Procurement Strategy and a Process Improvement Overhaul for Lintott Ltd - Case Study Example

PROCUREMENT STRATEGY AND A PROCESS IMPROVEMENT OVERHAUL FOR LINTOTT LTD Introduction Procurement by simple definition is a buying process used to by clients to buy good, service or work. In procurement, tender has to be made unlike the normally cash payment businesses. The process will begin by the client advertising his need and expectation and let the people bid in a tendering process. The competition brought about by the bidding war will create transparency and accountability. The process needs high level of focus and determination to ensure accuracy and accountability is achieved. The process has three stakeholders which is the promoter, the engineer and the contractor. There are several reasons why a promoters or client may prefer the procurement process and the main aim is to: The project is completed at the right time; project is completed within the speculated time and the surety that the project will achieve the desired quality. To avoid worry and uncertainty, the process managers should update and be clear about their plan and how to achieve it and by clearly defining the person liable for the project risk. Procurement strategy is skillful plans laid down by the procurement strategist to ensure the process achieve the best result possible (Cigala,F & Mattios,G 2014). Procurement improvement plan should target six key components namely: Business unit data, economic data, corporate fanatical data, spend forecast and the earning and impact budget. The business unit should strategize a plan that handle budget and capital project in a well mapped out in economic region interest and analyze the tax flow and the earning to ensure the input are well managed before embarking on outputs such as cash flow saving and forecast, cost of procurement control, efficiency and quality and finally the impact of capital earnings. An effective procurement plan or strategy is prepared by a person who understands the where the procurement is at the moment, identify what is important, able to define success by creation of measure targets which when implemented success can be predicted from (Dearborn & Evance, 2013). For example, if the strategic objective of Linttot Ltd is to promote the delivery of value through good procurement practices and relationship building, then the action plan should be execution of proper procurement policy, review of expenditures and strict adherence to procurement procedures (APUC, 2010).The management of Linttot Ltd by engaging with suppliers and ensuring they understand the sustainability objective ,encourage and influence the suppliers to adopt environmental friendly goods and services, ensure that the procurement process match the risk involved and finally ensuring that suppliers are updated on coming tendering. SUPPLIER MANAGEMENT To successfully manage the suppliers, the management need to: Measure and shape supplier how suppliers performance, consult suppliers at the design stage, create dialogue with the suppliers, source for skill personnel and develop good knowledge of suppliers. Suppliers are categorized into four main groups namely: Manufacturers: They normally sell at a lower price and the purchase is made directly through the company sale representative or an independent salesman handling wares of several companies. Distributors: They have different names like wholesalers, brokers or jobbers. They purchase their wares from the available several manufacturers and keep the stock in warehouse for sale. The company enjoys such suppliers since they can supply small orders. The cost might be high but the company enjoys quick delivery and lower freight bill. Independent craft people: Such people’s sale unique wares either through assigned agents or during trade shows. Import source: These are suppliers located across the border and they transfer goods on order depending on the terms of agreement. In a company like Lintott Ltd, the suppliers list are grouped alphabetically depending on the name of the source company to give relatively quick reference when urgent order is being placed. Normally the supplies can be categorized as follows depending on nature: Blacklist, grey list and white list. The suppliers in the black list are very frequent misbehavers who need thorough check up on their supplies, grey list are averagely error prone while the white list make very few mistake or never make at all. SME PROCUREMENT BEST PRACTISES Procurement issues are complicated and competitive; therefore various small and medium enterprises codes of conduct can be put in place to ensure they remain competitive. Such codes are: Size of contract difficulties: Solved by dividing the contract into subcontracts and lots. To group together in same agreement same economic operators, Making sub contracting visible and equal in terms to subcontractors and allowing access to relevant information. Access to relevant information: This is achieved though online investment, allowing e-procurement, having a personal assistant and giving tender feedback. Improving quality and understanding the information all information procedures: this is tough to achieve through guiding and training and advising contracting authorities, using SME on drawing tender. Setting well balanced tender qualification and considerate financial requirement : Ensuring proportionate qualification need in both economic and financial terms to give room for technical proficiency. Relaxing administrative burden. Emphasizing on the value of the money instead of price: This is to ensure quality of work output rather than favouring economically powerful suppliers. Giving enough tender drawing time On time payments. Source: Euro Proc (2011) Therefore Lintotts should follow the following codes of best practices since they are strategies used in public tendering process to give SME access to public contracts. And to ensure that the company maintains and have good relationship with the suppliers, Lintotts should ensure that: 1. Conducting market and risk exposure analysis within defined supplier’s strategies. 2. Rationalized supply base and consolidated contracts 3. Establishing long term relationships with its best suppliers. 4. Helping key suppliers improve in quality, cost and performance. 