Procurement Management and Developing Partnership - Case Study Example

PROCUREMENT MANAGEMENT Student’s Name: ID Number: Lecturer: Date: Introduction Appropriate organizational procedures should be put in place so that services of high quality can be obtained. Appropriate procedures help a firm to ensure that there are important strategic processes that facilitate manipulation of resources to become value creating strategies (Booth 2010, p.34). Since knowledge is difficult to imitate, the only successful way of ensuring that valuable services are purchased is through hiring of competent logistics companies or ensuring that the organization has skilled procurement managers who are able to evaluate the value of services before using them in business (Butter 2007, p. 78). The process of selecting the service provider Identification Before deciding on the best supplier of your company, it good to understand the specific services that should be outsourced (Wuhnis 2010, pg 119). Whilst Stone Wool Pty Ltd is looking for a service provider wo can be able to perform organization and transportation of resources. Having evaluated its contract with Logic Pty Ltd as financially unsound, the company has to start by identifying new service provider. This involves selecting a few suppliers in order to be able to assess their capabilities as well as comparing their prices. The supplier selection team should consider working with all potential suppliers to establish specifications (Bloomberg,LeMay& Hanna 2002, pg. 97). The needs of Whilst Stone Wool Pty Ltd is to have good organization and transportation services with a good financial agreement so that the whole process can remain economical unlike the one with Logic Pty Ltd. The key things to be considered here are: customer service, reliability and responsiveness, delivery commitments and resource saving. Measuring performance Another important step is to develop an audit and assessment program. Before signing a contract with a new service provider, Whilst Stone Wool Pty Ltd should understand how supplier has been offering previous services. In this step, the company will be able to understand the weaknesses and the strengths of the selected supplier before the relationship between the two becomes official. Gaining service provider feedback Feedback from organization and transportation provider helps to understand how it understands its operations and also to identify performance gaps (KucÌŒan&KraljicÌŒ 2001, pg. 156). In addition to audit and assessment, the company should also consider monitoring the informative metrics that are able to direct value to the business. Such beneficial metrics include reduced cost of transportation and warehousing services. Logic Pty Ltd offered high quality services but they cost of their services rendered the contract between the two companies unsound. In the new selection, Whilst Stone Wool Pty Ltd should evaluate feedback from the potential service providers to ensure a sound financial relationship (Dlantus 2006, 114). Achieving certification As the relationship between Whilst Stone Wool Pty Ltd and the potential service providers grow strong, it becomes easy negotiate on significant issues. The service provider wo develops the strongest relationship can easily understand the line of business of Whilst Stone Wool Pty Ltd and therefore, the integration between the two companies will enhance certification of the service provider (Dunstrus2007, pg. 115). Developing partnership The manufacturer/supplier relationship is always at its best when the two forms a strategic partnership which allows a full understanding of the sources materials for the manufacturing company (Schuh 2012, pg. 217). With a strong partnership in business, the service provider is able to anticipate the time to transport goods, organize for the required services in time, notify the manufacturer if any problem occurs when transporting goods, and the manufacturer is able to communicate production delays when there are maintenance services that are required (Dimitri, Piga&Spagnolo 2006, pg. 113). Since Whilst Stone Wool Pty Ltd is interested of having the best and affordable transportation and organization services, it should select a company that will enhance development of good business partnership to avoid inconveniences in the manufacturing process. Ensuring quality for customers Company frequency of demand for material for the production determines the required availability of the supplier and the transportation services to be offered within a given period of time (Balachandran 2004, pg. 212). In selecting a service provider, Whilst Stone Wool Pty Ltd should consider the benefits that accrue to the services offered other than material quality. This involves the satisfaction of the end-users. Delayed production reduces the confidence of the customers in the company’s services. Therefore, the resources that are required for manufacturing should be available within the required time. Whilst Stone Wool Pty Ltd should be able to select a reliable service provider who will organize and transport products in time. Statement of Work Whilst Stone Wool Pty Ltd requires quality logistics services apart from the current services that it is receiving. The company considers its current contract as financially unsound and therefore, it is selecting a new service provider to carry out the following services: Quality control services: The service provider should always ensure that the quality of goods that are in transit is maintained and that no damage occurs Warehousing: Products that are produced by Whilst Stone Wool Pty Ltd cannot be distributed to all the customers at the same time. The company therefore requires a service provider who can be able to offer warehousing services Border dispatch services: the service provider should also be able to offer services in regard to products that are supposed to be traded across the borders. This involves dispatching the goods for distribution in other regions. Distribution: logistic services also includes offering distribution assistance to all the stores of the company and also to the customers where needed. Shipping agency: apart from dispatching products across the boarder,the service provider will also be required to offer shipping agency in order to reach customers outside the country In-process inventory management: all the stock of Whilst Stone Wool Pty Ltd should be maintained in good condition (California 2007, pg. 111). The selected service provider is supposed to ensure that between the time of production and the time products reaches the end-user, the products are well managed to prevent losses. Planning: The service provider shoulder help Whilst Stone Wool Pty Ltd in planning to ensure timely production and delivery to the customers Controlling movement of materials: to avoid mismanagement of materials for production, the service provider should ensure that they control all movements of the materials from the source until they reach the required destination Transportation: Logistic service companies should help in ensuring that the cost of transportation is economical, and may also offer the transportation