Project Risk and Procurement Management - Case Study Example

Assignment Brief Strategic procurement depends on strong “Supplier Relationship Management” (SRM) where procurement professionals are concerned about developing robust supplier relationships and negotiating favourable terms and conditions. In the future, it is expected that supply chain structures will become more complex and choosing the right supplier will be more critical. Increasingly stringent supplier requirements will become routine, and demanding purchasers will expect suppliers to demonstrate their essential competencies. Supply chain risk, scarcity of raw materials, environmental, sustainable and economic issues will lead to increased pressure on these buyer-supplier relationships. You are to consider a UK business that sources food materials extensively from Greece and discuss how it can manage the dangers of economic and other risks arising from this relationship. You are asked to critically discuss how the procurement function can manage a network – often global – of vendors and suppliers that can quickly become inoperative due to rapid shifts in the business environment. You are expected to provide appropriate case study examples to illustrate your answer. This coursework should follow a structured approach and should be prepared and presented as a professional business report. You should undertake a relevant literature review that helps inform your investigation. Please also ensure that the Harvard Referencing System is adhered to and fully complied with. Checklist This is an individual assessment worth 50% of the module mark. Word length 3000 words (do not exceed word limit). Do not include the cover page, abstract, table of contents or References section in the word count.  Your paper should have a clear structure, with:  - a cover page (student number, module title, assignment title, word count (effective, not max), declaration of originality  - an abstract (300 words max, one single paragraph)  - a table of contents  - the main body of the paper - you have full creative control over the structure, but do use section headings to signpost your work  - references list - this is mandatory at Master level  University of Salford – Robert Kennedy College Programme Title: MSc. Project Management Module: Project Risk and Procurement Management Title of Assignment: IDENTITY: @00403502 Course Leader: Dr Dairazalia Sanchez-Cortes Submission Date: 6th November, 2015 Abstract Table of Contents Abstract 3 Table of Contents 4 Introduction 5 Potential Risks 5 Dealing with risks 7 Conclusion 11 Bibliography 13 Introduction Global sourcing is a significant factor of consideration for the entire management team of an organization (BOŞCOR & BĂLTESCU 2014). Such is because ignorance of this factor may have devastating effects on the operations of a company. Hence, recognizing the position of a company when it comes to the established global network with suppliers and maximization of the developed strategy results in the optimization of the profitability level of an organization. Global outsourcing is associated with several risks. These risks include legal, economic, political and environmental among others (Hong et al. 2014). As such, proactive engagement with government bodies and strong comprehension of the laws ensures that a company does not face the challenges linked to outsourcing. The selected company for discussion is Cadbury. This is a multinational confectionery British company under the ownership of Mondelez International (Hendry 1999). The company is second largest after Wrigley’s, in the world. It is famous for several confectionery products that include dairy milk chocolate, roses and crème egg among others. The selection of the company is based on the fact that it is based in U.K. and it sources food materials from Greece. Further, this company has established business relationship with suppliers from Greek. The company also engages in international business activities. Hence, it will be easier to understand the nature of supplier business relationship and management strategies using the company. Greece depicts a European Union (EU) member state, which accesses Middle East, south east Europe, and countries adjacent to the Black Sea (Gov. UK 2015). The country’s, economic growth is affected by the sovereign debt crisis. However, Greece has public sector restructuring and privatization programme that is in progress. The nation is a member of World Trade Organizations and supports the conduct of trade activities with other countries in the world (Lynn 2011). Potential Risks While conducting its supplier relationship with Greece, Cadbury expects to face several risks from this relationship (Oshri et al. 2009). At first, the suppliers of the food products in Greece may express a performance risk. Such is the risk that develops when the suppliers