Analysis of the Procurement Process - Coursework Example

In the business world today, it has become increasingly necessary for businesses to recruit qualified professionals with enough experience and the right kind of credentials in order to maintain a competitive advantage. Additionally, with the exponential growth of businesses trading in similar goods and services, the right personnel and inside knowledge could mean the difference between huge profit margins or losses that might make a business go under. Businesses have also increasingly adopted a specialized-departmental model whereby the business is divided into different departments. Each department deals with different aspects of the core business agenda that the company trades in. departments such as I.T Department, Legal Division, Procurement Division, H.R Department, and Finance Department are just but a few examples of specialized departments that can be found in any company worth its salt1. This departmental model has become so crucial in the business world that companies that are not big enough to support such huge personnel and physical space required to implement the model often resort to outsourcing. This model is important as it enables the management concentrate on the main business agenda without having to worry about the minor details. Although these departments are usually autonomous, there must be some form of synchronization and networking if they are to work towards a common goal. Additionally, all personnel in the different departments must relate knowledge from their field of specialization to the company’s core business agenda2. Another factor that has also seen an increase in its application in the business world is Law. It has been an increasingly popular trend for businesses and companies to be sued often for an oversight in their part regarding adherence to certain legislations while conducting businesses3. As such, businesses have in the recent past found it useful to have all their personnel conversant with the law relevant to their area of specialization to shield them from such lawsuits. It is now quite unusual for businesses not to have a legal department or at least have direct ties to solicitors who can advise them on matters pertaining to the law4. In light of all these changes in the business model, the procurement process has not been an exception to the development. Unlike in the traditional business model where procurement was a simple process of establishing a connection with a supplier, purchasing the goods, and maintaining that relationship, the growth in technology and globalization has introduced numerous variables into the process and made procurement an intricate affair requiring diverse knowledge in various fields and particularly law5. The following essay aims to elucidate on the procurement process as it stands today and highlight the necessity of applying legal knowledge. It will discuss what contract laws entail and how it is applicable to procurement process. Additionally, the essay will give illustrations through examples highlighting the downside of ignoring contract law and negotiation during procurements and exactly what it means for both businesses and personnel involved. Strategic Procurement refers to the process in which a business develops a plan for the timely acquisition of goods, and services crucial to its business agenda, applies the plan through purchase of the stipulated goods and services, and manages that plan by making appropriate changes every time there is a shift in variables involved 6. For example, a company dealing in sale of coffee must make appropriate plans for the raw materials such as coffee, water, paper cups, napkins, and sugar to be delivered on time 7. Since these materials usually do not come from the same supplier, procurement personnel must plan the delivery schedule and payment such that it is synchronized to avoid unnecessary down times for the business. That is, if all the other goods are delivered and there are no paper cups to serve the coffee, then the business will have to seize serving coffees until the cups are delivered. Additionally, the procurement personnel must always be on the lookout for better opportunities and be ready to make appropriate changes. They must monitor the efficiency of the current plan, such as its timeliness, cost effectiveness, and quality deliverance and consequently make appropriate changes where necessary. For example, the coffee delivered should be of the best quality and at the best price. If any of the two is compromised, the procurement officer must identify other suppliers and evaluate them using the same criteria before engaging their services or changing the plan. However, the this process of engaging and disengaging suppliers often requires some form of legal commitment for the sake of both the vendor and purchaser in case things don’t go as expected hence a contract must be present. A contract is in essence a legal document that stipulates the obligations of both parties (vendor and purchaser) and outlines the conditions and actions each party can take in different circumstances during and after the sale of goods or services. Since contracts can be formed based on a wide range of agreements, professional or otherwise, it is imperative that there should be laws to govern what contracts can and cannot include hence the birth of Contract laws. These laws govern contracts by stipulating the grounds upon which a contract can be formed, terminated, and include in its terms and conditions. Additionally, contract laws outline the steps to be taken by either party in case something goes wrong and the contract is breached by either party. For example, a coffee selling business must sign contracts with al l its suppliers. Therefore, when a delivery is late, the quality does not meet the standards set by the purchaser, or payment is late, each party can take necessary legal actions. In addition, they can exercise their right to terminate the contract based on the conditions stipulated by the contract. However, before parties can consider entering