Category: Procurement

Executive Summary

This report is a sourcing plan for McLaughlin and Harvey in its cement procurement strategy. Key sections of this document show that five operational areas of the company’s procurement framework will be the basis for the company’s sourcing plan. They include the roles of procurement and supply, application of cost-reduction techniques, inclusions for future company contracts, selection of effective suppliers, and additional aspects of the supply or purchase system that may require negotiation.

This analysis will be useful in improving five key areas of the procurement and supply chain, including (but not limited to) driving value through procurement and supply systems, developing contracts, managing expenditures, sourcing essentials, and negotiating procurement and supply activities. Negotiation is a critical instrument outlined in this document to develop the sourcing plan and is useful in improving some of the rights that stakeholders wield in the larger procurement and supply model.

These rights are quality, price, quantity, time and place. Key recommends made in this report highlight the need to employ effective negotiation skills to improve the current sourcing plan. This way, the company could realise several benefits, such as improved quality and quantity of concrete purchases, lower prices of concrete, and reduced delivery times for the same.

Effective Negotiations

This report is a sourcing plan for the procurement of cement, which is a strategic and tactical area of spending for McLaughlin and Harvey (MCLH, 2017). Its activities are mostly concentrated in the planning and development of residential and commercial properties (MCLH, 2017). Procurement and sourcing is an integral part of the company’s operations and is largely responsible for its success and longevity. Notably, procuring building materials is central to the organisation’s activities because it is one of the most significant areas of expenditure for the company. Concrete is in a category of materials used in the company’s construction projects and is instrumental in the completion of construction projects.

In this report, I demonstrate that McLaughlin and Harvey’s current procurement plan is flawed because it is outdated and does not reflect the realities of the current procurement environment. Consequently, it poses different risks to the company’s operations, including supplier bankruptcy, natural disasters, political changes, and technological shifts, which, if left unaddressed, could disrupt its overall operations. However, adopting effective procurement and supply practices could prevent such an occurrence.

This report presents a sourcing plan for the future requirements of the organisation’s procurement framework for cement. It highlights five critical issues that form the basis of the company’s procurement and supply plan. The first one is the role of procurement and supply in managing this area of expenditure, including how these roles interact with shareholder inputs. The second part of the report highlights techniques that will be used in improving the sourcing of concrete through value addition. A significant part of this document also highlights key issues that should be included in the overall formulation of the company’s future sourcing plan.

The last two segments of the document explain measures that we will take to improve the supplier selection procedure and identify important sourcing plan areas that may require negotiation. The scope of this document includes (but is not limited to) driving value through procurement and supply systems, developing contracts, managing expenditures, sourcing essentials, and negotiating procurement and supply systems.

The Role of Procurement and Supply in Managing Expenditure in Construction in McLaughlin and Harvey Company

An Opportunity to Engage

Effective procurement and supply chain systems will help us to connect with prequalified contractors and suppliers (He, Huang, & Yuan, 2015). Supplier engagement events will be organised through the constructiononline platform of the company, which allows local SMEs and suppliers to interact with members of the buying organisation.

With several projects in the pipeline, the employment of effective procurement and supply systems would aid in identifying competitive subcontractors that will be later consulted with the goal of building sustainable working relationships. For example, the annual “Meet the Team” event at Twickenham could benefit from this development because this is where good concrete suppliers have been admitted to the company (MCLH, 2017).

Quality Assurance

Procurement and supply activities will be useful in quality assurances because they will improve quality management systems of concrete purchases in hot and cold weather conditions (He et al., 2015). Materials properties will also be evaluated in a similar manner. Issues such as non-destructive testing of concrete and steel welding are other aspects of quality management that will be undertaken through the employment of effective quality assurance systems. This analysis shows that the procurement and management plan will be vital throughout the supply plan, all the way from the receipt of materials to the final completion of the project. By improving on quality techniques and quality management, it would be possible to maintain a stronger quality management regime for the company.

Compliance

Compliance standards that cover materials specifications, state specifications, contract specifications, performance standards, mixed designs and quality control of concrete use will be effectively managed through the adherence to stringent procurement and supply controls. State specifications could be learned from several agencies that are either directly or indirectly associated with the company’s activities (He et al., 2015).

For example, the State Highway Agency has outlined materials specification standards for concrete mixing that need to be adhered to by McLaughlin and Harvey (MCLH, 2017). Similarly, each contract involving the company has its own specifications that need to be observed. Procurement and supply systems will also aid in the improvement of these guidelines and additionally help to revise performance standards that will similarly be used to evaluate the activities or products provided by different suppliers.

Marketing

Having an elaborate procurement and supply chain system for McLaughlin and Harvey will also make sure it better assesses its market to exploit existing opportunities and avoid impending threats. For example, Parthiban, Zubar and Katakar (2013) say such a sourcing plan would aid in reviewing the right suppliers for the organisation by analysing their capabilities and availability. It would also better equip the company’s managers to assess existing technologies by providing them with a framework to do so.

