Developing Contracts in Procurement and Supply - Case Study Example

Procurement & Supply: Etihad Airways Student’s Name Professor’s Name Institutional Affiliation (Words: 3,037) Table of Contents Executive Summary….………………………………………………………………………3 Introduction.………………………………………………………………………………….4 A. Aspects Related to Poor Quality; Extension of Time; Increased Costs and Unethical Practice………………………………………………………………………………..4 B. Performance Measurement and Monitoring…………………………………………..7 C. Battle of the Forms.…………………………………………………………………..10 Conclusion and Recommendations.………………………………………………………..10 Works Cited…………………………………………………………………………………11 Executive Summary This report paper has successfully argued that that Etihad Airways engages in a number of ways to ensure that its operations are not affected by risks associated with poor quality and time extension where it airline ensures to define requirements that relate to the degree of quality of material resources and thereby prescribe expected technical specifications; ensures to utilise a significant amount of time to identify; evaluate and select suppliers in relation to their immediate capacities to supply materials resources and, also ensures to formulate; manage and sustain working relationship with its suppliers. The airline further ensures to conduct extensive research in the supply market for purposes of locating efficient suppliers that are able to offer material products at a reasonable market price. To ensure efficient monitoring and management of performance, Etihad Airways operates on a classification system that encompasses three levels. It is suggested that in order to win the battle of the forms, the strategy is to fire the last shot so that the company puts up a contract that bears the latest form of terms and conditions and in the event that the supplier does not have any possible objections within a given predetermined timeframe; then its agreed that the supplier adheres to our terms. Introduction The focus of this paper is on identifying the various procurement and supply conditions that are attributed to Etihad Airways in its quests to minimise or even reduce risks related to poor quality; extension of time; increase costs and unethical practice amongst employees. In the second section, the paper discusses the extent for which the organisation’s performance measures is monitored and managed. The last section presents a viable concept of battle of the forms and thereby expound on how to effectively ensure that the agreement is executed under the firm’s owns terms and conditions. A. Aspects Related to Poor Quality; Extension of Time; Increased Costs and Unethical Practice To effectively ensure that the materials supplied is of good quality and without possible extension of time, Etihad engages adopts a distinctive set of terms and conditions that are discussed as follows; First, the airline ensures to define requirements that relate to the degree of quality of material resources and thereby prescribe expected technical specifications. It is important to note that the underlying role attributed to the issuance of technical specifications rest with the determination of the degree of quality that is deemed appropriate for material resources to be supplied (Cârstea, Oana & Sorin 399). The degree of quality of the supplies is mostly defined and preselected with the use of brands or specific standards or in other cases; providing technical documentation for definite processes that portray specific expected attributes and characteristics. The organisation’s requirement on the quality of materials resources that should be supplied are subjected to compliance-based parameters; whereby detailed information is provided for technical parameters of the material resources (Cârstea, Oana & Sorin 399. For instance, in Etihad Airways, this parameter is adopted whenever there is acquisition of specific aircraft parts that would be used in the course of repair and maintenance of its fleet. It is worth to note that the process relating to predetermining parameters of compliance is indeed a complex undertaking and for this reason, Etihad’s department dealing in procurement constantly engages in a significant number of meetings with other subsystems present. Thus, the responsibility related to the formulation of technical specifications is delegated to a specific subsystem as the entire department seeks to execute immediate commercial duties that relates to innovations of the supplier’s market; the extent of accessing materials resources in the amounts required and the time specified, which in the end reduces possible wastage of time as the supplier is fed with necessary information prior to the elapse of the procurement period (Cârstea, Oana & Sorin 399-401). Secondly, Etihad ensures to utilise a significant amount of time to identify; evaluate and select suppliers in relation to their immediate capacities to supply materials resources. Notably, to ensure that the organisation post distinctive results in the course of defining supply resources, intensive level of research is conducted to identify the supply market and suppliers that have the capability to meet the requirements in due time and on demand-basis (Cârstea, Oana & Sorin 399-401). In fact, the analysis efforts that are made in formulating the interests of the organisation as well as the immediate ways of action are selected in accordance with the interests of Etihad Airways and the position of the supplier in regards to it. Of particular interest to note, For Etihad Airways, the immediate selection of suppliers is conducted in relation to a specific reference document that resembles a checklist. The