirements and profits, Hidden barriers and costs and stakeholder benefits. Developing a detailed Sourcing Plan to evaluate the progress of the various project stages. Setting milestones kick off meetings, initial negotiation and rules, guidelines and responsibility allocation are some of the tasks of this stage. Collection and Evaluation of Data related to supplier selection. Data from competitors, company units, and customers is collected to evaluate the past performances of various suppliers to study the risks and challenges meted out with each supplier. Negotiation and Final Selection is done based on the earlier data analysis and group discussions.  Also cost evaluation, supplier supply base assessment and risks are categorized during the final phase of selection. Implementation and Regular Evaluation of the supplier sourcing strategies involved at all units and facilities of the company are a part of this phase. Techniques to measure the supplier performance and implementation along with cost reduction, and service improvements are done.   CASE 2: Baxter Medical Equipments Inc.  1. Overview - Baxter Inc. is the leading company dealing in the manufacturing of medical equipments. Being a business leader for the past 40 years, the company has maintained strict policies to enhance the safety and quality of its medical products and to maximize patient safety and comfort.  2. Company’s sourcing strategy – the company follows the policy of single sourcing for a product. Also, the company maintains a back up supplier strategy which comes into action only if the first supplier fails.  3. Supplier selection process – the company employs a Supplier Quality Index (SQI) for the selection of the supplier. The supplier is rated according to the total score based on the material quality, delivery schedules and service provided by the supplier. This is called as the SQI. The minimum rating of the SQI is 90% and a supplier who is rated below this needs to reassess and improve its performance with the company. This SQI criterion for supplier evaluation employs both the objective and subjective measures. The objective standard consists of Quality and Delivery performances of the supplier while the subjective standard utilizes the Service and its correspondent issues for the supplier assessment process.  CASE 3: Techno Plastics Limited  1. Overview – the company is a plastic moulding manufacturing company based in Puerto Rico. It offers design and construction molds and tools with high precision to its clients.  2. Company’s sourcing strategy – the main raw material required by the company is resin, which is bought from its seven well established international suppliers. The company makes a 4 year long contract with each supplier and maintains continuous communications with its suppliers.  3. Supplier selection process – The Company does not have a supplier selection policy currently, because the suppliers are already specified by the clients in this case. The reason behind is that the company caters to major global FDA regulated clients, which beforehand assign the suppliers for their products. However, Techno Plastics utilizes an evaluation and assessment method to review its suppliers. The main aspects for which the suppliers are assessed are their quality, service and delivery performance.    CASE 4: Holder Construction Company  1. Overview – the company is a construction company based in Atlanta, USA, and caters to both the public as well the private sector clients. Corporate Headquarters, Commercial Office construction projects, Schools and universities and Commercial Interiors are some of the examples of the projects undertaken by the company in the past.  2. Company’s sourcing strategy – the company employs multiple sourcing strategies for buying material. The company has a long list of suppliers from all over the world which caters to the company needs.  3. Supplier selection process – The company first shortlists the suppliers based upon their past performances and ask these suppliers to submit a feasibility study with regards to the costing, realization, timelines, scheduling of the project. After the submission of the feasibility studies by the shortlisted suppliers, the management of the EBT construction company then analyzes these reports on the basis of design, cost estimation, time lines, project fee, resource availability and scope of the supplier. Mostly the company employs a Construction Management Method of Contracting. The use of this particular project management strategy allows the starting of the construction work even before a complete project design has been finalized. This helps to shorten the time taken up. Mostly, the company employs no main contractor, and instead hires individual contractors whose services are taken up at different times. These individual contractors work under a construction management firm in order to effectively produce the results in time. These contractors are employed as packaged contractors on the location site under the supervision of the construction management firm, in which the client remains the employer at all times.  3.0 DISCUSSION The supplier selection process in all the four cases are different, however the selection criterion for the supplier selection is more or less the same – based on supplier performance.  In case of Deare Company, the company has its own supply management department for supplier selection and evaluation. In the case of Baxter, mostly the suppliers are predecided by the FDA regulated clients of Baxter, as a result of which the supplier selection method and criterion is more centralized in nature. Techno-Plastics depend entirely of its client requirements, and therefore have limited supplier selection responsibility. In the case of holder, the company holds a significant amount of responsibility while selecting their suppliers and contractors as short lead times and on time delivery of construction projects is a major concern in the industry (as in the case of Baxter). 4.0 CONCLUSION  In the current business scenario, supplier selection methods hold a lot of significance for companies as selecting the best fitted supplier or contractor may result in better savings and higher performance for the client company. The supplier selection methods vary for each organization but generally revolve around issues like quality, cost, time, delivery, supplier capabilities and service, and project environment among other factors. Moreover, the supplier past performance is also a valuable criterion while selecting suppliers. This is applicable to almost every industry from manufacturing, engineering to pharmaceutical. Lastly, the complexity of the supplier selection process becomes higher with the number of goods and products involved.        5.0 REFERENCES 1. Simpson, Siguaw, and White, “Measuring the Performance of Suppliers: An Analysis of Evaluation Processes”, The Journal of Supply Chain Management, 2002, pp. 29-41. 2. Braglia and Petroni, “Vendor Selection using Principal Component Analysis”, The Journal of Supply Chain Management: A Global Review of Purchasing and Supply, 2000, pp. 63-68. 3. Degraeve and Roodhooft, “Effectively Selecting Supplier using Total Cost of Ownership”, The Journal of Supply Chain Management: A Global Review of Purchasing and Supply, 1999, pp. 5-10. 4. Dempsey, “Vendor Selection and the Buying Process”, Industrial Marketing Management, 1978, pp. 257-267. 5. Weber, Current and Benton, “Vendor Selection criteria and methods”, European Journal of Operation Research, 1991, pp. 2-18. 6. Monczka, Trent and Handfield, Purchasing and Supply Chain Management. 2nd ed, 2002. 7. Lucas, N (2001) Law of contract. 3rd ed. London: Blackstone press.  8. Masterman, J (2002) Introduction to Building Procurement Systems, 2nd edition, Taylor and Francis, UK.  9. Morledge, R., Smith, A, and Kashiwagi, D (2006) Building Procurement, Blackwell Publishing, UK  10. Murdoch, J. and Hughes, W (2008) Construction Contracts: Law and Management, 4th ed., Taylor and Francis, UK  Read More