The technologies will be beneficial to the organisation’s operations because they will streamline key activities of the procurement and supply system. Lastly, the procurement and supply plan will boost McLaughlin and Harvey’s ability to assess its market by creating conditions for competition among suppliers. The best suppliers would be chosen to work with the company, thereby creating a win-win situation for both parties. The benefits enjoyed by McLaughlin and Harvey are similar to those highlighted in figure 1 below.

Based on the above competencies and useful areas of the procurement and supply chain operations to McLaughlin and Harvey’s activities, the organisation we will adopt techniques that would help to improve the organisation’s operations.

Developing Sustainable Partnerships

By working closely with constructiononline, procurement and supply chain plans will help in prequalifying and monitoring supply chain members. This way, the burden and cost borne by suppliers, which is often realised through the engagement in different prequalification systems will be eliminated or minimised (MCLH, 2017). The time and resource savings that will be realised from this method could also greatly strengthen the company’s supply chain framework. Table 1 below summarises the key roles of procurement and supply in managing expenditure on concrete purchases.

Table 1. Role of procurement and supply in managing expenditure on concrete.

Techniques for Improving Value in McLaughlin and Harvey’s Procurement for Construction Materials

e-Procurement Strategy

In 2013, McLaughlin and Harvey adopted an e-procurement strategy to streamline its supplier recruitment framework. By doing so, it wanted to align its procurement systems with government and industry codes governing construction plans. By virtue of adopting this standard in the constructiononline platform, the company similarly adopted the PAS 91:2013 standard to streamline its prequalification of procurement plans.

The platform contains a PAS 91 questionnaire that allows all suppliers who meet the stipulated prequalification standards and comply with them to apply. The time and resource savings associated with this system will strengthen its supply chain processes. These views align with the organisation’s strategic performance framework, which has strived to combine traditional values of quality work and innovative solutions of the same.

Although the above strategy is commendable, we will link the e-procurement strategy with the e-sourcing plan using a purchase-to-pay (P2P) system. The e-procurement strategy typically contains five tenets: selection and requisition of the right supplier, authorisation to use the most competitive supplier, ordering building materials, receiving the materials and making payments. The e-sourcing model would also culminate in a similar sequence because it includes systems that involve the formulation of a contract with suppliers.

The inclusion of the e-procurement system in the company’s overall plans will come with multiple benefits for the organisation, including improved supplier management plans, improved benefits management systems and on-going strategic sourcing activities. These benefits are all intended to promote increased savings for the organisation, which could be realised through the identification of saving opportunities, securing them, and tracking their performance (relative to the organisation’s business performance).

Generally, the e-procurement system will have different uses in the operations of McLaughlin and Harvey. Some key applications will be in e-auctions, formulation of e-catalogues, e-tendering and e-sourcing. Collectively, these applications will be instrumental in streamlining the company’s sourcing plan. We will use these internet-based technologies to facilitate communication with its suppliers. Notably, e-procurement will aid in the acceleration of data exchange between multiple vendors and the company. The same strategy will help to reduce inaccuracies in the sourcing plan, thereby leading to the efficient execution of procurement roles and responsibilities.

Launching an Internal Transformation Initiative to Add Value in Procurement

McLaughlin does not have an effective internal transformation initiative for adding value to its procurement plan. Kannan (2017) says that such an initiative should take into account a clear delineation of roles, responsibilities, and accountabilities of the supply management team, which should be clear to all the stakeholders. Different techniques will be used to improve this framework.

For example, it will entail a rigorous review of the expenditures associated with procuring cement. To achieve the best outcome, we will communicate and reinforce a clear and compelling goal of the organisation’s projects. Moreover, the negotiation for the appropriate supply of construction materials will require a recalibration of incentives for project managers, who will have a high level of power and latitude in supplier selection. The managers and contractors will be encouraged to embrace change as well as to take part in consolidated procurement calls.

The procurement model will be refined by considering four critical operating pillars that include strategy, workforce, systems, and tools. The four aspects of the operation will work in harmony to streamline the sourcing plan.

Furthermore, constant reinforcement will be part of the change management system in the organisation. It is possible to achieve this requirement through proper communication and integration of stakeholders’ feedback to promote the realisation of organisational objectives. To get the best results, the procurement and supply of cement will be done by defining service level improvement goals.

Value Analysis and Strategic Sourcing

Value analysis is a viable technique that we will use to improve the procurement and supply chain as well. Particularly, it would be instrumental in determining the importance of the materials purchased. However, before including it in the overall plan, the procurement team will evaluate several factors relating to the value of the products they buy. First, the supplies will be reviewed because they are essential in the design and preparation of the procurement and supply model. Secondly, we will make sure that the materials serve their intended purpose. If the cement is more or less than what is necessary, we will outsource modified products or negotiate with substitutes to meet the desired standards.

