Comparative Procurement Process of the Micro-Businesses - Case Study Example

Strategic Procurement Management Author’s name Institutional affiliation Abstract Procurement process and supply chain management is the two factors that are at the heart to business operations management. Additionally, as primary business processes, procurement process and supply chain management actually involve a number of activities that are interconnected to the organizations functions. Because of the Interlinkages that undergrad the procurement process and the supply chain management, any slight breakdowns could trigger delays, disruptions or rather system failures (TURNER, 2011, 16). While system and service failures have already been extensively research, most of the literatures were directed to issues to do with the recovery of the service failure (PAYNE & DORN, 2012, 35). Strategies, risk preparedness and risk mitigation strategies as far as service breakdown is concerned have not been emphasized broadly. Therefore, Using the comparative profiles of three micro business organizations located in Melbourne city such as La Vela Italian Restaurant, Nomads restaurant and the Irish shop, this paper will identify comparative procurement process of the micro-businesses and conduct stress testing of the three micro organizations Contents Contents 3 The strategic procurement management process 1.0 Introduction One of the fundamental roles of supply chain management is to see to it that that there is an uninterrupted and smooth flow of materials and goods. Additionally, in the modern world, organizations conducts their business in exceedingly uncertain and complex environments coupled with increasingly high risk of the supply channel disruptions which in the end makes the supply chain management a more complex task (TURNER, 2011, 17). Moreover, the environment risks and pressures need companies and organizations to consequently and constantly reduce and analyze risks (PAYNE & DORN, 2012, 35). Supply chain breakdown can be defined as basically the unforeseen events that in one way or the other disturb the normal flow of materials and goods in an organizations supply channel. Additionally, this kind of breakdowns can cause primary consequences and implications for the operation management of the company (GUTH, 2007, 105). For instance, Supply chain disruptions can cause production breakdown which will affect the production as well as the capacity utilization negatively. Moreover, the long-term effect of the supply channel break down can in the end affect the shareholder price value to reduce tremendously as well as the organizations long-term monetary and financial performance (TURNER, 2011, 16). In other words, for a purchasing company, the supply chain disruptions can also cause the inability to satisfy consumers and meet consumer demands. In simple terms, supply chain management breakdown can occur in different forms which include; natural disasters, physical damage and disruptions, a production facility, inventory problems, capacity issues, incorrect forecasts, strikes and labor disputes and natural delays (PAYNE & DORN, 2012, 35). In this case, comprehending the supply chain risks can be of help to purchasing companies to take effective consequences in response to the anticipated risks. 2.0 Comparative profiles of the organization Among the most common organizations in Melbourne city, food operation store and cafes such as the La Vela restaurant and the Nomad restaurant are extremely vulnerable when it comes to supply chain breakdown since most of their labor supply is local and is in most cases dominated by part timer’s or rather casual workers (PAYNE & DORN, 2012, 35). Additionally, high incidences of staff turnover presents a more lasting challenge to maintain and provide service consistency, and to a great extent the quality of the products in café operations. In other words, the context upon which this paper revolves around the supply chain management of La Vela and Nomad restaurants as well as the Irish shop that is located in Melbourne city CBD (TURNER, 2011, 16). La Vela is an Italian restaurant that is located in Melbourne and specializes in fast foods whereas Nomad restaurant is a local Australian fast food restaurant which is also based in the CBD of Melbourne city. Irish shop specializes in importing materials from Ireland, Norway and also sources its raw materials locally in Australia (O'BRIEN, 2009, 43). The Irish Shop products are made in such a way that whenever a person shops in it, thy feel an Ireland touch with them. In this case, café operations in the CBD are frequently confronted with a persistent decline as far as residential population is concerned in its inner city since the commencement of the post war period. As a result, the Melbourne City Council established the Postcode 3000 program, disused warehouses and unoccupied office buildings were turned into trendy boutique apartments in the city Centre. Moreover, the Postcode 3000 program not only reduced the number of office spaces as far as the café operations are concerned , but also disrupted the supply chain of the café operations in the year 1990 (SOLLISH & SEMANIK,2011, 97). However, by the turn of the new century, the postcode 3000 Programme fueled the establishment of new furnished office apartments in Melbourne city hence making the residential population to shoot up from seven hundred and thirty-eight to nine thousand, two hundred and fifty-three as from the year 1990 to the year 2006 (PAYNE & DORN, 2012, 35). In other words, Melbourne city was blessed with an increasing number of young men and women both from overseas as well as the suburbs increasing the demand for hospitality goods and services and entertainment facilities as well. In simple terms, the different outcomes from the Melbourne City café