Purchasing and Management Acquisition - Research Paper Example

Purchasing and Management Acquisition Supply chain management includes identifying the need of the company, making purchases accordingly, form contact with the suppliers, procure the raw materials or inventory, deliver the raw materials, inventory or finished goods to its right destination. The process of co-coordinating people and things for conducting business functions is called supply chain management. The project managers, supply chain personnel, suppliers, vendors, intermediaries, retailers and customers are involved in this process. This study has been undertaken to assess certain important aspects in supply chain management such as the problems areas which might act as barriers in the companies, the reasons behind increasing cost of supply chain or logistics cost, the effect of poor technological infrastructure on the supply chain of the organizations, the functionalities of different departments such as purchase or acquisition department in the supply chain and the also to know the right ingredients for an effective supply system. A survey was conducted to gather information regarding the current practices in the companies and also to gather suggestions for betterment of the system in this regard. A sample size of 10 companies was chosen and among them 200 respondents was selected to acquire information. Table of Contents Background 4 Supply Chain Management 4 Foundations of Supply Chain Management 4 Purchase Management 5 Acquisition Management 6 Problem Areas 6 Research Question 7 Literature Review 7 Research Methodology 10 Findings and Analysis 11 Recommendation 12 Conclusion 14 Bibliography 16 Background Supply Chain Management The management of business network which includes the production and supply of products and services from the manufacturer to the end users is known as supply chain management. Supply chain management of any organization includes movement and storage of the raw materials, inventory and the finished products from their initial stage to the final stage of consumption. The supply chain management involves functions like planning, execution and control of the activities in the supply chain. The objective of establishing an effective supply chain system is for developing a competitive infrastructure. Supply chain management deals with all the activities of sourcing and procuring the inventory or finished product. In would be possible without the co-ordination of the supply channel partners, suppliers, middlemen or intermediaries, third party services and the customers (Chopra, 2010, p. 2-3). Foundations of Supply Chain Management There are few elements which are considered to be the foundation pillars of supply chain management, they are: a) Supply, b) Operations, c) Logistics, and d) Integration. The traditional strategies in purchase management emphasizes the utilization of many suppliers, involving short-term contacts and bidding competitively, but this generally affects the relation of the customers and suppliers adversely as the focus gets shifted to only product and its purchase price, rather than the ability of the supplier. In the recent times the focus had shifted towards a more strategic approach in supply management. In supply management the important function is to create a closed working group of suppliers for long-term and high sales. The second element of supply chain management is the operations. After the firm receives the raw materials and required components for products, various internal operations are important for assembling and processing the products for converting them into finished goods. After the supply chain management does its duty, the next set of functions are performed by the operation management team. Operation management involves tools like material requirement planning and enterprise resource planning (Zaman, 2011, p. 5-6). The third step in the supply chain management process starts when the production phase is over and finished goods are ready. In this step, the supply chain management has the duty to supply the products to its destination at the right time. It is also the responsibility of the supply chain to ensure that the volume and quality of the products remain the same till it is delivered to the users. In the logistics management the suppliers utilize warehouses to store goods safely. The logistics decision is mainly depended on tradeoffs, cost and the delivery time. The last and the most important pillar of supply chain are called integration. It means co-ordination of supply, operation and logistics for effective implementation of the supply chain management systems. The processes in the supply chain are said to be integrated when the team is involved into functions such as purchase, production, inventory, logistics, or quality management. All these functions highly effect the supply management. Supply Chain management is the most important department of any organization nowadays. Though it has a complex structure and the functions of this department are time consuming, but any organization cannot function with this. The increasing responsiveness of the supply chain would be helpful in creating a sustainable supply management system and reducing the cost involved in its maintenance (Monczka, Handfield, Guinipero, and Patterson, 2010, p. 12). Purchase Management Purchase management includes supervising the purchase processes and related activities in the organizations. It has been estimated that about 70 percent of the production companies are involved in the purchase activities and similarly 40 percent of the service companies are also involved in the purchase activities. Purchase management functions are the most areas in the entire organization and it requires continuous and intensive management. This area also covers the outsourcing and in sourcing functions. There are few steps included in general purchase management process, they are: a) conducting a market survey, b) approve, c) studying and