checklist is used to mark the capacities of the suppliers to conform to expected quality and ability to meet deadlines. Consequently, Etihad Airways ensures to formulate; manage and sustain working relationship with its suppliers. It is crucial to comprehend the fact that the process related to the selection of a single efficient supplier is deemed to be reliable for purposes of ensuring immense success in procurement and delivery process, poor strategies attributed to the supplier would however result to inadequate outcome. This is the mere reason as to why the company has formulate effective strategies propagated towards ensuring workable specific supplier-relationships are improved and based on mutual satisfaction (Cârstea, Oana & Sorin 401). The decision related to focus on a single set of suppliers over a multi-level set by the organisation is considered to be an appropriate way of formulating strategic procurement and partnership that would cut down on possible wastage of time consumed while bargaining for reduced prices in the supply market. Etihad Airways continues to invoke standards (ISO 9004:2009) for purposes of sustaining a mutual-form of relationship with the suppliers in order to create definite set of value. In essence, through a given set of quality and time policies, Etihad has established imminent principles that define their relationships with suppliers. These principles are focused on ensuring that there is immediate level of collaboration with their suppliers and as a result, attain a common goal and improve on their products reliability and delivery time (Cârstea, Oana & Sorin 401). In essence, Etihad Airways has continued to adopt current trends related to sizing their relationships with its suppliers. For instance, the company has devised cooperation strategies whereby the design process of new products and technologies are done in partnerships; it has also ensure to steer intense level of participation in joint research and development initiatives with most of its suppliers so that perfect quality material resources area always supplied on time. Extension of time is a risk that is brought about as a result of imminent delays on the part of the supplier. Delays in material resource flows would mostly happen whenever a given supplier; due to high level of utilisation or inflexibilities; is not able to conform to the ever-changing needs of a company (Chopra & ManMohan 55). For Etihad Airways, material resources flow mostly from international supply markets, which are likely to result to high degree of inspection in the course of border crossings and, also the ever-changing transportation of spare parts during the shipment process. The organisation ensures to avoid extension of time and thus, possible delays through conducting a thorough preparation in relation to both proper and economically-positioning and, thereby sizing their immediate capacities as well as inventory reserves. In consequence, the firm has made sure that this level of risk is at least managed effectively by way of sustaining excess flexible capacities in the existing number of suppliers within any given moment in time. It has also resorted to balancing the level of capacity as well as inventories in relation to the underlying costs related to products. For instance, Etihad always makes sure to assemble higher capacity inventories in UAE, which forms the basis for which the company can respond to possible demands for its up-marker domestic market. To some extent, Etihad also links inventories with different forms of transportation models. A perfect example of this is seen when it strikes to hold inventory of high value parts in the international supplier markets. Disruptions are yet another form of risks associated with the potential of time extension amongst suppliers (Chopra & ManMohan 57). Such disruptive activities like natural disasters, fires and even unexpected strikes amongst employees might result to suppliers requesting extension of time thereby hindering Etihad Airways operations. On a positive note though, Etihad Airways has put mechanisms in place to discourage possible wastage of time through time extension by focusing on constructing inventory levels and, also possessing a quite number of redundant suppliers; a notion that operates under the presumption that not all suppliers will be affected by imminent disruptions simultaneously. Etihad Airways ensures to conduct extensive research in the supply market for purposes of locating efficient suppliers that are able to offer material products at a reasonable market price. In this regards, the level of costs related to procurement and supply are minimised to a level that fairly conforms to management proposed budgets within a specific operational year. Subsequently, material costs are sometimes shared through partnership agreements that the company makes with the supplier especially in regards to technological processes and innovations. This way the organisation is certain that the end prices for material products would not be inflated by the supplier to unreasonable margins. Prices for materials products are compared within the supply market and necessary prepositions set in order to cut down on unnecessary expenses and thus costs that could be incurred in the event that the process was outsourced from a total different supplier. Risks related to unethical practice in Etihad Airways are tackled and minimised through formulation and implementation of a code of business conduct. Management team is called to promote a culture of ethics and compliance at all times. Managers are expected to lead by examples for purposes of setting