fail to honor the obligation of delivering the products to U.K based on the specified qualities and quantities. As such, Cadbury faces significant drawbacks in terms of the conduct of its business activities because it cannot access the products as expected (Oshri et al. 2009). To some extent, Cadbury may consider engaging in a legal action against the suppliers in Greece. Such may become an expensive venture for the company if the established legal systems in Greece provide substantial protection for the suppliers (BOŞCOR & BĂLTESCU 2014). Moreover, the company may incur a financial loss because of the legal proceeding and unexpected changes in the legislation as outlined in the policy of foreign trade in Greece. Hence, a sales contract between Cadbury and Greece suppliers can receive frustrations because of the changes in regulations and laws. Further, Cadbury expects to face economic risk (Tse& Tan 2011). This develops from unfavorable economic conditions, which originate from Greece. Thus, Cadbury finds it difficult to obtain the food products in time, which affects the production and marketing functions of the company. Culture is also another issue that can affect the supplier and procurement function of Cadbury (Johnson et al. 2013). U.K and Greece are two countries that have different cultural values and language. As such, there is a possibility of the differences in cultural values and practices to influence the business activities of these two countries. Therefore, inability to accept or appreciate these cultural and language differences might lead to a barrier in the supply chain and procurement department of the company (Oshri et al. 2009). Such can be evidenced in cases where conflicts develop and a sales contract is not completed as expected because of the lack of the involved personnel to understand each other in business. Foreign exchange risk is another issue that may influence the business activities of these two countries (Hong et al. 2014). As such, Cadbury has to adhere to the foreign exchange policy of U.K when importing while the suppliers in Greece have to follow their foreign exchange policy when exporting the food products to Cadbury in U.K. Hence, fluctuations in the foreign exchange market have the potential of increasing the cost of conducting business among these two countries (Stojanovića&Aas 2015).This is in terms of paying more for the local currency. On the other hand, these fluctuations may reduce the cost when there is less payment for the local currency. Hence, it is good for Cadbury to focus on adhering to the established policies and standards of foreign markets so that it gets a smooth path for its business. Moreover, Greece based suppliers should also ensure that they adhere to these standards and policies. Politics is a factor that influences the trade operations and functionalities in different countries. Therefore, politics present a significant risk in the conduct of business activities between U.K. based companies and Greece. Such is because these two countries have different political ideologies on trade, which creates the variation in the conduct of business activities (Stojanovića&Aas 2015). Political changes or unfavorable political decisions in these two countries have the impact of negatively affecting the outcome of the trade relationship between Cadbury and the Greece suppliers. Examples of these political risks are monetary or fiscal policy, trade embargoes, terrorism, riots and war, which negatively impact the progress of trade in different nations. The other risk, which is expected from this business activity is the transit risk. This is associated with the damage of goods during the shipment from Greece to U.K (Hong et al. 2014). Thus, the inability of Cadbury to focus on addressing the issue of the transit risk may result in the development of performance risk or higher replacement cost from the Greece suppliers. Consequently, this will weaken the supplier relationship with the company, which has the negative impact on the supply and procurement department of Cadbury. Dealing with risks Cadbury has an established department whose role is to engage in handling supply and procurement functions. Thus, this department should focus on handling the suppliers from Greece in an established track record, as well as sound reputation (Dolgui&Proth 2013). Such ensures that suppliers remain focused on the conduct of business with Cadbury. Further, it is good for the company to engage in requesting for a performance guarantee (Stojanovića&Aas 2015). This move ensures that the company mitigates itself from non-performance risk, which may affect the business activities in a negative manner. However, Cadbury cannot address procurement and supply related risks effectively if it does not have a functional and strong procurement department. As such, the firm has to ensure