into a contract, there is often some form of deliberations from both sides as they try to agree on a few details. Once content that they are on the same page, they can then proceed to enter into a binding contract. Such deliberations are referred to as negotiations. Additionally, before a contract is terminated or before both parties decided to seek legal redress due to a breach of contract, parties can often resort to negotiations to settle their differences amicably without having to incur additional financial costs or time 8. For example, in the case that a supplier is late in delivering paper cups and as a result, the coffee selling business is forced to close down shop for a day while waiting for the cups, negotiations can take place so that the contract remains in place but the supplier agrees to compensate the purchaser for the lost business. The other alternative would be for the coffee maker to immediately seek legal redress, which would often take time, and considerable financial resources before the matter can be settled. Business is all about the timely supply of goods and services to a given population in exchange for monetary reward. These supply utilizes inputs, physical or otherwise, to come up with the desired products or services. Consequently, in a competitive market, acquiring and managing inputs can be the difference between market leaders and loss-making businesses. It is the role of the procurement mangers to ensure that the inputs required by the business in order to realize its supply goals are always available. Additionally, they should ensure that the inputs are also cost effective otherwise their presence is irrelevant if they are going to cost the organization more than they return in terms of sales. To gain a competitive edge, procurement managers ought to understand contract laws so that while negotiating with suppliers, they can make contracts that deliberately lock out other competitors from having access to the same supply pool 9. Procurement in essence is the process of acquiring goods/services an organization needs to realize it strategic plan. Tasks involved in procurement include developing standards of quality, financing purchases, negotiating price, buying goods, inventory control and disposal of waste products. In the general supply chain process, procurement stops once an organization has ownership of the products. To make a profit, the cost of procuring your goods must be less than the amount you can sell the goods for, minus whatever costs are associated with processing and selling them10. A qualified procurement manger ought to have sound skills in Strategic industry management, Category management, Project management, Negotiating, Relationship management, financial acumen, critical analysis, and technology. These skills help establish long-range business plans, and drive the procurement process by designing, implementing and managing projects to a successful conclusion. Additionally, interpersonal skills help establish rapport with relevant stakeholders while analytical skills go a long way in making sound decision when faced with a myriad of alternatives11. There are three main aspects of procurement namely; planning, purchasing, and managing. In one way or the other, each aspect has some contract and negotiation laws that are relevant to it and which procurement personnel must adhere to to avoid legal woes and ensure efficiency in the business working dynamics. Procurement planning mush as in the same way as regular planning involves the drafting and implementation of time schedules. However, in procurement planning, one must incorporate all aspects influencing the business’s activities such as financial situation, and market trends while drafting a procurement plan 12. Consequently, procurement personnel cannot schedule payment of suppliers to coincide with paying out of dividends to share holders lest the business encounters financial problems. Additionally, they have to plan procurement schedules so as to coincide with the best market opportunities lest the business loses its window to offload product and is stuck with a lot of stock. For example, if the market suggests that people are more likely to take coffee during winter, then the procurement officer must plan the schedule such that during winter there is enough supply in stock to avoid down times or restocking. In addition, they should ensure that they present budgets to upper management on time so that suppliers and supplies can be paid off in time. Since time is of the essence in such plans, procurement officers must have in-depth knowledge of contract laws that might interfere or make a difference in time sensitive plans. In cases where the law stipulates that a certain amount of time is needed before contracts can take effect, the procurement personnel must be in a position to factor in such time deviations and take appropriate actions such as starting negotiations in advance or delaying payment. Additionally, they must also consider the grace period stipulated by contract laws before a contract can be terminated while making procurement plans 13. This will ensure that there is enough supply even when there is a breach of contract and the business is forced to wait for a certain period before it can engage other suppliers or recover monies paid as deposits. Also while making negotiations, they should have knowledge of the relevant legislatures which will help them make informed decisions as to the terms that they can require before making any binding contracts and consequently make appropriate planning measures to best utilize these requirements in their favor. Purchasing is undoubtedly the corner stone of the procurement process. Procurement professionals must constantly ensure a steady supply of goods and services by making purchases. However, it is the wisdom with which they make such purchases that makes the difference between successful businesses and loss-making ventures. Consequently, there are a lot of laws and legislature that have since been set up and which procurement personnel must be conversant