Strategic Sourcing and E-Procurement at King Faisal Specialist Hospital - Essay Example

Supervisor Strategic Sourcing and E-Procurement currently is at King Faisal Specialist Hospital and Research Center March 2009 TABLE OF CONTENTS 1.0 Introduction 1.1 Overview of Sourcing and e-procurement Management Problem of KFSHRC 1.2 Solving the Problem of Sourcing and e-procurement Quality Management 1.3 Solving the Problem of Supplier evaluation and Selection 1.4 Solving the Problem of Purchasing and sourcing knowledge management 1.5 Developing World Wide Sourcing Strategies 1.6 Managing Existing Suppliers and Suppliers Development 1.7 Negotiations 1.8 Contract Management 1.9 Sourcing and e-procurement information system for Procurement 1.10 Performance Management System and Evaluation 2.0 Conclusion and the Way Forward Executive Summary King Faisal Specialist Hospital and Research centre opened it doors with about 12beds with the purpose of improving the practice of patient care and advancing clinical standards. Of late, it has been facing serious supplier and e-procurement management problems. This report focuses on the poor management issues in KFSHRC supply and e-procurement management. The report starts by demonstrating how poor sourcing and e-procurement management have a detrimental effect upon the performance of the KFSHRC Corporation. There after, the report addresses and draw the attention of top of how to reduce and remove the delays in the delivery procurements to the entire hospital that already purchased them. Thus, this study was initiated to investigate the application of sourcing and procurement management strategy in Boeing Company. The choice of Boeing is based on its strategic position in the aircraft manufacturing sector and the series of problems it faces of late. Using, appropriate theoretical framework, deduced from the work of previous researchers, the company was diagnosed, and the supply chain and suppliers relationship mapped out. Porters value chain framework also help us develop some feedback and the way forward where some value drivers, core competences and competitive advantage were identified. Our recommendation is for KFSHRC to have suppliers dotted all over the areas and the need to link them through a common data base was emphasized. The report of calls on top management to successfully adjust Porters value chain to suit its need. Our recommendation is for customers and suppliers to be effectively integrated into the value chain, where consumers become Pro-sumers and suppliers are turned into consumers. The existing relationship with partners, suppliers, and customers should be turned in to a long term collaboration relationship. KFSHRC should integrate its logistics, procurement, operations, and marketing functions with other supply chain members so that materials, information, component parts, and finished product flow seamlessly from point of origin to final customer at low unit cost and at high levels of service (Christopher 1992). 1.0 Introduction Sourcing and e-procurement is a strategic tool employed by present day business to efficiently integrate suppliers, manufacturers, warehouses, and customers so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time in order to minimize system wide costs while satisfying service-level requirements ( Cheng, Lai & Gunasekaran 2006). In the 90s, Sourcing and e-procurement gained momentum and received due attention from practitioners and researchers. It has become present day managerial competitive weapon for improving performance (Ramsay 2000). To minimize wastages and meet up with customers demand. Today, to reduced lead time, goods must be stored in a warehouse at the right quantity and within the right time. Customers and suppliers are important stakeholders. "Stakeholders are those individual or groups who depend on the organisation to fulfill their own goals and on whom, in turn, the organisation depends" (Johnson et al 2005:179) Many corporate mission statements set customers as the focus of an organisation's business activities, and key thinkers have defined the quality of goods and services with reference to how well they satisfy needs and expectations of the customer base. At the other end, some companies are paying performance premiums. These are companies that have failed to realize the strategic importance of their supply management processes. Such companies are victims of their actions as they have unintentionally set up conflicting objectives between engineering, marketing, purchasing and manufacturing that form barriers to good supply management (David and John1993P.1). In the battle for survival, some companies have successfully tackled their problems and are starting to recover, while others have not succeeded and have either disappeared-being taken over by another company or are fighting what may be their last battle (Canals 2000, p.2). Is this the present situation of KFSHRC' Against this background, this report is aim at developing a responsive supply chain management strategy following the series of supply chain management problems the Boeing Company is facing of late. The remaining parts of this report will be structured as follow. The first section of the report presents an overview of supply chain management problems facing Boeing company, section two of the paper uses certain guidelines provided in the case to develop feasible solutions to get the company back in to the right path. The last section of the report now focuses on conclusion. 