operations in terms of the different restaurants such as the La Vela and the Nomad restaurant, from one program such as the POSTCODE 3000 event, clearly demonstrate the significance of clearly and proactively evaluating and managing any risk that can occur in the supply channel (PAYNE & DORN, 2012, 35). How an organization deals with supply chain risks depends on the breakdown type and the overall organization’s preparedness (O'BRIEN, 2009, 47). Additionally, to reduce the kind of disruptions that café operations incurred as a result of the Postcode Programme, the managers must be able to perform a clear delicate balancing act in order to keep inventory, the production capacity as well as other café operations elements at a safe and appropriate level as far as the whole supply chain is concerned in a more dynamic and fast changing business environment (SOLLISH & SEMANIK, 2011, 97). By so saying, it means that, other multinational food restaurants such as MacDonald’s, Starbucks excel in their operations because they have realized the importance of identifying supply chain risks as well as establishing very powerful risk mitigation strategies that deal with potential negative effects of supply chain breakdowns (TURNER, 2011, 16). With a clear comprehension of the types of the risks associated with the supply chain, the café operations managers can tailor and establish effective risk-reduction or risk mitigation approaches in their own café restaurants. 3.0 Comparative procurement process Each and every company that has engaged in a serious business has to buy materials such as services, raw materials. By so doing, it makes the procurement process part and parcel of the modern efficient business operations (PANDIT & MARMANIS, 2008, 16). In this case, both the La Vela ,Nomad and the Irish shop operations in Melbourne city uses a projected productions schedule that sees to it that the kind of supplied materials and the specific time of delivery is factored in. In this case, the raw materials are ordered depending on the customers demand and the pricing level of the supplied raw materials (SOLLISH & SEMANIK, 2011, 97). .Vendor selection Vendor selection process is one of the renowned procurement to pay process. In this case, the café and restaurant operations in Melbourne city select vendors based on the help of the quotations that are obtained from sources (O'BRIEN, 2009, 47). By so saying, it means that, most of the La Vela vendors are selected based on their knowledge in Italian food and materials. They then compare the various quotations before reaching an agreement. In the case of the Irish shop, their vendors are selected from Ireland depending on the quality of their quotation since they always want their consumers to feel like they are in Ireland due to the Irish products touch. Request for quotation In this process, Both La vela and Nomad restaurants request potential vendors to deliver or rather submit a quotation for food materials or a service. Additionally, the vendors requested quotation contains the vendor’s conditions and terms and in most cases, the café operations basis for vendor selection is also included (TURNER, 2011, 16). By so saying, it means that, since Nomad restaurants sources most of its materials locally, the vendor quotation should indicate the terms and conditions of delivery plus the location of the vendor whereas the Italian restaurant; La Vela requires the vendors quotation to include the number of goods that are available for supply. The same case also applies to the Irish shop (O'BRIEN, 2009, 47). Purchase requisition By definition, a purchase requisition is basically a formal internal request to buy or purchase. In this case, the Melbourne café operations and restaurants ask the buyer to postulate a particular material quantity or service within a certain time frame or date. La Vela and Nomad restaurant use the MRP- Material Requirement Planning to create its internal requests to purchase while the Irish shop creates its purchase requisitions manually (BOOTH, 2010, 23). Additionally, Purchase Requisition can be converted to RFQ outline agreement or PO.in simple terms, the Melbourne city café operations Purchase requisitions comprises of the following information; First is the material quantity which entails goods description as well as its total value (O'BRIEN, 2009, 47). The second information on the Purchasing requisition is the department and the numerical account number of the department. The third is the official authorization signature from the department. Fourth is the vendors attached quote and fifth are the delivery instructions and finally, the suggested vendors attached quote (PANDIT & MARMANIS, 2008, 37). Purchase order It is especially written to a vendor from the company as a formal request to a vendor to supply certain raw materials or service materials under the stipulated conditions. In this case, Irish Sop operations create their purchase order depending on their purchasing requests or another purchasing order to their vendors in Ireland (O'BRIEN, 2009, 49) In this case, they specify the payment terms, date of delivery, incoterms, specifications, reference and part numbers, price. Moreover, La vela and Nomad restaurants writes a formal request to their vendors to supply raw materials according to the principles and conditions that they stipulated in the quotation (TURNER, 2011, 16). Goods receipt It is also known as the GR. By definition, it is universally created to show the specified ordered goods and services from a vendor by using the purchase order process (GUTH, 2007, 105). By so saying, it means that, after safe reception of the goods or services, the two Melbourne restaurant operations mentioned above and the Irish shop operations can record particular stipulated information which will later be used for