services to enhance efficiency. Customer delivery: the service provider is also supposed to ensure that goods demanded by customers are delivered without delay especially where the customer had not given a previous notice on the demand. Contract performance measures Having healthy profit margins is always important to any company. Companies with well maintained profit margins continue improving the quality of their services. However, monitoring the bottom line of the performance of the company’s contractors is one of the critical issues that have led many companies into persistent loss making (Biddle, 2008, pg. 65). To avoid this challenge in Whilst Stone Wool Pty Ltd, the following performance measures can be followed: Defining the goals: the goals of the contract between the service provide and the companies should be made clear to the two parties (Dertouzos& Garber 2008, pg. 149). These are considered to be the measures to success in any contract that is signed between two parties because the contractor is expected to work towards the goals. Collecting and organizing data: involves developing a process of tracking and reporting the relevant information concerning the services offered by the contractor. This process should ensure that the services that are required by the company are being met by the selected service provider. Comparing the contractor’s services with other service providers market: in this process, Whilst Stone Wool Pty Ltd can evaluate annual reports of the competitors. Logistic services are meant to reduce the costs of procuring in a company. By comparing other companies’ procurement will enable Whilst Stone Wool Pty Ltd to know the benefits of contracting a new service provider. Customer retention: retaining customers enhances survival of the business. Timely distributionand delivery of company products helps to retain the customers (Hayes 2009, pg. 217). If the service provider is able to retain customers and get new ones, it is an indicator of good performance. However, failing to retain the customers means that the services provided are not quality. Kraljic Model This model tries to help purchasers to assess risks and maximize their profits. The model was created in 1983 by Peter Kraljic and its purpose is to enhance maximization of supply security while at the same time reducing costs (Bentrus 2005, p. 48). The model segments suppliers into different categories using the Kriljic diagram as shown below: Leverage items Strategic items Routine items Bottleneck items Strategic items: these items have high risk impact and high supply risk. They require more attention from the procuring managers (Margulis&Yoshpe 2009, p.234). Leverage items: these are items with high profit impact and low supply risk. Bottleneck items: they have low profit impact and a high supply risk. Routine items: these items have low profit impact as well as low supply risk. According to the model, the services provided by Logic Pty Ltd can be categorized in the leverage items category (Piga, 2009, p. 56). The company is not willing to move on with the supplier and this shows the unreliability of the products being supplied. Therefore, the company may consider substituting the supplier or the products that are being supplied by the vendor. Procuring of services is a process in which the buyer identifies, evaluates and obtains different types of services which are significant for the business operations (Peagus 2008, p.57). This process is commonly conducted by use of in-house resources, although some companies may also use procurement services in order to locate and contract their desired services. On the other hand, the procurement of products is the process of identifying and evaluating the goods that a company needs in order to continue with its business operations (Younis, Turner &Tiwari 2013,p.79). The process involves utilizing the procurement managers who analyze the store records and identifies the products that have reached the reorder level. Conclusion The interest of Whilst Stone Wool Pty Ltd is to procure services from an economical service provider after considering its current contract financially unsound. There are major steps that the company will follow in order to enter into an agreement with the best service provider. After selecting he best company, the company should ensure that the services that are provided are quality and that they can be able to retain the customers. Performance measures of the contractor include gathering data concerning the services delivered, assessing customer retention rate, comparing services from other contractors and evaluating whether the contractor is working towards the goals of the company. References Balachandran, S. (2004).Customer-driven services management (2nd ed.). New Delhi: Response Books ;. Bloomberg, D. J., LeMay, S. A., & Hanna, J. B. (2002). Logistics. Upper Saddle River, N.J.: Prentice Hall. Bentrus, K. (2005) Application of the kraljic strategic sourcing model in the petroleum industry supply chain. New York: National Academies Press. Biddle, G. C. (2008). Accounting Methods and Management Decisions: The Case of Procurement Cost and Inventory Policy. Journal of Accounting Research, 18, 235. Booth, C. (2010). Strategic procurement organizing suppliers and supply chains for competitive advantage. London: Kogan Page. Butter, F. d. (2007).Procurement. Amsterdam [etc.: Tinbergen Institute ;. California, B. (2007). Summary statement of work: study of transportation control programs. Washington, D.C.?: National Commission on Air Quality. Dertouzos, J. N., & Garber, S. (2008). Performance evaluation and Army recruiting. Santa Monica, CA: Rand Arroyo Center. Dimitri, N., Piga, G., &Spagnolo, G. (2006).Handbook of procurement. Cambridge, UK: Cambridge University Press. Dlantus, L. 2006) Good procurement practice (GPP).Canberra: Dept. of Finance and Administration. Dunstrus, K., 2007. Integrity in public procurement good practice from A to Z.. Paris: OECD. Hayes, S. R. (2009). Performance measures and standards for quality services. Research Triangle Park, NC: U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards. KucÌŒan, M., &KraljicÌŒ, P. (2001).Competitiveness of companies in Central and Eastern Europe.Bled: IEDC - Bled School of Management. Margulis, H. J., &Yoshpe, H. B. (2009).Procurement. Washington: Dept. of Defense, Industrial College of the Armed Forces. Piga, G. (2009). The applied law and economics of public procurement. North Ryde, N.S.W.: National Bureau of Economic Research. Peagus, J. (2008).Procurement of goods or works Standard Bid Evaluation Form. Washington, D.C.: Procurement Policy and Coordination Unit, Operations Policy Dept., World Bank. Schuh, C. (2012). The purchasing chessboard 64 methods to reduce costs and increase value with suppliers (2nd ed.). New York, NY: Springer-Verlag New York. Wuhnis, P. (2010). Supply Chain Management Best Practices. (2010). New York: National Bureau of Economic Research. Younis, K., Turner, C., &Tiwari, A. (2013). Inventory reduction and management: a partner selection and inventory reduction study. International Journal of Integrated Supply Management, 8(4), 210. Read More