understanding the market, d) taking the purchase decisions, e) placing the order to the supplier, f) receiving the goods and services, and g) receiving invoices and making the payment. Acquisition Management The utility of accusation management is to see that the acquisition delegations are in the right places in the firm. The market is also accesses and procurement strategies are formulated in this system. The success of acquisition depends on effective relationship. In this process, a very constructive relation is required between the buyer and the supplier, real-time links and functional staffs are necessary (Engelbeck, 2001, p. 2). The acquisition management department in different organizations has to decide the approaches of stepping into the market, estimate the cost of ownership of the different assets, compile the bid documents, evaluate the stated criteria, bid in accordance to the published criteria and properly sign the contract documents. The acquisition management also includes planning, identifying and forming budget for the big expenditure in the organization. In the acquisition the planner formulates teams which consist of members from all the departments of the organization. The past acquisitions are analyzed so as to do a SWOT analysis of the strategies formed previously. This helps the organization to eliminate the drawbacks and inject fresh ideas. Problem Areas The companies round the world are introducing highly sophisticated supply chain in order to get an edge over its competitors. For the companies, competing at global levels, it is very important for them to develop an efficient supply chain. The project managers who are supervising the supply chain of the organization face many challenges and issues in their day to day working. This study will throw light on the importance of supply chain management in any organization. It would also include the functions of the supply chain management such as purchase and acquisition management activities within the organization. These functions are the most important areas in the product or service industry. The general problems that most of the supply chain of the organizations faces which conducting their duties must involve the technological implementation, advance infrastructure or software for the smooth functioning of the activities. Most of the organization and their functions are depended on the technology and the supply chain is not an exception to this. Usage of the most advance and renewable technology is very important in order to get an edge over the competitors. Inefficient and old methods of supplying goods increases cost, pollutes the environment and increases inefficiency in the organization. The second problem area is the operations within the organization. There are many function involved in the supply chain management that includes the operational activities within the organization. The logistics department is also involved in the supply chain management. Logistics involves transportation, storage and supplying goods and services to the customers at the right time and place. The cost of transportation is high nowadays, so methods to reduce cost can be analyzed. Research Question Q1: What are the barriers for developing an effective supply chain management system in an organization? Q2: Has the supply chain management of the companies have included purchase, demand, acquisition, logistics, and risk management aspects in their system? Literature Review The supply chain management organizations have become the field of interest for most of the researchers nowadays. The process includes managing the raw materials, exchanging information, controlling the financial flows, managing the logistics network such as the vendors, manufacturers, distributors and customers. The economic environment is highly dynamic these days and it requires an efficient supply chain management system. In the field of logistics many development and changes have taken place in the past few years. This study is devoted towards identifying the main problem areas in supply chain management and the looking out for advanced and innovative tools which are used to overcome such disadvantages. This are also known as the optimizing tools which help the project managers to detect the problems and utilize the tools to improve the efficiency of their distribution channel. Due to the globalization of distribution channels and supply networks, the national boundaries have become insignificant (Klemencic, 2006). A company uses the logistics chain to distribute the products or services to customers. In such system the flow of products starts from the producers to the customers, after passing through various distribution centers, transshipment points and retailers. The right method of designing and controlling the logistics network includes different levels of decision making and other operational activities. The objective of all the supply management system should be to maximize the overall value of the company. The value is actually the difference between the final product and the cost incurred by the supply chain in fulfilling the needs and preferences of the customers. The supply chain surplus is strongly related to the profitability of the supply chain functions. After defining the success of the supply chain in terms of its profitability, the next step would be to indentify its sources of revenue (U.S. Department of State Foreign Affairs, 2006). This theory is common to almost all the supply chain round the world. The only source of revenue of the supply chain is the customers. For example, a customer buying detergent in Wal-Mart is the only source which gives positive cash flow to the supply chain of the company. The other cash flows are the fund exchanges that take place within the supply chain. So when a company like Wal-Mart is going to pay to the suppliers, it is going to pay that portion of money, which the customers pay for buying the product. All these flow of information, products, and money