that it establishes a culture of effective working among employees who have the capability of delivering as per their mandates and expectations (Dolgui&Proth 2013). Such a department should be able to engage in category execution and management that involves quality systems and structures, which are vital for the achievement of success. Moreover, alignment and integration is good to ensure that the firm has the ability of acquiring its business strategy and achieving success. Cadbury has to ensure that it acknowledges the issue of cultural differences. As such, there is a need to show respect for the cultural practices from Greece in order to avoid any form of conflict, which may not be healthy for the business activities of the companies. Furthermore, the company can focus on cultural integration, which is a move that aids in minimizing the potential of identifying the differences in the cultural practices between the two countries (Cha et al. 2008). Cadbury can also mitigate the foreign exchange risk by focusing on sourcing the food products from Greece in the same currency that is used in that country. Such a move will ensure that the negative impacts of foreign currency market fluctuations do not affect the business activities of the company. This can also be done when Cadbury gets into an option or forward foreign currency exchange contract with a bank for the purposes of hedging against the risk (Tadelis 2007). In addition, Cadbury has to get adequate insurance cover for the food products while in transit. Such facilitates in covering the company against risks, which emerge from the transit process of the food products from Greece to U.K. Cadbury should allocate adequate resources to ensure that it analyzes its procurement portfolio, capability and function. Such will provide insightful information on whether the company has the ability of achieving the desired success level (Tadelis 2007). The company should also engage in strategic procurement planning, which involves the application of the relevant international standards in Greece. Such gives an opportunity of ensuring that the supply chain is aligned to the market functionality of Greece, which contributes to the mitigation of market associated risks. An example of this the global business activities of Romania, which utilizes its procurement function for the purposes of achieving a competitive advantage in the market (BOŞCOR & BĂLTESCU 2014). Romania ensures that it uses effective strategies for global outsourcing market. As such, Cadbury has no reason for not developing an effective strategy and framework for ensuring that it outsources food products from Greece. It is paramount for the supply department to also focus on the analysis of the supply market in Greece. This includes independent verification of the suppliers and maintaining supplier rosters for the purposes of achieving the desired success level (Dewhurst et al. 2012). Further, Cadbury should have proactive involvement with U.K. and Greece governments, as well as understand the laws in these lands. Such gives a good shield for the company against legal, political and economic risks (Tadelis 2007). Cadbury should also engage in a quantification process for the potential risks that it can face in the outsourcing business activity from Greece. Such should be followed by accurate planning on the mitigation process for all the risks. Further, the firm should syndicate on the impact of the risks and how they are shared among suppliers (Johnson et al., 2013). This understanding contributes in ensuring that the suppliers do not feel that they bear the entire risks of the business. Consequently, their relationship with the company is strengthened. The company should also own the suppliers by ensuring that there is continuous communication with them with respect to investment ventures. Such a communication facilitates in making suppliers feel that they own the company (Mani &Barua 2015). Moreover, it is vital that the created portfolio of the company is managed. This gives a chance for the company to excel in its business activities and achieve the desired success. According to Dewhurst et al. (2012), International Monetary Fund prepared a report that indicated that the slow growing economies are in the developing countries. As such, International Business Machines, a technology company, has the potential of increasing its market share and revenues because of its global business (Dewhurst et al. 2012). Such is because the company is able to outsource its products while at the same time benefiting local businesses in the countries where it conducts its business activities. In contrast, the Indian based Aditya Birla Group will earn half of the International Business Machines revenue (Dewhurst et al. 2012). This is because the Indian based company does not have an effective strategy to enable it to