Inclusions Necessary in Future Contracts

Application of Information Systems

It is important for us to manage the procurement function effectively by adopting information systems to enhance procurement and supply processes. This addition is essential to the company’s operations because the organisation lacks the essential tech-savvy capabilities to manage all its procurement-spending categories. Introducing ICT tools to the company’s overall strategy will help it to get a good set of contracts and pricing arrangements that can drive the efficient implementation of proactive acquisition strategies, which adhere to a baseline spending threshold. The primary focus of this undertaking is managing service delivery, monitoring service providers, and administering contractual relationships.

Managing Contracts

We will introduce a negotiation clause in the procurement and supply strategy because doing so would guarantee the best quality of lowly priced building materials. However, to do so, we will first build a direct and contractual relationship with the actual service providers. Later, we could use different models to do so. However, the framework developed by Age and Eklinder-Frick (2017) in figure 2 below presents a good guideline that we will adopt.

The three parties highlighted in the model above will ensure the procurement system addresses various sporadic concerns to safeguard the primary mutual interest of the construction company. The most significant intermittent issues include (but are not limited to) insurance claims, amendments, call-in performance period, liquidation of damages, and work extension for completion, back charges, termination, and suspension.

Measures of Selecting Effective Suppliers

Financial Viability

We will review the financial performance of potential suppliers to determine their ability to deliver. Those who fail to meet the set criteria will not be shortlisted. It is important to do so because an economic viability analysis will help us to assess whether we could rely on their suppliers throughout the life of the contract period, or not (Yang, Zhang, & Xie 2017). Additionally, we will check whether competing vendors have the capacity to manage the contract from commencement through to its completion.

We will also make sure that suppliers demonstrate competence and professionalism in the way they manage economic and monetary policies, particularly as a response to changes in both internal and external environments. He et al. (2015) support this proposal because they argue that companies, which have strong financial viability ratios, are more prepared to absorb procurement risks than those that have a poor credit rating score.

Commercial Strength

We will also evaluate the commercial strength of potential suppliers to determine whether they meet their operational costs, or not. Particularly, we will look for vendors who demonstrate professionalism and flexibility to meet emerging needs of the construction company on short notice. For instance, we will seek suppliers who are in a position to increase delivery quantities in short notice because they have a competitive advantage over other players who cannot do the same. This provision is essential because McLaughlin and Harvey’s long-term contracts could be subject to shifting demands (brought about by market uncertainty).

Moreover, the demand for construction materials from overseas markets could yield multifaceted issues brought about by regional politics, global economic conditions, and natural disasters. Thus, suppliers must prepare to satisfy the company’s emergency needs. Additionally, the creditworthiness of vendors will be a central focus for us. If the financial resources fall short, we will be in a position to guarantee a continued supply of construction materials through borrowing (as one strategy) of ensuring the continuity of its processes.

Technical Viability

We will choose a supplier who demonstrates the ability to introduce and deploy technology with ease because doing so would translate into improved service delivery for the business. Moreover, we will only do business with suppliers who uphold high-quality standards of operations. For instance, we will require vendors to have ISO 2010 certification as a prerequisite to maintain preparedness through sound policies, procedures, appropriate documentation, and continuous training.

These measures should help it to maintain top-notch services for our clients. A check on previous deliveries to several companies, through trade history assessments, will provide crucial information regarding the competency of the suppliers. Assessing the fixed tangible asset values will also provide vital information about the advancement or deterioration of a supplier’s technical capabilities. Additionally, Dzeng and Wang (2017) say technological capabilities are the prerequisites to excellent service delivery, reputation, financial profitability, and cost-efficiency.

Stakeholder Accountability

Stakeholders are often involved in negotiating different kinds of rights that characterise company operations. These rights affect procurement and supply plans because they influence the price, quality, quantity, time and place of delivering building materials. For us, negotiations to improve these rights will occur at any stage of the sourcing process. However, for this to happen, we need to understand the stakeholders. According to the PESTLE analysis below, the main stakeholders of the company are:

Politics (Government)

The government and its agencies are the main stakeholder group that characterises the political environment of McLaughlin and Harvey. This group affects the company’s procurement and supply systems by affecting the pricing of construction materials through subsidies, tariffs, licences and such as levies (Engel, 2012). Regulation is a key instrument used by this stakeholder group to influence activities within the construction industry and, by extension, the activities of McLaughlin and Harvey.

Economics (Vendors)

The economic environment of McLaughlin and Harvey outlines vendors as the main stakeholder group. The company’s economic environment largely refers to the prevailing economic conditions that would affect the supply and demand for construction materials through pricing and similar instruments of quality and quantity control.