are going on within the supply chain of the organization. It is very important to management the system and maximizes the supply chain surplus. It has been found that there is a very close relationship between the design and the success of the management in the supply chain. Companies like Wal-Mart are leaders because they have one of the most efficient supply chains in the world. The company invests heavily on transportation and information infrastructure for effective distribution of products and services. Purchase and procurement are the two important functions of supply chain management. Procurement signifies acquiring the raw materials, inventory or finished goods and purchasing also signifies the same but the price of the procured product plays an important role in this case. The business functions that are included in the supply chain management are the procuring, planning, purchasing, inspecting and the other operational functions. Let us take the example of Rolls Royce, the most famous automobile company, famous for producing luxury cars. Rolls Royce has their own purchasing organization and it spends about 4.7 billion annually on its supply chain management. There are about 950 employees in its purchase department, who take care of various functions in the purchase department. The company has about 18,000 suppliers around the world. The company encourages innovation, and technological development, so it has suppliers to support its diverse functions. For Rolls Royce, purchase is the most important department for the external supply chain management. It is a complex structure which is responsible for the section and the management of the suppliers for the company, meeting the requirements of the customer’s quality, cost and delivery demands. The steps included in the supply chain process of Rolls Royce are: a) Inviting the interest, b) registering, c) inspection before selection, d) selection for the RPF, e) submitting the tenders, f) negotiating with the suppliers and choosing the right one, g) accredit, h) giving out awards annually to the best suppliers of the company, and i) maintaining their performance and their efficient delivery system. The next example is of a company which has one of the most efficient supply chains in the world, Wal-Mart. Wal-Mart has maintained its position as the world’s largest retailer since the past ten years. The business has transited from a regional retail shop to a global company and the whole credit goes to its excellent supply chain. Wal-Mart’s mission was to provide products to the customers at the right time and place. The key strategy of the company was to make its inventory and logistics chain as the strongest point of its operation. Wal-Mart used cross dock to route its products they had their own warehouses for storing the products so that they can be made available to the customers when it is required. This strategy reduced the cost of Wal-Mart and this is why the company could sell products to the customers at a reasonable price. The major component of the supply chain of Wal-Mart was purchasing, operations, distribution and integration of the total system. The purchase managers are the responsible persons for sourcing the suppliers and vendors. The operational focus was mainly on demand planning, forecasting and also inventory management. This allowed the company to reduce their inventory cost and meet the customer’s needs and preferences. The supply chain in Wal-Mart started with strategic sourcing of products at their best price from the suppliers and develops strategic partnership with the regional vendor for supplying it to different locations. Technology also plays an important role in Wal-mart’s success. It has the largest information technology infrastructure among the retailers in the world. Research Methodology The efforts made by a researcher to derive detail results from a study are called research. Research can be scientific and systematic in nature and these methods are applied to search valuable information on different topics. The motive of research is to unearth the truth. This is a way of gathering the information for supporting the argument of the study. The gathered information is used to analyze the outcome and find solutions for the stated problem. In order to conduct the purpose driven projects various tools and techniques are used to conduct the study, this study is also known as research methodology. In this study we would be mainly concentrating on the qualitative research techniques. The qualitative research is based on the phenomenon related to quality. It is mainly related to evaluation of behavioral patterns. The qualitative research mainly aims at investigating those data which cannot be measured in terms of numbers or figures. Quantitative data help us to analyze the figures such as the financial records of the company or institution while qualitative method help to analyze the effect of such problem and its implications without any numerical data. In this study we have to analyze the different issues that companies face while structuring their supply chain framework. The company has to consider several factors before developing a structure for an efficient supply chain. The cost, technological aspect, human efficiency, logistics, transportation, purchasing, procurement, warehousing, packaging, etc are some of the major functions of supply chain management. The research study would be conducted to identify the major issues among the stated areas of concern. A survey would be conducted among the top personnel of few manufacturing based companies, who have their own established supply chain. This would be done by distributing questionnaires among the respondents. This would a qualitative research, so the analysis would be done based on the feedback of the respondents and assumption would be made regarding the problem areas and solutions for the same. 10 Companies have been selected, the manes of which has not been mentioned for secrecy purpose. The