up a favourable platform for ethical conduct within the numerous departments. For instance, these managers are encouraged to refer to the proper sections of the code of conduct document in order to ensure that their duties conform to the organisation’s immediate expectations and standards (Etihad Airways 6). Consequently, managers are made to ensure that employees do not accomplish business objectives and goals at the immediate expense of ethical conduct. Certainly, the airline has made sure to encourage its management team to always respond to questions or concerns related to ethical compliance through provision of Ethics Line number that is readily-offered within the Ethics and Compliance site. Employee confidentiality is always guaranteed whenever reporting possible unethical experience, which sets a platform for conducting further investigations. It is important to emphasise that the airline takes all of the allegations of unethical practice more seriously and will go ahead to investigate such aspects on a more thorough way (Etihad Airways 7). All employees and related staff that report unethical practice within the organisation are protected against possible intimidation. In its relationship with suppliers, Etihad sets out clear guidelines of engagement where aspects related to fair treatment of suppliers is encouraged with honesty and respect. The guideline calls for personnel to always be careful whenever dealing with suppliers and especially in relation to being gifted and entertained. Personnel are called to be careful on what they receive and hand out as gifts to suppliers since it should conform to the legitimate way of conducting business interests of the organisation as a whole (Etihad Airways 24). These forms of gifts and entertainment should never be perceived to be a form of bribe as it will likely jeopardise future relationship with the party. B. Performance Measurement and Monitoring Etihad Airways management understands that the immediate effectiveness of the immediate quality management system is established by the underlying effectiveness of its processes. The processes related to the monitoring and measurement of performance is only likely to contribute to even more efficiency levels within the organisation as a whole. Performance of the company’s operations is measured using distinctive key performance indicators that have been formulated within the initial designing phase of overall procurement processes. In most cases, performance indicators under measurement are related to operational activities of the airline; tactical and strategic components as well. The immediate processes adopted in the course of monitoring; measuring and managing performances of the process of procurement calls for the assessment of efficiency and effectiveness of operations (Baily, et al 23). For Etihad Airways, this process of analysing efficiency is focused on the identification of possible deviations between the planned and the real achievements made on matters related to quality; costs and planning as a whole. The process of maintaining quality control takes cognizant of the fact the degree of quality inadequacies will result to additional unnecessary costs. For this case, Etihad achieves performance analysis through immediate evaluation of their suppliers in relation to their quality commitment. Cost control measurement focuses on the evaluation of the total level of costs of supply since it fairly positions the company in understanding possibility of numerous causes of variations and, also engage corrective mechanisms whenever necessary (Baily, et al 23). It is important to note that these causes of variations are not restricted to the increase of selling prices of the underlying material resources but rather extends to definite elements within the supply chain that relate to storage expenses as well as inflated transportation costs. In relation to the evaluation of meeting set deadlines, and the airline focuses on engaging purchase order processing time as well as supplier’s immediate performance history in terms of deliveries. In most instances, suppliers are categorised from different points of perception prior to being ascertained as being efficient. The selection and retention of efficient suppliers for the company is subjected and referenced to ISO 9001: 2008 that calls for all organisations to appropriately formulate techniques that are deemed necessary for the evaluation and selection of suppliers in regards to their capacity to avail material resources that conforms to the organisational immediate requirements and expectations (Baily, et al 20). To efficiently evaluate the existing suppliers for whom Etihad Airways has on-going set of contracts; performance evaluation is focused on past performance records that confine to such aspects; as the quality of material products delivered, the degree of compliance with delivery deadlines as well as prices. In assessing the performance of any potential supplier, the organisation focuses evaluating their capacity to meet the specified supply requirements as set by the organisation. In essence, the type and degree of control is dependent on the immediate impact of the supplied level of resources on the underlying finished material products. To be specific, Etihad Airways operates on a classification system that encompasses three levels. The first level is concerned with obtaining information from self-assessment set of recommendations or even checking supplier’s portfolio. This investigation is deemed appropriate for purchasing products that are entirely based on technical specifications of the beneficiary. In the second level, the