Procurement and Purchasing Strategies in Refined Business Limited - Case Study Example

PROCUREMENT AND PURCHASING STRATEGIES ASSESSMENT STUDENT’S NAME: INSTITUTION: INSTRUCTOR’S NAME: DATE: 1.0 Executive Summary Refined Business Limited is a company that deals with supplying parts of a vehicle that have been manufactured for the past years. It, therefore, deals with procurement and purchasing of supplies that are used in the manufacturing process. The company has discovered that there is a huge gap between procurement department and other departments in contributing towards the success of the company. It, therefore, has an objective of developing strategies on how to strengthen the operations of procurement. The steps they will consider is by hiring a new procurement manager who will deal with many issues that are at the stake in this company and the manager will be expected to cause a dramatic change in the procurement sector. There are issues with the company, and the hired manager is expected to address those issues by assessing the procurement department and coming up with the issues that should be corrected. The manager will also be expected to use the Kreljic model in evaluating supplies of the Refined Limited, he will also be expected to suggest how to improve the service support centre so as to meet client satisfaction rate of 67.3%.he also has to design the steps he will follow when establishing contracts with suppliers and also make decisions that are used in enabling the success of procurement operations. Table of Contents 1.0 Executive Summary 2 2.0 Current procurement issues at Business Refined limited 4 3.0 Kraljik Procurement Model 7 3.1 Leverage products 8 3.2 Strategic products 9 3.3 Bottleneck products 9 3.4 Routine products 9 4.0 Service support centre (SSC) 10 5.0 Evaluation of existing suppliers 11 6.0 Decision making 13 7.0 Conclusion 13 8.0 Recommendations 14 Reference 15 2.0 Current procurement issues at Business Refined limited Procurement is the process that involves the aspects of distribution of inputs into the organization and outputs out of the organization. It is a network of supply chain management, whereby there is a management of two flows which are flow of inputs, for example, raw materials from the suppliers to the store and flow information, for example, information on demand of the goods is important for the purchasing department and finally to the suppliers. This flow of information and physical goods is important because it will enable the departments of supply and logistics to monitor the flow of activities in the organization. Lambert et al. (1998, pg. 10-14) explains that when you look at the marketing mix, you find that logistic takes part in contributing to a successful marketing mix, for example, the place as an aspect of the four Ps, this is where logistics take place by ensuring the product reaches the consumers at the right place and at the right time. The purpose of this essay is to highlight the inter-relationship between marketing mix and procurement. It was recently discovered that procurement was the most important department in any organization for a long time ago; organizations did not well appreciate the contribution of procurement to the success of the company. Harrison and van Hoek (2005, pg. 20) depicts that in today’s organization’s procurement has been proven to play an important role in ensuring a smooth flow of activities and information in and out of the organization. This comes as a fact that due to the competitive environment globally, and the increase in prices of supplies for highly demanded commodities, procurement has enabled organizations to strategize on how to look for mitigation of the risks that accompany market related issues. When we look at the case study f business refined limited, we can depict some issues that affect procurement and are reviewed below. Failure of recognition by the organization; this is challenging that most procurement managers have in their organizations. Ross (2011, pg 23-25) states that the procurement department is always underestimated, even though it is the most contributor of success in the business. It is clearly stated in the refined business limited that the needed procurement manager has to work towards a dramatic change in the procurement department. This is crystal clear that the company has been neglecting the contributions of this sector and, therefore, due to the changes in a competitive environment, the company would wish to see a change in the purchasing and procurement sector. According to further research on the issue of recognition, studies reveal that there are a huge gap between other departments in the company and the procurement department, such that it has always been subdued because it is believed to contribute at the bottom line of the business. The risks facing the company; risks facing the company have always been associated with failure of purchasing and procurement. This occurs due to the fact that procurement is regarded as the bottom-line of the company and; therefore, all the company operations are based at procurement and purchasing department. From the case study of refined business, it is clear that all operation of expenditure of raw materials and also the supply and production fall under the procurement unit. The refined business does not consider aspects such as recession, risks associated with vagaries of nature and other risks as coping with the volatility of price change. All these risks have the procurement and purchasing sector accountable, therefore; this issue affects the department. Technology issues; due to changes in technology, there have been issues concerning the adoption of methods. Many organizations are facing challenges when it comes to changing their technological equipments. Therefore, there is an issue reorganizing the flow of activities in order to match with the changing technology. This will involve the use of social media technology, which will enable the procurement experts to be updated in running the development in the company by interacting globally with other suppliers. This will force the procurement managers to change their ways of decision making and widely depend on the research from the internet and also use technology to predict the future conditions of supply chains. Refined business will be under the pressure of changes in technology, for example, it is evident that they depend on the old system of decision making considering the fact that they supply parts of vehicles that are outdated. Development of