outsource from suppliers in different regions. Sustainability is a concept in business that firms use to survive in the market environment. Thus, Cadbury procurement function has to embrace sustainable means that focus on risk mitigation. For example, suppliers may have failures, which are not intentional (Dolgui&Proth 2013). Some of these failures are associated to environment disruption of the supply process and technical challenges. It is at this point where the procurement function should devise a strategy of ensuring that it has the ability of addressing such issues effectively. An example of this is the lightning strike of March 2000, which hit the Alnuquerque power like in New Mexico. This resulted in the development of a fire at the plant that is owned by the Royal Philips Electronics because of the massive surge within the grid line. Consequently, the company had millions of its microchips damaged. As such, key customers of the chips that include Nokia almost switched its orders for the chip to other Japanese and American suppliers, as well as Philips plants. The above is a case of supplier failure, which is not intentional. Hence, if Nokia did not have an established relationship with Royal Philips Electronics, as well as a strategy to address the issue of supplier failure, the company would close down because of the loss of the microchips. Considering the same case for Ericsson, which had adopted a single-sourcing policy, it is clear that the company did not have any other source. Hence, Ericsson lost its production for months, which was equivalent to $400 m in sales. Therefore, Cadbury procurement function has to develop a sourcing policy, which is not directed to a single firm in Greece (Cha et al. 2008). The aim is to ensure that the company does not incur losses when such a single firm closes down as it is the case of Ericsson. Cadbury may have the failure in its supply chain. Such may originate from the established organization structure, which does not support the attainment of an effective supply chain (Mani &Barua 2015). Consequently, the company finds it complex to deliver its mandate of sourcing products from Greece. Hence, it is the ethical and moral responsibility of the procurement division of the company to focus on having strategies, which address inherent failures in the organization. The formulation of these strategies calls for active analysis of the functionality of Cadbury procurement systems. The globalization and competitiveness of the economy is triggering firms to outsource from different countries. Johnson et al. (2013) provides a case analysis of the procurement of goods between the U.S. and Mexico locations. This analysis indicates that there are non-direct manufacturing costs, which are associated with the international procurement. Hence, these costs can be addressed if the procuring firm focuses on following the established procedures and standards of goods procurement. This is the guideline that Cadbury should follow for the purposes of achieving the desired success level. Cadbury procurement function should act as leader in business. In this, the department will contribute in the optimization and coordination of the external footprints of the company so that they will have the potential of working efficiently (Korrapati 2009). Such is because the manner that the procurement function deals with spending with external suppliers has the possibility of contributing to an added competitive advantage for the firm (Dewhurst et al. 2012). Furthermore, an intelligent procurement of Cadbury will have the potential of reducing the costs, which ensures that the firm has an access to more financial resources that can be employed in other sectors and initiatives. Nevertheless, when Cadbury fails to ensure that it has an effective and functional procurement department, there will be no employment of the best practices (Korrapati 2009). Such will indicate the lack of the top talent and right tools, as well as cross-functional linkages that are vital for the attainment of the optimum performance of the company (Cha et al. 2008). The absence of these elements has the impact of having problems, which include financial under performance. Conclusion The modern business environment is volatile. As such, the procurement function of a company plays a significant role in ensuring that a firm remains in the business field. Hence, procurement should have a dynamic and up-to-date sourcing, which has the potential of exploiting emerging market opportunities, as well as reducing on the value-chain costs (Korrapati 2009). This is possible when the procurement function focuses on the optimization of the supply chains. Further, procurement has to handle the issue of the increase in the number of regulating bodies regarding the issues of environmental and safety rules, external stakeholders, consumer