accounting process, stock rotation and check, goods return in case of defaults in the goods (Chopra & Sodhi, 2004, 46). In other words, the recorded information as far as the receipt is concerned include the types of goods delivered, the vendor who delivered the goods, how the services and goods were delivered (PANDIT & MARMANIS, 2008, 33). Goods receipt invoice Is one of the most important procurement processes (Chopra & Sodhi, 2004, 46). Owing to this fact, La Vela, Nomad restaurant and the Irish shop match the services and goods they have received with the ones they ordered. In this case, they verify the prices by using the purchasing order and the receipts, the payment terms and the overall quantity of the goods (O'BRIEN, 2009, 44). Invoice verification Both the La Vela restaurant and Nomad restaurant operation have a well stipulated computer system that is able to detect and verify the goods quantity and prices. After they have verified every detail by comparing it to the purchasing request, purchasing order and the delivery receipt, the data and information is saved in the system (TURNER, 2011, 16). By so doing, the system is able to update automatically the invoice data in financial accounting and the materials management. On the other hand, the Irish shop uses the manual invoice filing method after verifying it against the aforementioned factors (O'BRIEN, 2009, 47). Payment to vendors The last stage in the ‘procure to pay’ process revolves around the payment to vendors. Additionally, it is generally known as the ‘procure to pay’ process. According to the Melbourne café operations, vendor gets paid according to the stipulated payment terms. Moreover, Both, Irish shops, La vela restaurant and the nomad restaurant pay their vendors through Check payment and net banking depending on the vendor’s choice (BOOTH, 2010, 27). Potential problems in the procure to pay process The ‘procure to pay’ process is a complex process that entails many departments and different people. By so saying, it means that, the larger the activities that both Irish shop, La Vela and Nomad restaurant involve in, the larger the number of people who will be involved in the procurement process (PANDIT & MARMANIS, 2008). In other words, according to the café operations incident, this process does not only consume much time, but it is also highly prone to errors as a result of manual operation and editing of data and documents (TURNER, 2011, 16). However, these problems have made most café operations and shops to automate certain processes in an effort to reduce the rate of error. 4.0 Stress testing of organizational procurement process. -Before organizations can postulate the effective means and ways of reducing the risk associated with the supply chain, Both the La Vela, Nomad and the Irish shop manager must comprehend the risk category universe, the conditions and events that drive them (Chopra & Sodhi,2004). Additionally, then armed with appropriate, clear and more specific knowledge about the risks associated with supply chain breakdown, the organizations can slowly move towards the implementation of great risk mitigation policy (PANDIT & MARMANIS, 2008). Supply chain breakdowns can establish itself in such a way that they become fully fledged channel of supply problems causing uncertainties in terms of delays or flow of goods. Additionally, the impact of the risk can either be long-term or short term (O'BRIEN, 2009, 47). By so saying, it means that, a simple risk along the channel of supply may result in a temporary risk whereas an individual supplier holding up a product manufacturer may represent a long-term business risk (BOOTH, 2010, 23). Moreover, most organizations postulate plans to deal with breakdown issues such as recurrent risks and low-impact risks. However, most of them at the same time ignore high level-breakdowns in the supply chain during their strategic planning. In other words, due to the high number of café operations, it is believed that, a consumer can easily find the product substitute for your products or demand improvements in service and product delivery as soon as possible (PANDIT & MARMANIS, 2008). In contrast, due to the fact that, earthquakes and disasters are least expected in Melbourne city, the risk preparedness by the café operations was very low if not none. Most prominent organizations manage their risks and supply chain breakdowns by holding reserves. Additionally, in the same way insurance organizations hold reserves to satisfy claim, the café operations in Melbourne city could have prepared by holding reserves in terms of the redundant suppliers, excess capacity and excess inventory (TURNER, 2011, 16). However, the only challenge the executives may face when it comes to mitigating risks by holding reserves is how to intelligently resize the capacity of the reserves without offsetting the normal operational profits. In simple terms, while stock-piling helps the company to reduce delays and improve service delivery by suppliers, establishing reserves without discipline can also reduce net revenues of the company while at the same time hurting costs (O'BRIEN, 2009, 47). Therefore the most important role of the managers is establishing a way of finding the highest achievable net revenues for the organization’s varying levels of the supply channels risk. From the above events, the most notable risks that were caused by the Postcode 3000 Programme to the café operations in Melbourne city were basically, delays, disruptions, procurement risks, capacity risk, inventory risk and the receivables risk. Delays Delays in the flow of materials in most cases occur when a supplier either through high utilization cannot respond to shifts in consumer demands (GUTH, 2007,106). As far as the Irish shop is concerned, high inspection at the border and poor output at the