Social (Clients)

Our clients are the main stakeholder group that emerges in the company’s social environment. Since the organisation largely works for different types of private and public clients, issues relating to security, the architecture of buildings, lighting, furniture and fittings are aspects of the social environment that would affect the company’s operations, based on the demands, preferences and tastes of the customers (Engel, 2012). In this regard, clients are the main stakeholder group in this segment.

Technological (Vendors)

The technological environment of McLaughlin and Harvey highlights vendors as the main stakeholder group. Technology affects the company’s operations, based on the kind of building and construction techniques the company adopts in its projects. Thus, the availability and applicability of this technology are largely dictated by vendors, who are the main stakeholder group.

Legal (Pressure groups)

The legal environment of McLaughlin and Harvey outlines pressure groups as another stakeholder. The international organisation for standardisation (ISO) is one such partner because it sets the standards of operations for the company and its partners to follow (CIPS, 2017). The legal environment simply refers to the policy structure the company should abide by. It also refers to the rules and laws that the company should adhere to when undertaking its operations.

Environmental (Environmental agencies and local communities)

We are legally required to respect environmental laws and standards. The company is also supposed to make sure its objectives are sustainably achieved. Environmental agencies are the main stakeholder group in this field of assessment because they are required to make sure our activities have a minimal (or no) cost to the environment. At the same time, local communities affected by the company’s operations form a distinct stakeholder group as well because they are the custodians of the environment where the company operates.

Based on the above analysis, the main stakeholders of McLaughlin and Harvey are listed below:

• Local communities.
• Pressure groups.
• Government agencies.
• Environmental agencies.
• Vendors.
• Clients.

Value could be added to the procurement and supply processes of McLaughlin and Harvey by negotiating with the aforementioned stakeholder groups. This is because they affect five rights (price, quality, quantity, time and place) that influence the procurement of building materials for McLaughlin and Harvey. Thus, negotiating with them to improve these rights by demanding for improved quality, lower prices, increased, quantities of materials sourced, slower delivery times, and the delivery of construction materials at the right place would improve the company’s procurement and supply processes. The stakeholders that would be involved in improving the aforementioned rights are highlighted above.

To realise the above-mentioned goals, we will have to make sure the stakeholders do what they are supposed to. For example, the framework of awarding contracts will consider the level of responsibility of the suppliers. A successful contractual relationship is underpinned by how the different parties within the provider organisation will coordinate the numerous aspects of stakeholder engagement.

Data relating to the suppliers will be found by scouting for information about them through different platforms and using different tools. For example, Gumus and Love (2013) say requiring suppliers to fill prequalification questionnaires is a sound way of obtaining valuable information about their operations and processes. Such a data collection tool could be instrumental in obtaining all the information highlighted here. Hartmann and Caerteling (2010) supports this assertion and says that, in the past, companies have used this instrument to obtain information relating to a company’s financial stability, technical abilities, environmental policy systems, and record of accomplishment.

Overall, we will investigate the leadership qualities of potential vendors as a source of competitive advantage. This is because poor performance is attributable to the overall management of procurement organisations. Figure 3 below shows how we will utilise these principles to select suppliers.

Aspects of Procurement That Require Negotiation

Many aspects of our systems require negotiated agreements with stakeholders to meet the organisation’s procurement and operational goals. It is possible for us to enter into an agreement with specific suppliers to guarantee it gets the best quality and affordable building materials for its operations. The single and multiple supplier frameworks are the most commonly used models for guiding procurement and supply processes and will be used in this sourcing plan.

This decision is informed by our willingness to discuss the terms and conditions for conducting business. The emphasis is on price and quality negotiations. Although the single supplier and the multiple supplier frameworks are the most dominant ones, the latter is best suited for McLaughlin and Harvey because competition will be the basis for the selection of the most suitable supplier. Past performance and capacity of the suppliers will be some of the main considerations used to assess their performance.

There are different areas that would be subject to negotiation. One of them is the cost of materials procured because an escalation of material costs could significantly affect the company’s bottom-line (Frankel, 2013). Thus, it is pertinent for us to negotiate with suppliers to deliver affordable concrete. This provision will not come with quality concessions, because it would cause a larger reputation problem for the company if clients are dissatisfied with their work because of poor quality.

Another aspect of the company’s operations that requires negotiation is the quality of concrete delivered on-site. In other words, we will only work with suppliers who can deliver quality materials to the company because the failure to do so could significantly lead to greater structural problems for the buildings constructed by the company. This area of negotiation is an important point of concern for most construction companies because different building or construction projects have specific standards that can only be secured using quality construction materials (CIPS, 2017; Sezhiyan, Page, & Iskanius, 2011). Thus, we will negotiate with suppliers to provide quality materials.

Lastly, another area of negotiation we will focus on is the time and place of delivery because, in as much as some suppliers may be in a position to deliver quality and affordable concrete, they may not be in a position to deliver them at the right place or time.