1.1 Overview of KFSHRC' sourcing Management Problem KFSH&RC today is an 894-bed multi facility, multi entity tertiary care hospital and one of the leading care hospital in the Kingdom of Saudi Arabia. Sourcing and e-procurement management today is at the centre of the institutional activities since the is no room for delays. The institution have to source its personnel's, it logistics, maintenance and other supplies from hundred of other institutions. To be successful, it is but normal that an e-procurement and an electronic data interchange is maintained with other institution. The sourcing problems KFSH&RC' currently face is not new in its kind. Having supplies on time and at the required quantity demands strategic sourcing and e-procurement management. KFSHRC'problems include suppliers delay in supply, a break down in responsible supply management, absent of reputable suppliers, organ donor and suppliers etc. The problems have persisted until today, management have not arrived at a definite schedule of delivery and monthly production with suppliers. Other problems include parts shortages and logistics problems have forced KFSH&RC' to delay some of it activities. 1.2 Solving the Problem of Supplier Quality Management Planning for the future is an important strategic decision for any organisation if it has to cope with the pressure of competition and expansion. Strategic choices mean finding alternatives solutions to the problems faced by the business unit. The problem of supplier quality management requires seeking solution to customer's loyalty, creation of long-term relationship with suppliers and stakeholders, collaboration with other dealers and not competition, creating an organizational structure and developing operational procedures. KFSHRC' Company has come to a deadlock when it comes to launching its 787 aircraft as initially planned. It has thus become necessary for the company to adopt a strategy that fits well with the present circumstances. By creating a vertical relationship with suppliers, retailers and customers, retailers are prevented from selling competitive product. John (1991) refers to this as a key element in present day business strategy. However, such a vertical relationship must be developed with Just in time production methods and continuous improvement. As a solution to its supplier quality management, KFSHRC' should benchmark against the best performers across the industry, and built a network of collaborative partners. This could be facilitated with an Electronic data interphase, through which suppliers become responsive in just in time and continuous improvement. 1.1.3 Solving the Problem of Supplier evaluation and Selection In selecting and evaluating suppliers, KFSHRC' Company should seek suppliers who value and leverage technology to create business advantage. This should be based on mutual trust, merit and more importantly how the suppliers will benefit their customers and not the company. Suppliers rating systems that are easy to understand and give immediate feedback to suppliers should be installed to encourage competition amongst suppliers Karimi et al., 2007. It should be used as a tool for improvement not to pernalise, for best practice suggests that companies should make great effort to avoid duplication of activities between their suppliers (Cheng, Lai & Gunasekaran 2006, and Ramsay 2000). Karimi et al., (2007) argue that, procurement encompasses a broader scope of the supply chain as it includes not only the scheduling, but also the crude selection and purchase decision-making. Cheng, Lai, & Gunasekaran (2006) echo that, today the challenges for companies is not just providing high quality product but the ability to provide these products at a lower cost, price and time. Emphasis should be placed on these features when selecting suppliers. 1.4 Solving the Problem of Purchasing and sourcing knowledge management At KFSHRC', poor supply management and purchasing is responsible for the series of delays that have caused the company much money. According to Ramsay (2006:1) the relationship between a buyer and a supplier can be defined as "an ongoing relationship between two organizations' which involves a commitment over an extended time period and a mutual sharing of interest and a reward of the relationship". The merits involve in such a partnership has been generally argued by a handful of researchers to include:- reduction in uncertainty, managed dependence, exchange efficiency, social satisfaction, economies of scale & scope, cost reduction and as a strategy to bid out competition (Qiao et al., 2006, Ramsay 2006, Cheng and Gunasekaran 2006, Ford 2006). No wonder many observers have been pushed into recognising long-term relationship management as management best practices. Also as a means of solving this problem raised at the case, a system for translating Customer requirements, marketing requirements, quality requirements and engineering requirement at every stage from research through product design and development should be the foundation for new product. KFSHRC' Company should know that, a company is a company is a net work of activities, maintaining these activities require maintaining a relationship with the various stakeholders in the value chain, creating a common vision in which everybody in the chain is a winner. 