Procurement Principles and Management - Case Study Example

Report on Procurement analysis of company x Student name Student ID Number Date of submission Executive summary on procurement analysis of company x 1. Introduction A reliable and successful procurement includes the location, the process and the product Emiliani (2010). A well organized purchasing saves time and cost for any organization without putting pressure on quality or the quality. For years, the manual way of paper work has been employed in the procurement which has shown to have shortcomings. 2. Challenges facing company x In Company x, the CEO employs dictatorial kind of leadership. He does not also give room to the procurement department to handle its duties independently. The employees are always switching jobs either through resignation or deployment. Employees lack the modern kind of procurement and hence use the traditional method. Therefore, the orders also incur errors, and there is quite delay in reaching the suppliers as well as delivery time. 3. Addressing the procurement challenges in company x Following the fact that, there is a lack of transparency in company x, it is advisable that eprocurement. Eprocurement is carrying out buying and selling through the internet (Rebecca, & Ravi, 2007). Therefore, this means only the buyer and supplier communicates. The advantage of this is that the procurement department can trace the best supplier, who did the order, is time saving, cost saving and increases returns as compared to the traditional method (Baily, 2008). This is because; it cuts cost of production by eliminating the middlemen. In addition, through supplier bid the company x will always get the supplier with the most competitive price. Its shortcoming is the need to place reliable internet supply and train employees in company x (Monczka et al., 2008). 4. Recommendations The CEO should embrace the neo-classical form of leadership. Company x should create room to train the procurement department on the e-procurement technology. Company x need to embrace eprocurement for excellent results. Procurement analysis of company x 1. Introduction According to Emiliani (2010), a procurement process can only be admitted as reliable and successful if it includes the location, the process and product. A reasonable purchasing saves time and cost for any organization and does not compromise on quantity or quality. For decades, the procurement process was actually a costly action with involvement manual business procedures and transactions which where quite slow (Emiliani, 2010). In addition, the purchasing officers were the ones responsible to find out errors incurred during invoicing, costing and ordering and eliminate them which were quite costly action and time consuming. Due to this Emiliani (2010) points out that the departments dealing with purchasing have been perceived poorly by buyers who are only concerned with low price products. Moreover, purchasing is considered as a low-skilled clerical job, organization bound by rules that do not value all the buyers equally and static (Emiliani, 2010). 2. Challenges facing company Procurement is the process in which customers obtains services and goods through a requisition using a receipt accompanied by pricelist invoice from the preparation and processing stage (Monczka et al., 2008). This critical part of any organization involves looking into the plan of the purchase, determining the standards, developing specifications, research and selection by the supplier, analyzing the value, financing, negotiations on the prices, purchasing, supply contract administration, control of the inventory and stores and disposals (Monczka et al., 2008). The CEO is the overall boss in all activities done in company x. In most cases, he does arrangements with suppliers sometimes without consultation with the procurement department. The procurement department, however, notes these challenges, the dictatorial kind of leadership bits logic (Richard & Daft, 2009). To this regard, the CEO sometimes orders some items and services not up to standard needed in the company for different purposes. Other times he orders goods and services quite expensive as compared to the expected returns. He is also prone to place a request from people well known to him and relatives ignoring the fact of company success. When company x fails to achieve its targeted returns he lays the blame on the procurement department. As outlined in the definition of procurement procedure, this can be done effectively and efficiently using specialised personnel. In turn, these personnel in that particular field will give a recommendation from a particular supplier. The advice and recommendations will be done after careful analysis on the target customers, the quality of the product, price and the expected outcomes from a particular service or goods. To carry out a successful purchasing, there is always need to involve the mind to find out what do the company need and why? Does the product that an order is being placed the best for the problem at hand? Depending on