Therefore, we will be in a position to negotiate with suppliers to deliver the required materials at the right time and place. Orders will be placed only to those companies that are able to deliver the materials at the right place and time. Based on the above aspects of procurement that need negotiation, the sourcing of construction materials emerges as a general concern for us and that require careful attention. Nevertheless, we will also engage both internal and external stakeholders to develop a win-win strategy of attaining mutual benefits (Peter & Athanasios, 2016; Madhusudan & Rao, 2016).

Conclusion

This document has outlined a sourcing plan for the future requirements of McLaughlin and Harvey. Five key areas of operation have been highlighted as being instrumental in improving the overall sourcing plan. They include procurement and supply processes, techniques the company could apply in reducing its expenditure for increased value addition, inclusions that should characterise future contracts, measures that could be undertaken to select effective suppliers and any aspects of the supply or purchase system that may require negotiation.

These key aspects of operations are integral in making sure the sourcing strategy is robust. Negotiation is also a critical element of instrumentation that will be useful in enhancing some of the rights that the stakeholders wield in the larger procurement and supply process. These rights are quality, price, quantity, time and place. Thus, if we employ effective negotiation skills, we will benefit from improved quality, lower prices, increased quantities of concrete, and reduced delivery times.

Some of the key concepts applied in this document could help to analyse stakeholder activities/inputs and demonstrate effective ways we could use to manage the concrete supply plan. The latter concept has been used to analyse the company’s operational environment and recommend possible directions it should follow in improving five key rights of operation for its sourcing plan: quality, place, time, price, and quantity. The Kraljix matrix has also been highlighted in this report as a tool for recognising weaknesses in the sourcing plans and protects the company from supplier disruption. Therefore, adopting the Portfolio Kraljic Matrix will help us to mitigate risks while managing many aspects of the supply chain.

The goal of improving McLaughlin and Harvey’s sourcing plan is obtaining high quality, cost-effective, and valuable concrete from vendors. At the centre of this analysis has been the concept of negotiation, which has emerged as a significant value driver. The adoption of procurement and supply chain best practices can help to deliver value throughout the sourcing plan. For example, as highlighted in this report, we will use e-procurement strategies to ensure effective negotiation and vet the suppliers accordingly to make sure they subscribe to good principles of procurement.

Furthermore, we will launch internal transformation initiatives to manage change – an undertaking that could lead to improved value in the procurement framework. This analysis is useful in our sourcing plan because it could help to improve five key areas of the organisation’s procurement and supply systems, including (but not limited to) driving value through procurement and supply plans, developing contracts, managing expenditures, sourcing essentials, and negotiating procurement and supply processes.

Recommendations

In contemporary commercial organisations, procurement has gained increased significance as a necessary enabler of business strategy and a preferred way of cutting costs. The adoption of technology has transformed procurement into an opportunity for system simplification. McLaughlin has been relying on traditional sourcing plans, which hamper the above-mentioned benefits. Thus, we need to adopt better negotiation techniques to overcome some of these challenges.

To do so, we will pay more attention to the kinds of suppliers and vendors we intend to work with. A specific emphasis on the formulation of some irreducible minimum conditions and requirements that the stakeholders should conform to needs to be a key part of the negotiation process. In this regard, parties that want to work with the company should meet them. Its key procurement and supply functions need to perform a “gatekeeper’s” role as well, where there should be a free, but well-managed flow of information between the company and its shareholders.

The goal of participating in this undertaking is to make sure that there is more value-added to the company’s sourcing plan by effectively engaging with stakeholders and securing their commitment to abide by best practices in procurement and supply management. This recommendation aligns with Andrew Cox’s work on approaches to procurement as a tool for improving relationships between companies and suppliers (Dominick & Lunney, 2012). Figure 4 below depicts how this relationship should look like.

We will also exploit the more than 160 years of experience the company has had in the construction industry and nurture its existing relationships to form better relationships with suppliers. Leu, Hong Son, and Hong Nhung (2015) add that by so doing, we would be able to promote increased compliance standards in the organisation by investing both time and resources in improving the stakeholder management plan.

At the core of the company’s operations will be an emphasis on the triple bottom line concept, as proposed in 1994 by John Elkington (Dominick & Lunney, 2012). The concept dictates that companies should pursue policies that aim to promote the welfare of their people, the planet, and the company’s profitability. Pursuing this strategy will provide direction to our operations, especially regarding the procurement and supply policies.

In other words, we will shun stakeholders (or parties) involved in the sourcing plan that aims to undermine any of the three bottom-line areas mentioned above. At the same time, we will strive to negotiate with stakeholders who want to promote the same bottom-line areas. We will also stop relying on poor quality information from general ledger documents to seek vendors. Instead, adopting a procurement-spending map is a unique tool that will be adopted to help in identifying opportunities and risks associated with the procurement and sourcing plan. A procurement-spending map entails category analysis, item analysis, payment analysis, vendor analysis, and contract analysis, which ensures value addition in every stage of the acquisition process.

