Procurement Laws and Relationship With Suppliers - Essay Example

Accent Industries Example Paper Procurement Laws and their Influence on the Evaluation of and Relationship with Suppliers There are several laws, rules and regulations that relate to procurement. Through these legislations, an entity can evaluate suppliers. These legislations also define its relationship with suppliers. Such laws are the contract law that gives rise to a contractual relationship. Through this law, an entity chooses a supplier who promises to supply as per the agreed upon terms and conditions and in case one breaches this contract faces some consequences. The law of agency is another law where one entity acts an agent of the other. In this respect, each has its obligations to fulfill. In additional, there are international laws that affect the global purchasing. These legislations include the Foreign Corrupt Practices Act which prohibit illegal payments such as bribes, Export Administration Act which govern the export of some information, goods and services, Customs Laws which controls the importation of commodities into a country, Foreign Laws which are laws and policies from other countries that an entity would be interested in sourcing some goods and services, and International Laws that apply to business transactions and are not necessarily from any country such as the Maritime laws that affect international trade. Concepts of Purchasing and Supply Measurement Systems Pros and cons of measuring performance The measurement of the purchasing and supply chain performance is an essential success ingredient. This has proved beneficial since it supports better decision making, helps improve communication within purchasing as well as across internal and external partners from whom the performance feedback is obtained and motivates and directs behavior (Williams, 2000). Despite the benefits described above, the performance measurement is faced with some setbacks. Among them is that some of them are inaccurate since they are subjective and are prone to inconsistency and variability, lack of clear performance standards, and the purchasing responsibilities vary even within the same organization. Purchasing and Supply Chain Performance Measures Cost savings This is an important performance measure in the field of purchasing and supply, especially when the procurement department acquires an item at a price that is lower than they previously did. Through this measure, the necessary attention is paid to the reduction of purchase costs. In assessing the performance of the purchasing and supply function, cost changes and cost avoidance are used. The cost change represents either a decrease or an increase in the purchase cost as a result of a change in the purchasing practice. On the other hand, cost avoidance refers to that extra cost that an entity fails to pay after making a certain effort or action. The cost measure is important as it shows that there is a purchasing efficiency and the available powers that an organization can use to avoid some costs. Revenue measures These measures show the behavior of the entity’s revenues as a result of purchasing and supply strategies as well as actions. Such revenues are earned from the royalty agreements that have been negotiated with suppliers. The revenue measurement is important as it links the purchasing and supply strategies to the revenue items of economic value-add (Kshitij Global Education, 2014). Quality measures According to Murray (2015), increased quality is a measurement approach that is manifested through wastage reduction or reduction of production resources. This can be established in parts per million, which expresses a maximum number of defects level that is allowable for any particular product. It can also be established from a customer defects per supplier and is the measure of a certain number of defects from individual suppliers. This measure is important as it assists in supplier evaluation and also in the establishment of some possible failures. Delivery or response time Through this measure, the purchasing and supply department assesses the degree and ability of suppliers to meet its scheduled requirements. This involves the assessment of the due dates either promised or scheduled, acceptable early or late arrivals, and the delivery windows. An introduction of a new product and the ability of the purchasing and supply chain management and suppliers’ ability to meet the necessary available volume goals is another measure of responsiveness. This metric is important as it assists in evaluating the reliability of suppliers in meeting some demands. In addition, it indicates their ability to respond timely to schedule changes, design or mix changes. Innovative measures The performance of purchasing and supply chain is evaluated based on the contractual agreements whereby, suppliers are required to update an entity for critical technological changes. It is also used to evaluate suppliers for their ability to offer standardized components or unique items. This measure is important since it will enable an organization to offer some standardized items or services. Price performance measures According to the Kshitij Global Education (2014), the price measures indicate how effectively an entity spends purchase dollars. The elements of prices that are considered are the actual purchase prices against the market index, actual price purchase against the planned purchase price, and actual purchase prices against actual prices for aggregated and individual items. This performance measure is critical in assessing whether some target prices have been achieved. Development of a Performance Measurement and Evaluation System The development of a performance measurement and evaluation system would be guided by the need to enhance efficiency and effectiveness in the supply chain management. This system will also be designed in a manner that it will direct behavior and activities just as intended and support the long-term performance. Influence of Ethics on the Purchasing and Supply Measurement Systems The purchasing ethics will ensure that there is no conflict of interest such that the supply management professional will not use their positions for their benefits or others other than for the organization. In addition, it will ensure that business professionalism is maintained by preventing intents and appearances of compromising or unethical conducts in actions and communications. The purchasing management will observe its fiduciary and other responsibilities through reasonable care and due diligence. Purchasing and Supply Strategy Trends Use of E-Systems in the supply chain – the supply chains have been digitized and together with the technological advancement, new advanced applications, data, and cloud computing, purchasing effectiveness have been enhanced. It has also supported e-sourcing, contract management, auctions, purchasing transaction processing and supplier management (Monczka, Handfield, Giunipero, & Patterson, 2015). Risk considerations - Since the supply chain has become more global and segmented, a need arose to identify and mitigate the involved risks. The decisions regarding these risks are made at a new product or service development, operation and distribution. A Balanced Scorecard and how its Development id Influenced by Ethics The balanced scorecard is an alternative approach to measuring and managing the purchasing and supply chain performance. It is a framework that incorporates strategic non-financial performance measures the traditional financial metrics in order to present a balanced view of the organization’s performance. The figure below presents a balanced scorecard for a purchasing and supply chain management. The four core perspectives that have been presented include financial, customer, business, and learning and growth. Ethics and ethical considerations guide an organization in its approach to developing a balanced scorecard with recognition of shared responsibility. In addition, ethics guides on improving employees conditions in all situations. Since ethics advocate for and promote best practices, an integrated balanced scorecard is developed to reward good performance. Mission, Values, Vision, Strategy Perspectives Objectives Measures Targets Initiatives Operating income Return on capital Expenses   Economic value added profit margin               Customer retention Valued services     Customer satisfaction Reduced complaints   Market share in target markets       Efficiency Cost Quality Effectiveness   infection rate Standards & guideline compliance               Employee retention Skill sets Employee satisfaction Education and training Information technology               Figure 1 Balanced Scorecard References Kshitij Global Education. (2014). Price Performance Measures. Retrieved April 16, 2015, from Kshitij Global Education Private Limited: http://kshitij-help.com/Knowledge-Base/Supply-chain-management/Performance-measurement-and-evaluation/Price-performance-measures.aspx Monczka, R., Handfield, R., Giunipero, L., & Patterson, J. (2015). Purchasing and Supply Chain Management. Boston, Massachusetts: Cengage Learning. Murray, M. (2015). Purchasing Performance. Retrieved April 17, 2015, from http://logistics.about.com/od/strategicsupplychain/a/measure_purchasing.htm Williams, A. J. (2000). Purchasing Efficiency vs Effectiveness: Millennial Thoughts and Strategic Implications. 85th Annual International Conference Proceedings - 2000. Hattiesburg: University of Southern Mississippi. Read More