Procurement and Contract Management - Assignment Example

?Procurement and Contract Management Supply chain management is the integration of key business processes from end user through original suppliers that provides products, services and information that add value for customers and other stakeholders (Lambert, 2008:2). The supply chain management depicts simplified chain of supplier’s network which allows the company to place orders and procure materials required to produce goods. Maintaining the network of supplier is important manufacturing units and purchasing departments so as to enable continuous production of the goods. The present paper looks into the supplier relationship of BCAM which is being managed by Irwin family dealing in agricultural components. The paper will further study the outsourcing options available to the company, suggest a methodology and outline certain difficulties that the company may experience in global outsourcing. a) BCAM – Supplier Relation and Its Consequences Supplier development is a process where on partner in a relationship modifies or otherwise influences the behavior of the other partner with a view to mutual benefit (Crocker, 2009). British Consolidated Agricultural Machinery (BCAM) was established by Harry Irwin’s father hundred years ago during the period of mass industrialization manufacturing tractors and other agricultural machinery such as harvesters, balers, movers, seed drills, and sprayers. While reviewing the purchasing procedure at BCAM, it is revealed that orders are placed in bulk even though if the materials are not required for the purpose of production so as to avoid logistical time and costs. BCAM supplier development strategy was weak considering the fact they placed their orders with the suppliers who were associated with the company for many years. According to Crocker (2009) supplier development is necessary to develop the supply base in areas of recognized weakness, develop a long term relationship with few reliable suppliers, reduce the risk by sharing information, enhance the benefits of mutual goals and synchronize the overall process of supply chain process. This shows that the company’s transactions were limited to few suppliers and the relationship between both is adversarial as BCAM doesn’t pay them as agreed during the contract. Saunders et al (Swamidass 2000) mentioned that adversarial relationship is promoted when they operate at arm’s length with communication without personal contact and gains by one partner are seen as being at the expense of other contributing to apparent lack of trust and not ready to share information. According to Handfield and Bechtel (2002, reliance on trust at the interpersonal level may be conditioned by legal systems or organizational role responsibilities, mitigating the ability of parties to rely on trust as a matter of first preference. The relationship between BCAM and its suppliers exceeds their contract and operates beyond it resulting in breakage of supply chain management. The company had to face the consequences of such relationship as their orders placed by BCAM would not be taken as top priority leading to purchase departments failure to provide required material for production resulting in delayed customer delivery. The fact that both maintained cordial relationships and confidence on the suppliers side that they would definitely receive their payment made it possible to continue the transaction. Moreover, in such type of relationships, complaints are not addressed due to the negligence from buyers’ side as evidence in BCAM Company wherein complaints by purchasing department were snubbed by suppliers owing to late payments. b) Buyer Supplier Relationship Approach Organizations are more actively involving suppliers in their integrated development process and identify suppliers as a source of competitive advantage which means that there is an opportunity to develop and identify the factors that could help sustain or improve the relationship between the buyer and the supplier (Nellore, 2001). Developing partnerships with suppliers is resource intensive and can be justified only when the costs of extended involvement are exceeded by relationship benefits (Gadde and Snehota, 2000). It has become necessary manage supplier relationship for future development. Supplier relationship management is the supply chain management process providing structure of developing relationships with suppliers (Lambert, 2008). The buyer supplier relationship could be strengthened legally by creation of partnerships as it is emphasized to improve the efficiency of supply chain along with reduction of prices and transaction costs (Jespersen and Larsen, 2005). BCAM could use this approach of supplier relationship as it may help in its overall strategy of cost reduction and help in timely procurement of materials ensuring improved supply chain process. Hayes (2004) also encourages moving to business partnerships from adversarial relationships as BCAM can reap much greater durable benefits while long term relationships offer security and opportunities for future business to motivate providers to build and retain company specific expertise. Both the parties could reduce their respective overheads and insight into service provides capabilities will lead the company to innovation. Further Service Level Agreements (SLA) between both the parties will facilitate in