Another recommendation entails adopting initiatives that can help us to enhance savings across the supply value chain. Relative to this assertion, researchers point out that the leading driver of “cost leakages” in the procurement and supply chain is the mismatch between an organisation’s wants and needs (Bellantuono, Kersten, & Pontrandolfo, 2014). In fact, researchers argue that supply cost reduction initiatives, which depend on price reduction, often get it all wrong (Bellantuono et al., 2014).

Bohner and Minner (2017) give perfect examples of savings initiatives, which include matching wants and needs, employing alternative contract models to deliver the best value for money, balancing demand and supply, and managing the cost of doing business. Comprehensively, adopting some of the recommendations highlighted in this document will help us to improve efficiency, increase profitability, and enhance the overall procurement outcomes of the company.

References

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The study was conducted to determine the procurement and supply chain of polymers by SABIC through the dedicated function of Kayan that specializes in the development of the polymeric material as a feedstock for the production of petrochemical derivatives. A market report shows that Kayan has a significant market share despite operating with intense business rivalry, uncertain economic conditions, and supply chain activities that have significantly reduced the company’s profits.

Various models were used in the study among which include the industry structure model to determine the level of competition in the market as well as Porter’s five forces model. The cost of inventory was focused on the key area of study.

An appropriate source plan was developed to address the issues that arise in the company’s procurement and supply chain network. The results show that different legal clauses and decrees issued in Saudi Arabia can be invoked to enhance the level of agreement between the company and other stakeholders. Further, studies need to be conducted to address the issues that arise in the global supply chain besides and associated rules and regulations and how to comply with them.

Introduction

Product Outline

Saudi Basic Industries Corporation (SABIC) uses an integrated logistic procurement and supply chain network for its operations. The operations are driven wholly by joint ventures, subsidiaries, and affiliates (Alolayan and Richards 11). An overview of the company shows that it has 42 manufacturing and compounding companies, 21technology centers, and 84 international subsidiaries and sales offices. The company operates 1 SABIC Corporate Research and Innovation Center, 51 distribution, storage facilities and logistical hubs, and 4 application centers that use an end-to-end optimization technique in an integrated procurement and supply chain network.

Specialization in the supply chain

SABIC is the world’s leading company that specializes in the provision of a wide range of petrochemicals. The portfolio of products SABIC deals with includes industrial gases, ethylene glycol, dichloride, caustic soda, and Fertilizer. According to Alolayan and Richards, the products can be summarized into five categories, which include chemicals, agri-nutrients, metals, polymers, and other specialties that are offered in Africa, the Middle East, and Europe (12). One key feedstock investigated in this study is a polymer, which is the feedstock for a wide range of products. Kayan uses the feedstock to create lasting value based on the three elements of sustainability of people, planet, and profit in the supply chain cycle. Kayan uses the integrated linear programming feedstock planning tool in the supply of polymers across its entire procurement and supply chain network into the target markets.

The production of polymers is a dedicated Saudi Kayan function of SABIC’s affiliate that makes 35% of polymeric materials manufactured in Saudi Arabia. Saudi Kayan specializes in the production of Ethylene Glycol, Ethylene, Propylene, and Polyethylene (Alolayan and Richards 13). It is worth noting that Kayan’s revenue as per 2012 was SAR 9,842 million with a loss of SAR 591.6mn recorded in 2015 showing muted growth due to the results of the inventory reevaluation that indicated an increase in financial charges.

Complexities of the Market

The company supplies polymers in both the European and the local Saudi Arabian markets (Stadtler 13). Kayan’s global competitors include Europe Plastics and Polymers, Global PET Stream, and China Polyolefin among others.

Alolayan and Richards provide detailed statistical data that show the performance of propylene and polypropylene in the market and the emerging trends based on the large quantities of petrochemical products sold as illustrated in figures 2 and 3 (13). Observations show significant growth between January 2012 and April 2012, which rises to the peak before it starts to decline significantly for propylene in subsequent years.

However, the trend continues to register a steep decline before it starts to show a significant increase in subsequent months of 2013. The highest cost of the polymer is US $1500 per ton and the lowest is US $1150 per ton, which increases to the US $1400 per ton in 2013.

Figure 2 shows the demand and production of polypropylene, one of the derivatives from the polymeric feedstock polymers starting to rise in January with a price of US $ 1275 per ton before reaching a maximum of US $ 1500 and a low of US $ 1300. A study of the operational efficiency and performance of the subsidiary SABIC Company, Kayan reveals negative and grim statistics. In theory, Alturki shows that this occurs in response to market conditions, the key drivers and restraints of the Global polymer emulsions (3). The decline in sales is shown in table 1 as negative growth.

Table 1. Performance in terms of revenue.

