The Procurement Management Process of Recreational Equipment Inc - Case Study Example

Procurement management process of Table of Contents Introduction 3 Recreational Equipment Inc. 4 Procurement Management Process 5 Planning the procurement 6 Conducting the procurement 7 Solicitations - Requesting seller response 8 Awards – Selecting sellers 9 Administration 10 Contracts, Incentives and Risks 10 Quality and closure 10 Conclusion and Recommendation 11 References 12 Introduction The paper here highlights the procurement management process of Recreational Equipment Inc. (REI). REI is a private American retail corporation, which concentrates on selling sporting goods, outdoor recreation gears and clothing for sport purposes. The company owns 132 retails stores in more than 32 states and also, practises selling their goods over the internet as well as through catalogues. The company is well-known for the quality that it provides to their customers, which has rendered the latter loyal to the company products. The award winning REI brands have enabled the company to reach the heights which they currently enjoy. The paper gives emphasis on the procurement management process and has described the same with regard to REI. The procurement management process is defined as steps, which are required for purchasing or acquiring services or products from any source that is outside the limits of a firm or organization. The sources are external suppliers of the products. The procurement management includes maintaining good relationship with suppliers for ensuring that the organization is receiving high level of services. It assures that purchasers receive those goods, which they have paid for. The success of an organization depends on effectiveness of the procurement process and therefore, managers need to create plans for procuring goods and services, facilitating the reduction of cost and time of delivery. There are many fundamental steps in the process. At the initial stage, the procurement process depends on changes in technology, attitude and personnel. A positive method is needed to be adopted, which stresses on a satisfying relationship with the suppliers. Suppliers are regarded as the most critical component in the procurement process of any company. In case of any dispute with these suppliers, the organization is bound to suffer from unavailability of the required resources, which in turn heavily affects the entire production process. Recreational Equipment Inc. The company has donated millions of dollars for supporting the conservation efforts that they have undertaken worldwide. It sends dedicated teams for volunteering in activities across several places nationwide. The activities include restoring local habitats, cleaning up the beaches as well as building of trials. Therefore, through many business practices, the company has tried to reduce environmental damages that have been created by their actions (Recreational Equipment, Inc, 2014). The company, through its successful operation, has expanded their business all over the world and has always focused on creating new products for the customers. It aims at opening four to six new stores every year. The sales figures of the company have increased over the years, which have indicated the fact that customers are quite attracted to their range of products. The company has become a member of Bluesign Technologies AG, which has provided them with the permission for using Bluesign standards for the purpose of designing, sourcing processes and also, for penning down Corporate Social Responsibility reports. The standards are very essential for managing and creating products. The company designers use these standards for yarning, dyeing and fabricating purposes at the production plants. Thus, this approach has helped the company to make its supply chain process transparent as well as reduce the environmental effects (Recreational Equipment, Inc, 2014). Procurement Management Process The procurement management process is defined as the one through which products and services are acquired from an external supplier. The process, thus, includes receipts of the products, placing orders and also, reviewing the products from suppliers. The process secures the fact that products are acquired within the planned time scale. It also makes certain that the products obtained are of right and desired quality. The process also highlights whether costs of the products are within the budgeted amounts. The process in executed after plans are devised and approved by higher management levels (Mathenge, 2012). The figure below identifies the procedures and processes, which are needed for managing the procurement of products from suppliers in an organization. Figure 1: Procurement Management Process (Source: Russil, 2010) The above figure elaborates the general procurement process, which is implemented by any organisation. REI undertakes the same procurement process for sourcing their products from external suppliers. The steps undertaken by REI, in order to run a successful procurement process, are described in the following sections. Planning the procurement REI, in this step, identifies the products that are needed to be procured from outside the company. The procurement decisions are undertaken early in the planning step. The decision takes into account three fundamental elements: Whether procurement is needed? What products or raw materials are procured? When the procurement will take place? The procurement manager