the decision arrived at then, the order should be placed after thorough negotiation with the supplier (Monczka et al., 2008). The company also lack motivated procures. As a result, they have lost the vision of what they expect to achieve as a department most likely due to intermingling by the CEO in the department activities. This has resulted to reluctance by the members of the procurement department. Moreover, poor leadership has resulted to people looking for jobs in other places a fact, which has seen, the department always with fresh employees. As a matter of fact, the department productivity in the company is quite in an unacceptable state (Dwomoh, 2012). Knowledge is power and needs refreshing with time. In company x, the CEO does not advocate for refresher courses and workshops. This has also contributed to the reduced effective and efficiency of procurement departments as well as timeliness provision of services. Procurement department needs to have the chain of supply and demand at hand. They also need to be updated on the current services and goods fluctuation. This will enable them differentiate the reliable and qualified supply of particular services or goods in time. In addition, company x is not a day lived project is a longterm vision company. The various departmental managers should have a grip of why the procurement department is not being effective as well as the board of directors (Arif, Uddin, & Masud, 2012). To this regard, they should not only blame the departmental manager but also the CEO. Company x do use the traditional model of supplier searching, ordering of goods and services, invoicing, delivery and payment. These procedures are quite tedious, time consuming and prone to errors. Correcting the errors takes time (Tripathi, Misra, &Tarun, 2012). The filing of the invoices also calls for a space within the company probably which could be used for other developmental purposes by the company x. These processes are, therefore, inefficient, and time consuming, by the time, invoices is cleared and products delivered. The involvement of the middlemen too is also another drawback experienced in company x. these intermediate purchasing protocols adds cost to the production which in turn either leads to increased prices of the end product or less returns to the company. In addition, the buyer does not have various suppliers to carry out prices comparisons (Emiliani, 2010). This result to buying some products which are not currently needed just in case they get out of stock without another delivery availed. In this case, there is wastage and expiry of different goods and services espenciary the perishable ones (Emiliani, 2010). Also, there is a high possibility that some products purchased may be out of shelf by the time they are taken from the store for consumption. 3. Addressing the procurement challenges in company x Procurement is quite an active agenda for business- to –business in the current world (Rebecca, & Ravi, 2007). In the past, most organizations have used either manual way of data input and order request or by use of the IT just like company x. Company x uses the traditional mode of ordering goods and services which can not be easily monitored whether is the CEO doing the order or the department. This is a quite time consuming and expensive process. In addition, is not easy to trace who did the transaction especially in company x where the CEO meanders in other department. Therefore, is advisable that the procurement department adopts eprocurement procedure (Monczka et al., 2008). Under this system, business and organizations are advised to use the Dimension Data Direct which is globally applicable and is able to translate information to over thirty languages. This will ensure that that the CEO can trace whatever the department is doing as well as the departmental officer monitor what their fellow staff or the CEO is doing (Baily, 2008). E-procurement means carrying out purchases through the internet that are connected from one business to another and the suppliers rather than the manual way (Rebecca, & Ravi, 2007). Changes can be done easily wherever necessary. In addition, consultations will be easily facilitated by either of the parties concerned. Moreover, price negotiations are quite feasible and easily carried out rather than physically handling a particular supplier. This is because different suppliers c an easily place their bids and, therefore, end up getting a standardized price (Rebecca, & Ravi, 2007). In addition, the system is quite time saving and less costly and, therefore, aims at accruing high revenues for a particular business. Purchasing has undergone evolution from as a functional role to a strategy level. This transition of procurement from functional to strategic is quite an imperative move (Monczka et al., 2008). 