A specific analysis of the local and international markets show negative results because of significant increases in operating income that are projected to be 814% by 2016 and 16.5% in 2017 (Packowski 48). The operating income keeps increasing from one year to the other. Besides, the key driver of profitability, which is the revenue, shows a negative and sometimes muted growth because of small negative and sometimes positive price changes of the company’s polymeric products.

There is a strong indicator of negative growth that is caused by numerous factors in the local and international markets. Declining revenue was the cause of the delay of the two major scheduled operational shutdowns in 2015 because of the negative impact on Kayan’s gross margins. However, a SABIC’s timely intervention of reducing undisclosed charges is expected to turn the operations of the company green by 2016 (Alolayan and Richards 15).

A summary of Kayan’s market characteristics showed an increase in net income was rationalized to SAR 399 million in 2014. However, the company’s market operations are sensitive to feedstock price movements reflected in the procurement and supply chain system (Sheffi10). The company is continuously prone to the changes in the market leading to the key financials summarized in figure 4.

The key market drivers deduced from figure 3 are good volumetric sales with poor prices. However, it is noteworthy to say that the risk-free rate assumption has declined from 5.1% to 4.5%. The target price advance is bound to increase from SAR14 to SAR 15 in the 2015/2016 trading period.

Competitive analysis of the market

It is imperative to note that the petrochemical landscape specifically the supply of polymers has tailored the dependence of the Kayan Company, which is a subsidiary of SABIC cooperation to complete dependence on petrochemical products (Simatupang and Sridharan 28). It is worth noting that the regional capacity of the Company is based on relative derivatives of the polymers and other basic chemicals. Current studies show little or no regional changes in product mix and the demand for highly sophisticated products.

Porter’s five forces model

Porter’s five forces model uses technology, diversification, and innovations as the key drivers of the market to gain competitive advantage. Packowski notes that competitive advantage can be gained by Kayan if the model elements are applied to determine the intensity of competition and countermeasures to address the level of competition (15). A summary of the Bloomberg data shows Kayan supplies 76.9% of the key feedstock. Besides, the industry is characterized by high and medium level concentration, with key fixed input prices fixed by international market forces.

A SWOT analysis

This is based on the Kayan petrochemical product market as illustrated in table 2.

Table 2. SWOT analysis.

Table 2 shows a summary of the strengths weaknesses, threats, and opportunities (SWOT) available for the company to consider when evaluating its supply chain management elements that are used in decision-making.

A competitive analysis of the complexity of the market showed that the market for polymers is one of the biggest in Europe that provides innovation, an area that depends on manufacturing (Christopher and Peck 11). Typically, Falter argues that the polymeric plastics have multiplier effects on manufacturing with a 10% value addition to products of different categories (3).

The market for plastics includes the automotive industry with 8.5% of the total demand, electrical and electronic applications represent 5.6%, 21.7% European plastic demand, and agricultural applications which have a market share of 4.3%. However, it has been shown that the global demand for plastics is bound to increase by about 6% between 2015 and 2020, with the Asian market likely to account for 34% of the global demand for plastics.

Industry structure model

The industry structure model can be used in this case, which constitutes the key elements of the regulatory framework conditions, competitive situation, market and demand conditions, and the supply chain situations. Zairi argues that using the product proximity principle and appropriate inputs, it is possible to generate outputs to effectively fulfill supply chain demands and reduce production costs for competitive advantage (390). With vertical and horizontal integration of stakeholder’s procurement and supply chain activities, it is possible to predict demand patterns as shown in figure 5.

However, the market for Kayan’s products varies depending on the definition and availability of substitute products.

A critical analysis of the horizontal market lacks competitive overlap that has led to a 15% market share for SABIC. This shows that SABIC has a low market share that is barely above 25%. The result could be an 80% PPE compound market share in the vertical market with only 5% worldwide market share. However, Kayan faces stiff competition from Mider, which has a 30% global market share.

Value addition to the Kayan organization

The most significant approach to adding value to the polymer can be derived from different perspectives. The first instance is to lower marketing fees by making investments in machinery as a prerequisite to lower operating costs. Ramzi, Zairi and Gunasekaran argue that the concept was applied by the allocation of 10 million square feet per day for Kayan by the ministry of interior that increased the production capacity of ethylene oxide (EO) and ethylene (C2), the feedstock for polymers, which has reduced dependence on butane and increased dependence on ethane gas (360).

Besides, it is worth reducing the financial costs because the company financed through almost 67.4% debt to reduce the future cash flow of the company. The second approach is to optimize downstream opportunities. Typically by increasing the utilization rate of products such as polyethylene and polypropylene among others, it is possible to add value to the product b reducing the procurement and supply costs, which translates to a 33% reduction in marketing fees and other costs.