identifies need of the products and following that, issues the purchase order. The suppliers are also chosen in order to place the purchase order. The time frame is fixed by the manager and is communicated to the supplier through contracts, which binds the company with them. The quality of products is also specified to the suppliers in order to give an idea regarding the products that are requested for (Infor, 2013). The manager fills up a purchase order form, specifying the abovementioned details, along with the location of delivery of the products. There are few important inputs that are required for planning the purchase. They are the environmental factors, which relates to the availability and acceptability of the products. The responsibility of the procurement team is also scrutinised in this case, before planning the procurement process. The procurement recommendations are submitted to the management, who are responsible for taking the ultimate decision of placing the final purchase order. REI has concentrated on acquiring those products from outside the organisation, which are not manufactured by them, since it requires separate production system. The products that are summoned from outside are manufactured in accordance with the company requirement, thereby aiding the overall growth of the company. The procurement decisions are taken at the higher management levels in REI, from where the lessons and best practices of acquiring products are circulated to the respective teams (Amemba, Nyaboke, Osoro & Mburu, 2013). Conducting the procurement Once the plan for procuring products is formulated, the procurement process is conducted. REI places the order to their suppliers by requesting them to make deliver the products within the specific time frame as in the contract. The delivery of the products are however dependent on many factors like transportation process and many more. The accuracy of the delivery time also rests on the manufacturing process of the suppliers. The plan for procurement thus leads to the placement of the purchase order. Solicitations - Requesting seller response Solicitation planning refers to the process for soliciting sellers to respond to the purchase order and provide them the required products. Firstly, the solicitation plans are formulated, which are dependent on the plans of procurement. It will guide the process as per the teams have planned. There are requirement of two forms of solicitation planning i.e. standard form and expert judgement. There are several standardized forms for formulating contracts and describing procurement products. REI gives emphasis on these forms, so that suppliers are not confused regarding what is expected from them. Expert judgement is also needed by the company to help managers select the best source of the procured products. The process helps in developing a lucid communication between the company and the suppliers. If solicitation planning fails to derive the required result, then expectations shared by the company and suppliers become invalid. The main result from solicitation planning is the procurement document. The document directs the relationship between suppliers and the company. The communication should be transparent from the initial step, since the whole process is dependent on it. The price of procurement is also specified in the document, which gives the supplier an idea about the amount that the company is ready to pay for products that it has requested for. The response from suppliers comes in form of proposals, which are evaluated by the company in order to check whether they can pay the amount mentioned by the supplier. The evaluation criteria are also an important step in the procurement process, since it scores or rates proposals that are submitted by suppliers. If the proposals are in form of bid or quote, then evaluation is made solely on prices, which are suggested by the suppliers. After the solicitation plan is prepared, genuine solicitation process is initiated. The suppliers are responsible for execution of the solicitation process. The suppliers are keen to win the contract from the company and this makes their response important even for their own business (Public Works Government Services, 2011). REI maintains a list of qualified suppliers. These lists comprise information regarding suppliers, which is required by the company, at times of need. The information includes contact numbers and details of the products that they supply. The details also include the past performance of suppliers, along with potential amount of deliverables. The last step of solicitation process includes the bidder conference and advertising. The bidder conference aims to secure the meeting between suppliers and the company, where the former gets clear information about the latter. It also allows the suppliers to question the company on the detailed information of the product. The details aid the supplier to identify whether the proposal is appropriate and sufficient in order to comply with requirements of the company. Advertisements are published to invite bidders. The advertisement is given in newspapers and trade journals, which helps suppliers to gather information about need of the company. The results of the solicitation process are examined by collecting all the proposals from the suppliers, who are interested in getting the order from the company. The document reflects ability of the suppliers and the prompt with which suppliers are to deliver the products (Blomberg, 2006). Awards – Selecting sellers The next step of the procurement process is selection of the right suppliers for the products to the company. It depends on many factors like, price, quality and delivery time. The supplier that provides with the least price and best quality is chosen. The reason for the choice is also dependent on timely delivery of products to the company. So, the company has to concentrate on these factors before selecting the suppliers. This is important since operations of the company are dependent on the same (Brady, 2012). Administration Contract administration refers to the process which assures that suppliers are fulfilling the agreements of the contract. The company procurement manager and contract administrator together ensure that the suppliers meet the obligations of the contracts. If the supplier fails to comply with the contractual requirements, then legal actions are taken against the same (Wysocki, 2004). Contracts, Incentives and Risks REI encounter problems in their business, when suppliers fail to meet the contractual obligations that are made with the latter. The sales of the company are observed to fall to a large extent, which in turn affects the profit. So, the company takes legal steps against suppliers for not complying with the contractual terms and conditions. It can be highlighted that there is always a risk of choosing the wrong supplier, even after undertaking an extensive evaluation of potentials of the suppliers. When REI orders for huge quantity of products, suppliers put the responsibility of the deal on contractors. The company has to coordinate and control the suppliers as well as contractors, given that it has to deal with multiple suppliers (Kalubanga, 2012). Quality and closure Quality of a product is very important for any company. It helps a company to grow in the long run and when quality is compromised, the effect is observed in the short run itself. REI establishes its quality requirement in the procurement document, so that suppliers are well-aware of the kind of product that the company expects from them. REI has never deprived its customers from experiencing the best quality products, starting from sports gear to clothing. REI, through its varieties of products and attractive designs, have penetrated the markets, both worldwide and nationwide. To get an efficient supplier, who provides with genuine products, is very difficult. To ease the situation, the company must concentrate on evaluating proposals obtained from the suppliers. The evaluation will highlight various loopholes and disadvantages, which will help in saving the company from future loses. Conclusion and Recommendation It can be concluded that procurement management process is very important for any company, irrespective of the industry. Recreational Equipment Inc has a well-developed procurement management process, which directs its sales. Sales of the products are dependent on their availability at the right time. The suppliers, in order to get the purchase order from REI, prepare the best proposal, which includes price, time of delivery and quality. The failure of procurement management process, thus, creates huge difference in the smooth running of any business. REI gives its full effort in developing a successful procurement team, which helps in evaluating the suppliers correctly. The evaluation of suppliers is needed to ensure that REI does not encounter any risk in future. The details of the suppliers are examined in order to get a clear picture of the past experience. The solicitation process is also needed for success of the procurement process, since response from suppliers is necessary to make sure that demand of the company is accepted. References Amemba, C., Nyaboke, P., Osoro, P. & Mburu, N. (2013). Challenges affecting public procurement Performance process in Kenya. International Journal of Research in Management, 4(3). Retrieved from http://rspublication.com/ijrm/july13/5.pdf Blomberg, M. (2006). Developing a Strategic Procurement Process. Retrieved from https://pure.ltu.se/ws/files/31017152/LTU-EX-06320-SE.pdf Brady, W. (2012). Procurement Process and Contract Management Redesign. National Institute of Governmental Purchasing. Retrieved from http://www.lee- county.com/gov/dept/ProcurementManagement/Documents/Procurement%20Processes%20Redesign%20Report.pdf Infor. (2013). Infor Fashion for sportswear and sporting Goods. Retrieved from http://www.infor.com/content/brochures/fashion-sportswear.pdf/ Kalubanga, M. (2012). Sustainable procurement: Concept and Practical Implications for the Procurement Process. International Journal of Economics. Retrieved from http://www.managementjournals.org/ijems/7/IJEMSi11i1326.pdf Mathenge, G. (2012). Responsible Purchasing and Supply Chain Management in Kenya: A Critical Analysis of the Ethical Considerations in Procurement Management. European Journal of Business and Management, 4(3). Retrieved from http://www.iiste.org/Journals/index.php/EJBM/article/viewFile/1044/964 Public Works Government Services. (2011). Procurement Management Manual. Retrieved from http://www.tpsgc-pwgsc.gc.ca/biens-property/sngp-npms/bi-rp/conn-know/approv-procure/documents/manuelga-pmmanual-eng.pdf Recreational Equipment, Inc. (2014). About REI. Retrieved from http://www.rei.com/about-rei.html Russil, R. (2010). A short guide to procurement risk. Surrey: Gower Publishing Limited. Wysocki, R. (2004). Project management process improvement. Noorwod: Artech House Inc. Read More