other related roles for procurement unit is a challenge; due to the roles played by procurement in ensuring the success of the company. The department faces the challenge of incorporating new emerging roles that require more knowledge and skills to handle. This is an issue that has forced companies to search for other procurement experts who have the competence to handle these technology integrated roles. When you take a glance at the requirements for application of procurement job, you find that they require experts who are highly qualified and are willing to perform all the roles such as establishing policies and procedures to ensure control of supply, ensure the process of supply delivers a sustainable competitive advantage through contracting, conducting research on appropriate decision making and ensure execution of strategies among other roles. This issue has raised concern in companies because they want to change their styles of procurement roles (Harrison & Van, 2005.pg 89). 3.0 Kraljik Procurement Model The model has been used to describe the flow of procurement activities and ensure those activities interlink together and form a chain of supply. The model describes all the steps in leverage products, strategic products, routine products and bottleneck products The purpose of the model is to help us understand the roles of the ten strategic suppliers who contribute to eighty percent of the expenditure of refined business limited. It is a tool that is used to analyze two important dimensions of procurement. They are; impact on profit, this dimension is analyzed by the procurement by assessing the value of the products purchased, the impact associated with supply and the potential of growth in business. The second dimension is the risks associated with supply, these analyses the availability of the product, the factors associated with switching suppliers, ease of accessing substitutes and the number of suppliers. According to Barney (1991, pg.121) in Refined Business Limited, the model outlines the importance of the suppliers because it explains how the company will integrate the activities of the supply and those of profit making. It also provides the approach the company will take in managing the supply relationship and also helps to understand the categories of values attached with the chosen supplier. This will enable the company to determine the number of resources to allocate to every segment of the supplier. 3.1 Leverage products As per the model the leverage products consist of factors such as impacts of high profits, risks of low supply, price factors and the competition. Leverage products, therefore, define how the company will cope with these factors in order to ensure a smooth flow of procurement operations. When the companies assess the leverage products, it will be able to exploit its purchasing power by organizing for tenders whereby the suppliers will ensure the flow of supply through signing fro tender. Another aspect the company will benefit from assessing the leverage will be an opportunity to target the price and substitution of the product, this will enable Refined Business limited to being able to predict the price changes and the rate at which the customers will go for the substitutes and, therefore, plan and develop strategies to absorb supply shocks. 3.2 Strategic products This aspect stipulates how the company should focus on how to maintain a good relationship with their future partners. This is explained by the model when we look at the factors that result from strategic products. The company will, therefore, be able to experience high profits due to the strong relationship with the partners; they will also experience risks of supply if there is a bad relationship. Also, the factors depict how the company will have the opportunity of long term contractual agreements with the strategic partners, and this will expose the company to executive transparency. The above factors are helpful to Refined Limited because the procurement sector will improve. 3.3 Bottleneck products The company will be able to learn about handling process whereby the model explains how to handle issues related with insurance, controlling the vendor, controlling and securing inventories and keeping backups of all the inflow and outflow records. This process will enable the company to be able to absorb impacts of low profits, risks of supply and the difficulties of finding sources of supply. 3.4 Routine products The routine products are those that are not critical and cause an impact in the company. Therefore, it is important for Refined Limited to implement optimization of inventory and also ensure that products are standardized. This will enable the company to perform other non routine product procurement without wasting time considering the routine and non-critical ones. 4.0 Service support centre (SSC) Service relationship occurs when there is interaction between the organization and the people who are within and outside the business. The service support centre exists when there is a good relationship between the organization and the customers or clients. In the case of Refined Limited, there is a difficulty in attaining the required percentage of service support centre because of high client demand. The first progress towards ensuring attainment of service support centre is adopting the use of electronic marketing. This is where the company will use internet services in ensuring connection between the suppliers and the company procurement department, and also connection between the company supply and the clients. This will be done through deploying forms of website services like payments for services and goods shipment. These are services that are applicable to online business, and will, therefore, improve the efficiency of the service support centre. The second progress to be implemented in procurement service is to use online customer service provision. This is where the clients will have all the information on the internet concerning the supplies and purchasing of company’s products. Those interested suppliers will apply for tenders and those buyers who will wish to buy in bulk from the company will also apply online. The purpose of this is to reduce the congestion of clients in the company, and also it will save time, for example, from having to employ many customer care service providers who will provide information to the clients (Andraski & Novak. 1996, pg 67). 