1.5 Developing World Wide Sourcing Strategies Qiao et al., (2003) contend that, there are two generic ways through which buyers and suppliers can work together. These are arms-length and collaborative. An arms length of working is a relationship defined between a buyer and seller which can be a one off event. Interaction between the parties is not in a continuous process. That is a low level contact is maintained. According to Qiao et al., (2003) initiative geared towards cost reductions will be absent. The only interaction is the exchange of information (e.g. invoice terms and delivery) necessary for the exchange to take place. On the other hand, collaborative form of working involves more interaction (e.g. close monitoring, exchange of resources, cost and forecasting information) as both buyers and suppliers can significantly invest time and resources towards the activities, with priority geared towards reducing cost and improving product functionality (Qiao et al., 2003). The researchers went further to postulate that previous research failed to see any of the two forms of relationship as a "continuum" that can fall anywhere along the line. The management of KFSHRC' company to boost its current world wide sourcing strategies, could institute an EDI systems through which suppliers could be sourced worldwide based on a suppliers rating system. This will encourage, competition amongst suppliers, facilitate on time delivery, reduced cost and defects and facilitate adjustment through just in time methods and continuous improvement. 1.6 Managing Existing Suppliers and Suppliers Development KFSHRC' company should seek suppliers who value and leverage technology to create business advantage. This should be based on mutual trust, merit and more importantly how the suppliers will benefit their customers and not the company. In-house and in system supplier's rating systems should be put in place for suppliers to be able to rate themselves. These systems should be systems that are easy to understand and give immediate feedback to suppliers. Attention should be driven by the need of the customers. KFSHRC' Company should consider it suppliers as strategic partners for to remain competitive in this line of business requires establishing a long term relationship with these strategic partners. No wonder, Jack. (2002p.1) argues that, "organisation that develops strong partnering with suppliers and customers will enjoy enormous returns for their courage and vision" (Jack. 2002p.1). Thus if best practice means overcoming uncertainty, this should form the bases for suppliers development. 1.7 Negotiations To back up the argument, Qiao et al., (2003) argue that, in a supposed relationship there is often one party to benefit from the surpluses accruing. These surpluses accrue when the cost of relationship is less than the benefits. Thus, the researchers refer to a consumer surplus where "the buyer" is the beneficiary and producer's surplus for a situation where "the supplier" is better off (Qiao et al., 2003). The above dimension of producer consumer surpluses can be examined from six different perspectives. These are highlighted below Adversarial arms length buyer dominance and independence Adversarial collaborative buyers dominance Non adversarial arms length (Interdependence) Non adversarial collaborative interdependence in UK public private partnership is and example Adversarial arms length suppliers dominance Adversarial collaborative supplier dominance In either of the above situation the surpluses is being earned by one of the parties. In an arms length with buyer's dominance and adversarial collaborative buyer's dominance the surplus goes to the buyer. In the last two situations with supplier dominance the surplus goes to the supplier while in a situation of non adversarial collaborative interdependence the surpluses are shared. In negotiating business with suppliers, KFSHRC' management should place emphasis on a win win situation. Certain features are taking into consideration when analyzing which of the parties has power or is dominant. From the suppliers perspective , scarcity of resources being offered, availability of substitute, threats of new entrants etc, while at the level of the buyer it is how strategically and operationally important the resources in question is to the company(Qiao et al., 2003). KFSHRC''s management failed to use this as the bases of negotiation with their suppliers. Here, goodwill and trust are fundamental to a successful relationship. These researchers further echo that one way will be for the buyer to try to increase, in conjunction with the supplier, the surplus value. 