with before engaging in buying or selling of goods on behalf of their employers 14. The main legislation in this case is the Australian Contact and consumer law and its offset laws. Negotiating is a major factor in purchasing. To get the best outcomes from negotiations, procurement managers ought to have exemplary skills in listening, emotional control, verbal communication, decision-making, ethics and reliability, public relations, and problem analysis15. After negotiating and agreeing on minor terms such as price, quality, and time expectations, it is imperative that both parties ( purchaser and vendor) enter into a legally binding contract before exchanging money or goods. It is therefore the procurement personnel’s’ duty to ensure that such contracts include all the terms agreed upon and that such terms are in the company’s best interest. This will ensure that the offer stipulated in the contract is reasonable and acceptable, and that the monetary implications are reasonable and justifiable. Additionally, such a contract will shied the business form liability in case something goes wrong. However, it is imperative that procurement personnel are conversant with these laws so that they can know the extent to which they can stretch their luck in the contract without breaching other laws or freedoms of the other party 11. Any oversight by the procurement officer to ensure that the terms in the contract meet the company’s standards maybe disastrous for the business. For example, if a procurement personnel for a coffee-selling company forgets to stipulate in the contract that the purchase is of dried processed coffee, then it will be disastrous if the supplier delivers coffee that is not only unprocessed but is wet. In this case, the blame will lie on the procurements’ personnel shoulders as they failed to fine tune the details of the contract to ensure that they were in the best interest of the company. Additionally, failure to stipulate a return policy in the contract would aggravate the situation even more as the company would be stuck with the unwanted coffee. Therefore, it is crucial that such personnel comprehend the law to enable them make informed decisions and avoid embarrassing mistakes like the ones highlighted. Additionally, while purchasing certain items, they must have in-depth understanding of legal formalities required in such cases lest they become susceptible to future malpractice lawsuits. For example, in purchasing property such as land or vehicles, procurement personnel must be conversant with the unique laws dealing with such properties. It is also imperative that procurement professionals be able to breakdown the main elements that constitute a contract and use this knowledge to get insight on the implications of a contract to them and their employers. This is particularly important while dealing with offers from different supplies where a misinterpretation between an offer and an invitation to treat becomes the difference between a lawsuit and a mutually beneficial arrangement 16. They have to be careful not to warrant a contract when all they wanted to do was get some information17. Procurement managing involves careful control of both planning and purchasing activities, and their implementation. This means that managing strategic procurement involves making sure that the plans schedules in terms of delivery and payment are carried out in time by engaging the relevant authorities such as upper management, finance department, and H.R departments. Additionally, the process entails making appropriate changes to the procurement plans and purchasing contracts in light of new information, change in the business’s strategic goals, or change in the businesses financial situation. As such, procurement officers often have to terminate purchase contracts, renegotiate contract terms, or integrate contracts within other contracts. It is therefore imperative that they have adequate knowledge on legal matters before undertaking such decisions. They must be able to fathom the boundaries as dictated by law to which they can operate within while terminating contracts or renegotiating contractual terms and conditions. This will ensure that while terminating contracts, they do not breach the other party’s rights or interfere with other legislature18. The procurement management process also entails having a broad knowledge of the various factors that can influence procurement in order to effectively control the whole process and make informed decisions. As stated, the legal environment is one among many of the factors that influence the business activities and its procurement process. Consequently, it becomes critical for procurement professionals to be conversant with the legal environment surrounding the business in question so that they can be in a position to advice their employers appropriately and carry out their mandate effectively and efficiently19. Many factors arising in the recent past have made strategic procurement an increasing intricate affair. Legal sensitization is one of these major factors as consumers and suppliers have become more aware of their legal rights in the business model. As such, legal knowledge has become a critical requirement for procurement professionals for the sake of their employers and their personal financial well-being. They must utilize their knowledge in planning, purchasing, and managing of goods and services and apply it within the legal limits as stipulated by the law lest they become susceptible to malpractice lawsuits among other negative ramifications. Therefore, it is imperative in the business world today that professional procurement personnel need to have knowledge of contract law and negotiation. Bibliography Bajari, Patrick, Robert McMillan, and Steven Tadelis. "Auctions versus negotiations in procurement: an empirical analysis." Journal of Law, Economics, and Organization 25, no. 2 (2009): 372-399. Carter, John W., David J. Harland, and Kevin E. Lindgren. Contract law in Australia. MICHIE, 1996. Cox, Andrew. 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