measuring performance to the commitments agreed upon in SLA and can set penalties and incentives for exceeding or failing to reach commitments. BCAM, though, has entered into contract with its suppliers, amending the same with incentives and penalties will facilitate speedy delivery of goods to the company. c) Outsourcing Methodology Global sourcing is common strategy adopted by multinational companies to reduce the costs of their products by getting quality goods and services at much lower price comparatively. This also avoids the risk and time of manufacturing those goods and service. Outsourcing is similar to subcontracting, joint venturing and strategic partnering concepts (Greaver, 1999). Oshri et al (2009) mentioned that offshoring strategies appear to be promising in terms of the reduction of costs, as certain organizational activities would be moved to a subsidiary or an independent service provider in a country with favorable conditions. Global sourcing offer several benefits which are basically associated with the advantages of outsourcing in general and may accomplish significant cost advantages through the creation of economies of scale, access to unique expertise of third party and the reduction or stabilization of overhead costs. Moreover, company can concentrate on core activities or focusing on achieving key strategic objectives and enable company to focus its resources on a relatively few knowledge based core competencies. BCAM’s Production Manager, Tom Irvine thought of importing heavy duty engines from Japan to manufacture tractors so that it could first enter the market and make it available to its customer much before than its rivals. Outsourcing includes various process like inhibiting characteristics which analyses the weakness of company in foreign markets, external and internal stimuli revealing managerial weaknesses and threat of foreign suppliers, resources and integrative execution (Rajagopal and McDermott). However the outsourcing methodology of Sumitomo Wiring Systems seems to be very effective and can be used by BCAM as it formulates outsourcing strategy in three stages by studying offshore feasibility and requirements to develop a common understanding of benefits, risks and challenges between BCAM and Okayama. In Second stage, a pilot production need to be carried out by manufacturing machineries using the engines of Okayama to ensure that the products which are to be imported of best quality and suits the market demand. In Stage three, BCAM can push the outsourcing activities and enter into agreement with the proposed company Okayama to purchase heavy duty engines (MIND, n.d.). d) Difficulties of Outsourcing Global sourcing provides good benefits to the company by reducing costs, getting quality goods at cheap rates but there are other ramifications that could reduce the desirability of exporting work overseas like poor control of information that consumers expect to keep private, increased cost of offshore management, theft of knowledge, reduced security of patents, copyrights and trademarks, etc. (Graecen and Chou, n.d.) Other challenges include international freight, insurance and packing, import duties, custom house broker fees, transit or pipeline inventory, cost of letter of credit, international travel and communication costs, reworking on products out of specification, etc. (Ball et al , 2009) Conclusion Though there are challenges in supplier relationship and outsourcing, BCAM may adopt business partnership model for maintaining and increasing its supplier’s base while using the above methodology to import goods from a Japanese company. Challenges will remain, but BCAM will have overcome those challenges through stringent strategic decisions and management of supply chain process in all units and departments. References 1. Ball, D.A., McCulloch W.H.,Geringer J.M., Minor, M.S., McNett, J.M. 2009. International Business: The Challenge of Global Competition, India: TataMcGrawHill 2. Emmett, S Crocker ,B, 2009 Excellence in Supplier Management 3. Gadde, L.E. and Snehota I 2000. Making the most of the supplier relationships, Industrial Marketing Management, Vol 29 (4) pp.305-316 4. Greacen J.F. and Chou D.C. n.d. An Economic Analysis of Offshore Outsourcing: Challenges and Wages Factor, SWDSI, < http://www.swdsi.org> 5. Greaver F.M. 1999. Strategic outsourcing: a structured approach to outsourcing decisions and initiatives, US: AMACOM Div American Mgmt Assn 6. Handfield R.B and Bechtel C 2002) The role of trust and relationship structure in improving supply chain responsiveness, Industrial Marketing Management 31, 367– 382 7. Hayes, I.S 2004, Moving beyond Ad Hoc Outsourcing to Service Level Based Engagements, Clarity Consulting Inc. 8. Jespersen B.D. and Larsen T S 2005. Supply chain management: in theory and practice, US: Copenhagen Business School Press DK 9. Lambert D.M. 2008. Supply chain management: processes, partnerships, performance, Ed.3., US: Supply Chain Management Inst 10. MIND n.d. Outsourcing Methdology, http://www.mind-infotech.com/outsourcing_methodology.html 11. Nellore R 2001 Managing buyer-supplier relations: the winning edge through specification management, US: Routledge 12. Oshir I, Kotlarsky J, and Wilcocks L.P. 2009. The Handbook of Global Outsourcing and Offshoring, UK: Palgrave McMillan 13. Swamidas P.M. 2000. Encyclopedia of production and manufacturing management, US: Springer Read More