1.8 Contract Management As a sourcing strategy, "partnerships may be generally applicable to only a small number of very large companies. For the rest, although it may be useful with a minority of purchases and a very small selection of suppliers, it is a high-risk strategy that one might argue ought to be approached with extreme caution" (Ramsay1996:10). Ellram (1995) echo another position. The researcher argued that one of the potential shortcomings of previous research on partnering is that previous researchers consider partnering from the outside. This is so because from the researcher's findings, top management commitment, multiple levels of contact, personal relationships, communications and shared goals are the success factors, and where attention is paid on these factors partnering will be a success and as a way of best practices that facilitate contract management. For contract management to be successful, information sharing to improve product quality, facilitate more effectively new product development, operational linkages known as technical bonds, just in time, electronic data interchange, rapid logistics and in shared all norms and values should serve the foundation (Qiao et al., 2003, Ellram 1995, Ramsay 1996). Most of the researchers took the above position under the assumption that for a relationship to be successful it needed to be long term. 1.9 Sourcing and Procurement information system for Procurement At KFSHRC' Company, I will recommend the creation of a common electronic data interphase system to facilitate procurement from different suppliers and interactions with the company's management. Such a system will have a monitoring system to safeguard against just in time procurements and flow of resources. Such a system will encourage a smooth flow of resources and component parts, as stakeholders within the chain become more responsive and competitive. Such a system will become best practise which mean anything in a buyer-supplier kind of a relationship involves with "doing what is appropriate in a given situation" (Qiaol et al., 2003:2). However, what is clear here is management of KFSHRC' Company to avoid institutionalized practices that may create over dependence of one company to the other in such a way that one party reduces its own cost at the expense of the other party or failure at one end of the chain pushing the whole system to a halt (Ford 2006). Ford (2006) further argues that, the provision of a cross platform data exchange system which facilitate the formulation of customer driven supply chain network thereby enhancing the competitive edge of companies on a local and global basis is primary for today's competition. 1.10 Performance Management System and Evaluation In order to develop and keep the process feasible for its supply chain, the management of Boeing Company, must develop effective information and communication technology (ECT). Fit in an electronic data interchange (EDI). This technology will "process orders, track and trace progress and provide timely and real-time visibility (Christopher 1992). In order for Boeing Company to effectively develop ECT, they must first divide the supply and the demand, and subsequently integrate them together so as to not make them mutually exclusive, therein shoring up their issues with the supply chain. In the supply cycle, the information loop covers: forecasts buying purchase order and transactions Through this a self evaluation performance system will be created for suppliers, customers and employees. This system will encourage competition and pave the way for best practises. 2.0 Conclusion To conclude, the existing relationship with partners, suppliers, and customers is another area where cost and supply advantage could be sourced out. KFSHRC's management should thrive at integrating its logistics, procurement, operations, and marketing functions with other supply chain members so that materials, information, component parts, and finished product flow seamlessly from point of origin to final customer at low unit cost and at high levels of service (Christopher 1992). This is the point where, customers and suppliers become prosumers. Here, the cost of warehousing will be reduced. Also, reference should be paid to the following points and guidelines provided by McMullen & Adobor (2007) for developing successful supplier's partnership The need for integrating supplier diversity into business goals to build competitive advantage so as to avoid conflict of interest as much as possible; The importance of top management support; this is so because most relationship has fail due to lack of management support and champions to champion the idea; The necessity of building a supportive organizational culture and significant of relationship building, is a primary factor. References Canals, J. 2000. Managing Corporate Growth. Oxford University Press. Oxford, England Christopher, M. (1992), Logistics and Supply Chain Management: Strategies for Reducing Costs and Improving Services, Pitman, and London Bhote, K., (1987). Supply Management: How to Make US Suppliers Competitive, American Management Association, New York (1987). Cheng E, Lai K, Gunasekaran A., (2006). 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