5. Integrating key suppliers into the organization Source (Chenoweth..,et al, 2012) Total quality management focuses on the company achieving the best which is customer’s satisfaction through providing quality goods or services at the correct price. Therefore companies should obtain their suppliers from competent suppliers at a relatively good cost to ensure cost of production is considerate. The standard procurement procedure that is common to all procuring companies is: identification of what they require, determine the procurement method, planning and strategy development, procurement requisition processing, site meeting, bid proposal and opening, Bid proposal evaluation, recommendation for the contract award, contract negotiation and finally contact signing (Lynch,2014). COMPETITIVE ADVANTAGE AND IMPROVEMENT IDENTIFICATION MODEL Competitive advantage is the position enjoyed by a company that does well in the market more than its competitors. This is normally achieved by ensuring quality over affordable cost. Company involvement in quality ventures that are sustainable can increase their profitability and growth. To achieve such a milestone companies need continuous improvement strategies that raise the competence of its worked and output quality (Ehmke, 2008). Such competitive advantage is achieved by: Assigning competitive employee in the management team, strategic marketing, being energetic and persistent in all we do, quality product production, negotiation skills development, good procurement system, ideal location and ability to continually produce new product. Lintott Ltd can use Kraljic matrix to improve the management through focusing on purchasing and tendering process to gain quality services at reliable cost. The system brake down the whole concept into: purchase management, material management, sourcing management and supply management. This will lighten the management analysis and make it easy to draw strategies and point out areas which need continuous improvement. The model will help the Lintott company categorize the supply into: Leverage items: This is items that bring in the most profit but their supply is reliable and less costly due to present suppliers. Strategic items: Items crucial and important to the buyer. Characterized by high supply risk ue to their scarcity nature. Non critical items: They are product that is easy to buy and have relatively low financial impact. Bottleneck items: Their delivery is unreliable and can only be acquired from one supplier. Therefore the company should look at keeping an extra stock of such items. Therefore the Kraljic Model can be competent in decision making on purchasing balancing hence ensuring stable supply, expenditure balancing and management focus decision ( Fenson, C & Edin,P, 2008). SUSTAINABLE STRATEGIC DEVELOPMENT The sustainability process is continuous and need day to day follow up through proactive and active learning process. Linttot limited management must always source for better market and supplier resource through stable research and relationship building. The company should advice supply clients on the expectation and the new requirement of environmental friendly techniques that they should adopt. Therefore the areas that the Lintott Company can improve on are: Supplier company relationship, supplier notification of the expected standard of quality and operation and the inventory system that ensure sort procurement life cycle. The company can therefore expand its market all over the world across the cultural divide (Guide of Agencies, 2010). PROCUREMENT DECISION MAKING Procurement is long cyclic process that need well thought of ideas before any decision is arrived at. The company need policy framework that together with the procurement law will guide their decision process. The decision maker should have clear knowledge of the company goals, objectives and the strategic plans that give the direction of the company ambitions. The same person should be able to use more informed mind to make decisions at the same time have a better understanding of the procurement process. A good procurement decision should give consideration to: the cost of the decision taken on the company performance, supplier performance and relationship in regard to the quality of service it offers and finally the innovativeness which had not been made before. Such decision should be: Driven by motive to achieve results Transparency To derive the best quality of service or good. Need to reduce the burden experienced by the management during low down. Ensure simplified and transaction techniques. Encourage open and free competition Ensure the appropriate law (regulation and legislation) are used. The company management can uses techniques such as SWOT analysis to make decisions by looking at the process to make decision on, weigh the strength and weaknesses verses the opportunity and strength that the company will experience (Zopounidis C & Doumpos M, 2002). CONCLUSION Procurement is an import component in the company management and its performance determine the profitability of the company. The increase in technology has made the process faster and convenient but companies like Lintott have to raise their game to match the market competition. Therefore strategies have to be thought of, drawn and executed to shape up the procurement process through a channel that make it better as days go by. The diversity of the company operation make it complex and well thought of decisions need to be made to ensure successful supply chain management .However areas that are badly performing may need overhaul as new strategies are implemented and put into function. It is necessary that the company focus on its strength by exploiting its strong points to dominate the market and make its services well sort after by the competitive nature of the market. REFERENCES APUC (Advanced procurement strategies for the university and college) 2010. A guide to the Development Scottish college sector Chenoweth M E,Moore,N Y, Cox A G, Mele D J & Sollinger J M (2012).Best practices in Supplier relationship management and their early implementation in the Air force. material comand. United State Air force RAND Cigala,F & Mattios,G (2014). Why procurement in Asia-Pac needs overhaul. Singapore Business Times (INSIGHT), Retrieved 28/9/2014. http://www.bain.com/publications/articles/why-procurement-in-asia-pac-needs-overhaul- singapore-business-times.aspx Dearborn,G & Evance J (2013).Five steps to building successful procurement strategies SIG Webinar, Denali group Ehmke, M S(2008). Strategies for competitive advantage . Extentioner educator. University of Wycoming. Euro Proc (2011). Good practices guide. www.europroc .eu Retrieved 28/9/2014. Fenson,C & Edin,P ( 2008).How purchasing practitioners use the Kraljic matrix.Stockholm school of Economics. Guide of Agencies, 2010. Guide 3 to sustainable procurement evaluate and select suppliers https://www.business.govt.nz/procurement/pdf-library/agencies/Guide3.pdf Retrieved 28/9/2014. Lynch J (2014). Steps in procurement process. http://www.procurementclassroom.com/steps-in- the-public-procurement-process/. Retrieved 28/9/2014. Zopounidis C & Doumpos M ( 2002). Multi-criteria decision aid in financial decision making. Journal of multi-critiria decision analysis. http://onlinelibrary.wiley.com/doi/10.1002/mcda.333/pdf Read More