project managers heading the supply chain departments of the companies are selected as respondents, as they are the ones who have solid knowledge of the supply chain in the company. Apart from them a few employees who have the major responsibility in the supply management department are also selected because they are the ones who confront the real problems in their department. A total of 200 respondents are selected from all the 10 companies, so they can represent the population and an unbiased result can be drawn from them. Findings and Analysis The study is based on the important aspects of supply chain management such as purchase and acquisition management in the supply chain. The respondents for this research was mainly chosen from the supply chain department of the companies, so as to get a clear idea regarding the functions that the supply management department undertake , their success and failure ration and the reasons behind such performance. The questions in the questionnaire were designed to acquire maximum information regarding the company and its supply chain. The respondents selected for the survey are the senior personnel of the company and they have less time to invest in answering questions, so it would be better if most of questions have multiple choice answers for their convince. It was found that 6 out of 10 companies faced certain problems in their supply chain management. The issues where related to high cost of maintaining the supply chain, lack of right co-ordination among suppliers, vendors or retailers, rise in the cost of goods transportation due to rising fuel prices in different parts of the world, improper usage of resources available and poor technological infrastructure. The rest 3 companies also had similar issues, but they were negligible enough to be considered. The next important issue was to access whether the company also has stratified demand, logistics, purchase, acquisition, and risk management departments within the supply chain system to handle various supply related functions or not. This would help the researcher to identify the weight the company gives to the supply chain department. It would also help to analyze the structure of the supply chain of the companies chose as samples. After the research conducted with the respondents of these companies, it was found that 8 out of 10 companies have developed separate sub-departments within the supply chain management system to handle different operational functions in the supply system. The rest 2 companies are comparatively small in size, so they have different teams to handle the functions rather than departments. Recommendation Supply Chain is considered to be the backbone of any organization, especially in manufacturing companies. Manufacturers produce goods, but it very important to deliver them at the right time and place. If we think that the function of the supply chain begins after the goods have been produced, then we are wrong. The function of the supply chain management system begins with procuring the raw materials from the suppliers, distributing to the manufacturing plants through the vendors or intermediaries, then again transporting the inventories and finally delivering the finished products to the end users. This shows that the supply chain of any company has to be efficient enough for delivering products at the right time and in the right place. This is indeed not an easy task and supply department face many challenges in this regard. The cost of supplying such as the transportation cost is high, which can be reduced by using eco-friendly means of transportation, using renewable fuel or utilizing vehicles only for bulk transfer and not for few goods only, the technological advancement is necessary for fast service, developing efficiency and reducing unnecessary cost of using age old technology. The management team should develop an effective technological framework. Conclusion The study includes the importance of the different departments such as the purchase and the acquisition departments in the supply chain management of an organization. The research study which was conducted on about 10 companies helped the researcher to throw light on the problem areas of formulating an effective supply chain framework and also the utility of forming different teams or sub-department under the supply chain system for smooth functioning of the supply chain. 10 companies were chosen for the research, in which about 200 respondents were selected from the supply chain and related departments to conduct a survey. Questions in relation to the different activities of the supply system were asked through structured questionnaire and their results were analyzed to draw inference from them. The results achieved from the survey reflected that most of the companies are facing the high cost and poor technological infrastructure issues, but they have a well-structured supply chain system. So the only recommendation that can be stated is to develop fresh framework utilizing advanced technology and reduce the internal cost. References Chopra, S. (2010). Supply Chain Management.(4th ed.). New Delhi: Pearson Education India. Engelbeck, R. M. (2001). Acquisition Management. Virginia: Management Concepts. Klemencic, E. (2006). Management of Supply Chain- Case of Danfoss District Heating Business Area. Retrieved from: http://www.cek.ef.uni-lj.si/magister/klemencic2839.pdf. Monczka, R. M., Handfield, R. B., Guinipero, L. C., and Patterson, J. L. (2010). Purchasing and Supply Chain Management (4th ed.). Connecticut: Cengage Learning EMEA. U.S. Department of State Foreign Affairs. (2006). Supply-Chain Management. Retrieved from: http://www.state.gov/documents/organization/88584.pdf. Zaman, N. U. (2011). Procurement Management - The Process. Berlin: GRIN Verlag. Bibliography Pooler, V. H., and Pooler, D. J. (1997). Purchasing and Supply Management: Creating the Vision. Springer. Sadiwala, C. M. (2007). Materials & Financial Management. New Age International. Read More