5.0 Evaluation of existing suppliers Since the Refined Limited did not provide the ten strategic suppliers, I will, therefore, develop a new tendering process that will enable the company to establish new suppliers. Kreljic model, on the other hand, has provided a clear summary on how to evaluate suppliers; therefore, I will use the model in the evaluation of the new suppliers. Lysons and Farrington (2012) depicts that the evaluation will involve determining the profit they will impact on the company as well as the supply risks they are going to cause in the company. Evaluating the supplies is essential for the overall performance of the procurement department because it will determine the success of the company. Step 1.determining the tender; I will inform the organizations that are requesting for the tender to determine the tender they wish to apply for and also the contents of the tendering process. These organizations have to provide the projected supply for the next few years so as to avoid supply risks Step 2. Preparing for tender request; this is information that the organization which will want to apply for tender will provide. They will state the type of tenders, the contracts that will be required and also the expectations of my response towards their proposal. Stating the type of tenders will help the company to analyze the most available tenders and those that are scarce so as to plan on how to ensure enough supply on both the scarcest and most available ones. Step 3. Invitation for tender; this will be determined by the type of business and in this case it is the Refined Business Limited. After going through the applications from the request, invitation for the tender will follow whereby the organizations that applied are invited for the tender, determining the type of business and the tender required. Step 4. Response from the suppliers; this is an important part in the tendering process because the suppliers will have the opportunity to present their request in the form of supply. This step involves attending briefing sessions on the tenders that should be supplied, clarification of uncertain issues in the supply, responding to the organization about supply’s ability. Step 5. selecting and evaluating the tenders; after all the tenders have submitted their interests, I will select and evaluate each tender for the purposes of compliance .if all the tenders are compliant, I will follow the next criteria of checking whether the tender aligns with the ones specified in the document. I will therefore compare the tenders that state the appropriate negotiation in terms of money and pick the best Step 6. Notification step; this is where upon selecting the best tender, I will notify them on the how to document the projected outcome since they won the contract. They will, therefore, be required to attend debriefing sessions to guide them on how to go about contract business with our company. Step 7. establishment and managing of contracts; I will conduct a brief meeting with the successful tender and engage in formal agreements on how to establish and manage their contracts. This will help the company to always have a follow up on the tenders and ensure they follow the terms of the contract. 6.0 Decision making In every organization, the decision making process in all the aspects is a complex scenario, and it requires skills competence and the courage to make the right decision. Since an organization cannot achieve an end-to end supply chain, it is, therefore, advisable that the refined business should collaborate and establish some partnership that will offer different value chains and will be willing to work together so that there is a mutual benefit (Randh 2005.pg 23) The decision making has to involve competent leaders who are futuristic and have the experience regarding future situations and how to handle the present situations. As the managing director of Refined Limited, I would consider bringing more manufacturing component in the production facility because it will imply that the company will receive tenders and, therefore, improve their level of supplies to the clients. In doing this, the company will have achieved the strategy and strategic procurement policies by enabling the company to attain a unique collection of resources and hence possessing their characteristics which are; corporate architect, innovation of distinct products and maintaining the company reputation. 7.0 Conclusion The Refined Business Limited is, therefore, a company that deals with supply of parts of vehicles, it, therefore, has a quite range of supplies ranging from aluminum sheets, glass, seating and other components used to ensure completion of a vehicle. The company has to hire a qualified procurement manager who will lead the procurement and purchasing operations and ensure they align with the strategies. The manager will be responsible for developing strategies that will enable smooth flow of supplies in the company. 8.0 Recommendations I, therefore, recommend that Refined Business limited should adopt the use of technology in their procurement operations because it will facilitate quality decision making since the managers will be required to make decisions basing on internet research. This will enable the activities of procurement to be smooth and updated. The use of technology will also influence electronic marketing which will reduce costs of physical marketing and will improve services of center support. Therefore, this will be appropriate for a company to achieve higher success. The company should also focus on strategy and strategic procurement essentials which is very important for a company to understand the procurement strategies and, therefore, implement these strategies. It should also develop a design for purchasing so that all the procurement staff will be able to understand their roles and will work according to the design, this will ease the purchasing operations and steps. The company should also consider supplier relations which are the most contributor of the success in the company. As a manger, I would ensure there is stable relationship between the suppliers and the company which will help me in applying the theory of Kreljic Model in developing supplies evaluation. A relationship can be achieved through collaboration with the supplies by establishing policies and terms that are favorable to both parties. A company that has a good relationship with suppliers will be able to predict the profit impact of the supplies and also the risks that might occur. This will enable the company to always get ready to absorb supply shocks. 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