investigation encompasses activities related to visiting and assessing the supplier in relation to their quality competency levels. Proper audit is indeed required for some parts that are obtained in a more sophisticated manner and whose immediate level of quality has imminent impact on the quality of final material products and especially when the supplier is solely responsible for designing and executing the final material resource to the organisation (Baily, et al 23). In this regards, the company makes sure to conduct checks on the technical and technological capacities of the potential supplier to accomplish provision of required material product; statistical techniques that are adopted in the course of sustaining a quality level of system monitoring as well as readjustment of the procurement processes as well as ascertaining the definite sources of raw materials and their immediate quality control aspect. At the third level, the company employs information provided with different certification bodies and especially 3rd party audit in order to conduct qualitative set of investigations, which is a prerequisite for the airline as it is subjected to aspects related to special quality and safety level of regulations. Indeed, the process of evaluating supplier’s immediate performance is attained on both quantitative and qualitative set of criterion. For instance, for aspects related to quality nature of supplier capacity; the quantitative measurements are done in regards to such items as the size of the non-conforming material products that have been delivered; the rate of refusal of deliveries as the number related to certified suppliers with ISO accreditations. On the other hand, the qualitative aspects that are measured include; the degree of satisfaction portrayed by the clients as well as the immediate quality of services availed at all times. On risks related to increased costs, the company focuses on evaluating such quantitative items as target prices and budget variances while the qualitative measurement is reflected on the price comparisons to the underlying market prices as well as adequacy of these price strategies on the part of the supplier at hand. C. Battle of the Forms This concept arises in the event where two potential organisations have opted to negotiate the terms and conditions of a given contract and each of the party involved pushes for the contract to be executed on their own terms (Collins 1). To ensure that the company wins on its desire to have the contract executed under its terms and conditions, it will be a good start to analyse the supplier’s documents in detail to ascertain whether or not they have reached an agreement on all material points covered in the company’s document. This process would be adopted even though it will highly likely that there might exist variances between the forms and conditions set out on the supplier’s document. To win this rather battle, the strategy is to fire the last shot so that the company puts up a contract that bears the latest form of terms and conditions and in the event that the supplier does not have any possible objections within a given predetermined timeframe; then it’s agreed that the supplier adheres to our terms. For this case to be successful, a high-level negotiation should be engaged without fear of contradiction to elicit the element of honesty and compliance. Conclusion and Recommendations To sum up the discussion above, it can be noted that Etihad Airways engages in a number of ways to ensure that its operations are not affected by risks associated with poor quality and time extension where it airline ensures to define requirements that relate to the degree of quality of material resources and thereby prescribe expected technical specifications; ensures to utilise a significant amount of time to identify; evaluate and select suppliers in relation to their immediate capacities to supply materials resources and, also ensures to formulate; manage and sustain working relationship with its suppliers. Etihad Airways ensures to conduct extensive research in the supply market for purposes of locating efficient suppliers that are able to offer material products at a reasonable market price. To ensure efficient monitoring and management of performance, Etihad Airways operates on a classification system that encompasses three levels. It is suggested that in order to win the battle of the forms, the strategy is to fire the last shot so that the company puts up a contract that bears the latest form of terms and conditions and in the event that the supplier does not have any possible objections within a given predetermined timeframe; then its agreed that the supplier adheres to our terms. Works Cited Baily, P., Farmer, D., Jessop, D & Jones, D. Purchasing Principles and Management, (2004) Arc Publishing House, Bucharest Cârstea, Gheorghe, Oana PĂUN, and Sorin PĂUN. "Quality Management in Procurement and Management of Material Resources." Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE. Vol. 8. No. 1. Faculty of Management, Academy of Economic Studies, Bucharest, Romania, (2014): 397-405 Chopra, Sunil, & ManMohan S. Sodhi. "Managing risk to avoid supply-chain breakdown." MIT Sloan Management Review 46.1 (2004): 53-61 Collins, Peter. Battle of the Forms. Field Law. (2011). Retrieved from http://www.fieldlaw.com/articles/PLC_BattleoftheForms.pdf Etihad Airways. Code of Business Conduct. 2nd Ed. (n, d).1-39. Retrieved from http://resources.etihadairways.com/etihadairways/images/E_Book/HTML/Code_of_Business_Conduct2014_English/assets/common/downloads/Code%20of%20Business%20Conduct%202014%20English.pdf Read More