3.1 .1 Functional to strategy role Functional role is refereed to as back-end process that has is being replaced with strategic role (Sumanjeet, 2010). These roles explain how the procurement as a factor is fundamental to the entire supply chain just from the supplier to the end consumer (Sumanjeet, 2010). Several factors are accountable to this change which are the deepened demand to improve on the basic cost, the uncertainty from the customers, quality of the product as forced by the competition in the market demand and supply, the emphasizes on when to market, and the global sourcing trends (Tripathi, Misra, &Tarun, 2012). The main objective in purchasing is finding and getting the most competitive value of the right product only from the right supplier, upon convenience. In addition, the organization should have the appropriate responsiveness and service provision standards that purchasing requires (Sumanjeet, 2010). For instance, the organization needs to be quite competitive and efficient in the provision of goods and services. Due to the increased levels of technology competence among the suppliers, different organizations are employing these capabilities and innovative powers of suppliers to cut down cost of production (Rebecca, & Ravi, 2007). In addition to these outlaid strategies, other strategies being explored include supply base reduction and e-procurement so as to enhance competitiveness (Rebecca, & Ravi, 2007). E-procurement is a strategy that eliminates the middlemen and works only with end to end identities (Rebecca, & Ravi, 2007). To achieve its objective, eprocurement does involve processes, people and technology. The role of the purchaser has been largely transformed due to technology. The purchaser is required to deliver the services and product at the expected time and cost (Rebecca, & Ravi, 2007). In addition, he should undertake the role of monitoring suppliers’ performance and shorten the lead time. These activities have influenced by basic cost, and top line impacts factors which have been successfully achieved by the eprocurement (Monczka et al., 2008). 3.1.2 E-procurement overview E-procurement is the modern model of procurement which is the center of information in supporting business decision making and planning (Rebecca, & Ravi, 2007). It has proven to improve performance of activities carried throughout in the business such as regulatory compliance enforcement, monitoring and process of transactions (Tripathi, Misra, &Tarun, 2012). It eases reporting by the management, improves suppliers’ competition, eliminates middlemen hence lowering cost and increases levels of transparency. The implementation of e-procurement has seen the automation use of internet in buying and selling. This recent strategy has added advantage in that the buyer can compare products from different vendors and place tenders; carry out auction, contract management, catalogue management and vendor management (Sumanjeet, 2010). In addition to this, e-procurement gives high-end solutions to organizations that give them an opportunity in defining their own process as afar as workflow is concerned. E-procurement is quite flexible and can be efficiently used by both medium organizations to large-sized ones (Sumanjeet, 2010). 3.1.3 Advantages of e-procurement over traditional method E-procurement has shown to result to increase in profit output in the different organization where it has been applied, simplifies the procurement process and controls the process too (Rebecca, & Ravi, 2007). This has been achievable due to availability of factors such as: • Easy search this command allows different employee to search for the availability of the items they need, pay directly online, track and place orders directly from their personal computers by use of the website database. The web contains an online catalogue for all purchasing purposes (Sumanjeet, 2010). • Transaction speed: the system is quite reliable on the factor of time taken during processes, orders, delivery and payment. Employees can easily visit the real time data involving their transactions (Rebecca, & Ravi, 2007). • Cost saving: the use of e-procurement can reduce 65% of the transaction cost as compared to the traditional method of procurement. This is because it will involve search of suppliers and supplier price competition (Klaus2010). Direct cost previously incurred by company x will be cut down since eprocurement use only emails and electronic money transfer, orders and invoicing rather than use paper work, fax and send of mails. This process will create room for easy error check and elimination. Indirect cost that occur as a result of storage, bulky shopping that is not needed immediately leading to expiry and wastage of some stuff will be reduced. This is because this modern strategy will facilitate the need to purchase what the company x need rather than just incase (Baily, 2008). • Improved and faster flows: Data and process flow is easens through the use of the internet. Customers and suppliers can coordinate on the goods and services needed with ease and the system allow for a single invoice in month rather than the bulky invoices send manually. The system is also fast and efficient. This is because it cuts off other purchasing protocols, therefore, enabling end to end concentration (Rebecca, & Ravi, 2007). When company x adopts the e-procurement strategy will benefit from centralized procurement due to higher levels of transparency in the supply chain. It will be possible to control the budget which builds transparency and accountability. It will refresh the reengineering of process a fact which will modify both the supplier and the employees relationship and behavior. Company x will be able to establish their supplier of preference depending on their terms of reference (Monczka et al., 2008). 