demands and other standards. Such depicts a need for a higher level of dynamism in the procurement function, which facilitates in the realigning of the activities and operations of a company within a short notice. When Cadbury sources food products from Greece, it expects to face economic, political and other risks associated with international business activities in the supply chain (Weerakkody&Irani 2010). Such leads to the attainment in the uncertainty in the revenues and production output of the company in the U.K. hence, this makes the conduct of the business activities a complex venture for the company. However, despite these negative effects, Cadbury has the potential of utilizing its effective supply and procurement department to mitigate against these risks. The company can ensure that it hedges its foreign exchange risk by buying the options, forwards or futures in the currency market. Such includes getting a political risk insurance, which contributes in ensuring that the company protects its investment equity and loans from some actions of the government (Mani &Barua 2015). Further, Cadbury has to perform the due diligence by engaging with the government bodies and understanding the land laws. This ensures that the company has the ability of minimizing the associated risks with outsourcing from Greece. In addition, when the company ensures that the suppliers do not face all the risks contributes in establishing a stale supply chain for the food products from Greece. Bibliography BOŞCOR, D, & BĂLTESCU, C 2014, Romanias Competitive Advantages on the Global Outsourcing Market’, Bulletin of the Transilvania University of Brasov. Series V: Economic Sciences, 7, 1, pp. 149-154, Business Source Complete, EBSCOhost, viewed 29 October 2015. Cha, H, Pingry, D, & Thatcher, M 2008, Managing the Knowledge Supply Chain: An Organizational Learning Model Of Information Technology OffshoreOutsourcing, MIS Quarterly, 32, 2, pp. 281-306, Business Source Complete, EBSCOhost, viewed 29 October 2015. Dewhurst, M, Harris, J, Heywood, S, & Aquila, K 2012, The global companys challenge, Mckinsey Quarterly, 3, pp. 76-80, Business Source Complete, EBSCOhost, viewed 29 October 2015. Dolgui, A, &Proth, J 2013, Outsourcing: definitions and analysis, International Journal Of Production Research, 51, 23/24, pp. 6769-6777, Business Source Complete, EBSCOhost, viewed 29 October 2015. Gov. UK. 2015. Doing business in Greece: Greece trade and export guide. Available online at https://www.gov.uk/government/publications/exporting-to-greece/doing-business-in-greece-greece-trade-and-export-guide. Hendry, J. 1999. European Cases in Strategic Management. Cengage Learning. p. 83. Hong, Z, Lee, C, &Nie, X 2014, Proactive and reactive purchasing planning under dependent demand, price, and yield risks, OR Spectrum, 36, 4, pp. 1055-1076, Academic Search Premier, EBSCOhost, viewed 29 October 2015. Johnson, M, Sawaya, W, &Natarajarathinam, M 2013, A methodology for modeling comprehensive international procurement costs, International Journal Of Production Research, 51, 18, pp. 5549-5564, Business Source Complete, EBSCOhost, viewed 29 October 2015. Korrapati, RB 2009, Risks And Success Factors In Information Technology (It) Outsourcing, Allied Academies International Conference: Proceedings Of The Academy Of Information & Management Sciences (AIMS), 13, 1, pp. 31-35, Business Source Complete, EBSCOhost, viewed 29 October 2015. Lynn, M. 2011. Bust: Greece, the Euro and the Sovereign Debt Crisis. Hobeken, New Jersey: Bloomberg Press. Mani, D, &Barua, A 2015, The Impact of Firm Learning on Value Creation in Strategic Outsourcing Relationships, Journal Of Management Information Systems, 32, 1, pp. 9-38, Business Source Complete, EBSCOhost, viewed 29 October 2015. Oshri, I, Kotlarsky, J, & Willcocks, L 2009, The Handbook Of Global Outsourcing And Offshoring, Basingstoke, Hampshire: Palgrave Macmillan [UK], eBook Collection (EBSCOhost), EBSCOhost, viewed 29 October 2015. Stojanovića, Đ, &Aas, B 2015, Transport Outsourcing And Transport Collaboration Relationship - The Risk Hedging Perspective, Serbian Journal Of Management, 10, 1, pp. 33-49, Business Source Complete, EBSCOhost, viewed 29 October 2015. Tadelis, S 2007, The Innovative Organization: Creating Value Through Outsourcing, California Management Review, 50, 1, pp. 261-277, Business Source Complete, EBSCOhost, viewed 29 October 2015. Tse, Y, & Tan, K 2011, Managing product quality risk in a multi-tier global supply chain, International Journal Of Production Research, 49, 1, pp. 139-158, Business Source Complete, EBSCOhost, viewed 29 October 2015. Weerakkody, V, &Irani, Z 2010, A value and risk analysis of offshore outsourcing business models: an exploratory study’, International Journal Of Production Research, 48, 2, pp. 613-634, Business Source Complete, EBSCOhost, viewed 29 October 2015. Read More