supplier plants in terms of quality which is supplier related delays. Shifting and changing the transportation mode during the product and materials transportation are some of the supplier related breakdowns as far as La Vela and Nomad restaurants are concerned. Moreover, if the flow of raw materials occurs frequently, organizations can plan and establish risk mitigation strategies depending on the historical information of the delays (BOOTH, 2010, 23). However, organizations can effectively avoid issues to do with delays by economically and appropriately sizing and placing their inventory reserves and capacity. By so doing, one simple strategy is to try and maintain flexible capacity in their already existing plants. For instance, café operations in Melbourne can accomplish this by employing workers who are team leaders, flexible and can work at any stipulated station in Melbourne city (Chopra & Sodhi, 2004,46). Another well-known measure of mitigating the risk associated with delays is balancing the inventory and capacity, depending on the products costs (GUTH, 2007, 105). For instance, the café operations should establish ways of assembling high value goods that in the end can help support the inventory capacity in the reserves (O'BRIEN, 2009, 47). In this case, by marching the technique of production to the value of the product, the café operations may reduce both the inventory costs as well as the supplier delay risks. Disruptions Disruptions to the flow of raw materials in the supply chain are rare and unpredictable but the results are always more damaging. For instance, after learning about the Postcode 3000 Programme, La Vela restaurant selectively built up capacity inventories with reasonable confidence (PANDIT & MARMANIS, 2008, 123). As a result, when the disruption in the supply chain occurred, the damage to the restaurant was minimal (TURNER, 2011, 18). In this case, stockpiling the inventory is also a better reservation technique for those products that have no obsolescence danger and low holding costs (Chopra & Sodhi,2004,46). On the other hand, for those materials and products that possess high holding costs, employing the redundancy strategy is most effective (O'BRIEN, 2009, 47). For instance, the Irish shop in Melbourne city purchases its materials from both Ireland and Australia. By so doing, it prepares the Irish shop for supply chain breakdowns without really establish a fast –depreciating capacity inventory. In other words, the Irish shop should lower the redundancy cost by employing multiple suppliers for larger quantity of products and single sourcing for those products that are classified as low volume (Chopra & Sodhi, 2004, 46). Systems risk The more an organization engages in networking its information system and technology, the greater the risk associated with a failure everywhere in case of any risk or failure anywhere. Additionally, despite the fact that information system failure is a rare occurrences in the modern highly networked organization environments, whenever a system breakdown occurs causes a lot of devastating consequences (O'BRIEN, 2009, 47) For instance given the fact that, Nomad restaurant possesses a small number of workers, the failure in its information system may not cause devastating consequences as compared to a large company such as the Pentagon high spreading email and computer virus case that occurred in the year 2002 (Chopra & Sodhi,2004,46). In this case, the system failure will be customer related since the failure of the ordering machine breaks down the order entry of consumers (MOSER, 2006, 13). However, the case of Postcode 3000 Programme was supplier related, customer related and a business internal problem since the whole café operations were disrupted and the warehouses and office buildings dismantled to build office apartments in the Melbourne city (BOOTH, 2010,23).. 5.0 Conclusion Comprehending the supply chain risks can be of help to purchasing companies to take effective consequences in response to the anticipated risks. By so saying, it means that, the environment risks and pressures need companies and organizations to consequently and constantly reduce and analyze risks (BOOTH, 2010, 23). Additionally, if the flow of raw materials occurs frequently, organizations can plan and establish risk mitigation strategies depending on the historical information of the delays (PANDIT & MARMANIS, 2008). Therefore, from the case studies, it is wise to avoid and mitigate risks in order to avoid supply chain breakdown. References BOOTH, C. (2010). Strategic procurement: organizing suppliers and supply chains for competitive advantage. London, Kogan Page. GUTH, S. R. (2007). The vendor management office: unleashing the power of strategic sourcing. [Place of publication not identified], Lulu Press. MOSER, R. (2006). Strategic purchasing and supply management a strategy-based selection of suppliers. Wiesbaden, Dt. Univ.-Verl. http://public.eblib.com/choice/publicfullrecord.aspx?p=750391. O'BRIEN, J. (2009). Category management in purchasing a strategic approach to maximize business profitability. London, Kogan Page. http://www.books24x7.com/marc.asp?bookid=38048. PANDIT, K., & MARMANIS, H. (2008). Spend analysis: the window into strategic sourcing. Ft. Lauderdale, FL, J. Ross Pub. PAYNE, J., & DORN, W. R. (2012). Managing indirect spend enhancing profitability through strategic sourcing. Hoboken, N.J., Wiley. http://www.books24x7.com/marc.asp?bookid=45075. SOLLISH, F., & SEMANIK, J. (2011). Strategic global sourcing best practices. Hoboken, N.J., Wiley. http://site.ebrary.com/id/10438396. Sunil Chopra & ManMohan S. Sodhi, (2004). Managing risk to avoid supply chain Breakdown. 46 (2004) 1. TURNER, R. W. (2011). Supply management and procurement: from the basics to best-in-class. Fort Lauderdale, FL, J. Ross Pub. Read More