3.1.4 Challenges of adopting e-procurement E-procurement has been outlined as one of the best strategy that can help solve the procurement challenges in company x. However, it is not without challenge there are certain limitation that need to be understood and be overcome. This strategy calls for skilled personnel especially internet and modern technology as well as staffing, information and set of objectives. Sumanjeet (2010), states that the major challenge in adopting eprocurement is the initial investment, illiteracy in e-commerce, the unpreparedness of customers to embrace change, cost of internet usage and poor telecom infrastructures and lack of clear government policies on e-procurement. 4. Recommendations Following the current challenges experienced by company x, is recommendable that they adopt the e-procurement strategy rather than the traditional method (Rebecca, & Ravi, 2007). This will ensure employees are able to track all activities being carried in the procurement department or on behalf of the department by a third party. In addition, the system will always indicate time and date when any purchasing procedure was carried out and by whom (Sumanjeet, 2010). Moreover, this system offers an option that suppliers can place their bids depending on the quality and quantity of goods and services. Any unreliable deal will be efficiently table in the company. This strategic role also allows buyers to countercheck errors and eliminate them (Klaus, 2010). The system also enables the tracking of the person doing any purchasing the CEO included. This will not only improve the relationships of the CEO and other employees but also improve confidence in ones duty. Company x need not just dismiss employees now and then rather be taken for refresher courses and training on the eprocurement procedures for effective service provision. The CEO also needs to adopt the neo-classical theory kind of leadership. This theory looks at the worthiness of an individual in an organization (Richard & Daft, 2009). The CEO in company x should create a close relationship with the employees. There should also procedures to reward and recognize performance by different employees. This will ensure the challenges facing the procurement department are addressed with ease. The CEO in company x demands respect this will only be possible if he also respect the activities and tasks assigned to each employee in the procurement department. He should only raise an alarm when things seem not working but not meandering in the department which do have their own managers to oversee them. For effective achievement, the employees in company x procurement department should be trained on the modern technology of e-marketing (Sumanjeet, 2010). To conclude, company x, should put efforts to employ the modern procurement strategy no matter the outlined barriers. This is because it creates healthy relationships amongst the regulatory authority, banks, suppliers and buyers. To crown all its impact is effectively felt both by the bottom-line of the organization and the top-line (Monczka et al., 2008). References Arif, RB, Uddin, IM, & Masud, AN 2012, CEO Emotional Intelligence and Board of Directors Efficiency: A Bangladesh Perspective, Journal of Research on Humanities and Social Sciences Vol 2, No 3. Baily, PJH, 2008, Procurement Principles and Management, Journal in Financial times. Dwomoh, G 2012, The relationship between Employee Voice and Organizational Performance at Electricity Company of Ghana. European Journal of Business and Management vol. 4, No.6. Emiliani, ML, 2010, Historical Lessons in Purchasing and Supplier Relationship Management, School of Engineering and Technology, USA ,Central Connecticut State University, Monczka et al., 2008, Supply Management Strategies for the Future: A Delphi study, Journal of Supply Chain Management. Professor Klaus S, 2010, The Global Competitiveness Report 2010-2011: Highlights World Economic Forum, Switzerland, Geneva. Rebecca, A & Ravi, N, 2007, Business-to-Business E-procurement: Success Factors and Challenges to Implementation. Management Information Systems Area, USA, college of business. Richard, L, & Daft, 2009, Organization theory and design. Retrieved from http://www.ehow.com/list_6811366_theories-organizational-structure.html, June 4, 2012. Sumanjeet, 2010, The state of e-commerce laws in India: A Review of Information Technology Act, India, College University of Delhi. Tripathi, RP, Misra, SS, &Tarun, T 2012, Optimal Policy under Permissible Delay in Payments. European Journal of Business and Management vol. 4, No.6. Read More