The third point is to delay the scheduled shutdown. Delaying schedules maintenance by 61 days lowers anticipated losses to AR873 mn to SAR 665.9 mn despite an expected decrease in volumetric sales by 25%. Evidence shows that most European companies that relied on the polymer as a feedstock for the conversion business experienced a 60% worsened supply of the polymer for two consecutive years (Ishizaka and Labib 14336). A grim outlook is has been predicted for 39% of other European converters because of the lock-in effect on small suppliers as opposed to large multinational companies that can source the product from other suppliers.

The fourth approach is to implement the procurement of renewable feedstock for the production of a wide array of polymeric derivatives. Other areas that the company could consider addressing include effective demand planning, production planning, and appropriate scheduling of procurement and supply chain activities. According to Alolayan and Richards, the fifth approach is to increase the number of joint ventures in the downstream sector that are specialized in different value addition technologies (11).

Methods of market research

Different market research methodologies have been proposed in academia. This study relied on a qualitative research paradigm based on market intelligence reports to address the research problem. Several articles on the subject of the investigation were analyzed and data generated to make the bulk of the study. Typically, the study employed a secondary market research method that relied on established facts and not primary research which depends on primary data collection and analysis.

Recommendations for the best type of specification

As noted by Stadtler, the key recommendations in contractual terms include factoring due diligence, scope clauses limiting the liability of contractors, the money required to limit liability, an implied obligation of both parties in the contract (15). That could ameliorate situations that happened between SABIC in 2006 and Simon Carves Ltd (SCL) that went under and failed to complete the contract within schedule compelling the company to seek for Advance Payment Guarantee.

Methodologies of pre-qualification appraisal and the bidding process

Traditional approaches of pre-qualifying contractors are based on price as the key element. However, Greco, Matarazzo, and Slowinskiinvestigations and experience show that additional factors such as cost and price, delivery times, performance abilities of the bidder, and the duration and terms of warranty or guarantee need to be factored (25). One approach that has been widely applied among different other methods and proved to be successful is the Analytic Hierarchy Process (AHP) (Shalan and Ykhlef 2409).

In theory, Derrouiche Neubert and Bouras note that AHP is the best approach under the multi-criteria decision-making (MCDM) technique (430). The technique uses multiple criteria to identify and determine the appropriate contractor based on pertinent data that are from different sources as shown in figure 6.

The award criterion is based on weights that are added to each preference using a Saaty’s 1-9 scale based on the results that are given to the prospective bidders.

Table 3. A numerical rating of preferences.

Table 3 depicts the evaluation and award criteria that can be used for pre-qualification and later award of a contract based on the key elements of the ability to perform and the history of the company that is bidding for the contract.

Appraisal

According to Ramzi, Zairi and Gunasekaran, the evaluation and appraisal process consist of assigning values based on given criteria and making a detailed description of the sub-criteria section for the financial, experience technical, reputation, and occupational health, safety, and performance criteria as shown in table 3 (360). In theory, the other elements that can be used for the purpose of apprising the bidder such as the ability to control key supply chain processes, the ability to manage inventories effectively, commitment to quality, contract execution capabilities, and contract risks.

Table 4. Criteria and sub-criteria.

Typically, a pairwise comparison based on the matrix method using Eigenvalues could be used to transform the subjective judgment into numerical values with 1 showing a strong level of influence and 9 indicating no influence at all using n (n – 1)/ judgments (Derrouiche, Neubert and Bouras, 431). It is possible to use the following method to calculate the eigenvalue. A theoretical disposition of establishing the (λ_max) the eigenvalue is shown.

λ_max = W_j/W_i,

It is important to note that the award criteria depend on the consistency criteria that are calculated using the mathematical relation of CI = (λ_max – n)/n – 1where the matrix size is represented by n. In theory, Derrouiche, RNeubertcand Bouras, show that for a bidder to qualify for the award of the contract or for the contract to establish a working relationship between Kayan and other companies, the value generated from the results using the formula obtained from CR = CI/RI = [(λ_max – n)/n – 1]/RI must be less than 0.1 (433). In theory, any value that is greater than o.1 shows a high degree of inconsistency (19). In the case for companies A, B, C, D, and E, the results are tabulated in Table 5

Table 5. Statistics of prequalification criteria.

The software can be used to conduct the sensitivity analysis required to determine the right contractor in the procurement and supply chain relationships to determine the right contractor from among a choice of 9 bidders. The criteria for prequalification (CR: 0.05 < 0.10) was set before sensitivity analysis is done.

The results in figure 8 show the pre-qualification criteria to be Manpower, which has a score of 0.18544, which is close to fulfilling the requirements of CR: 0.05 < 0.10, a measure that shows a strong degree of reliability. Typically, manpower is in the context of the human resource trained and skilled.

Use of negotiation to add value

In view of the need to add value both from the stakeholders and the organization, value negotiation can be done by addressing the source of costs that are direct causes of the increase in inventory expenditure. The key points include a review of stakeholder inputs into the procurement and supply chain process. The planning function can be re-engineered to add value and reduce costs in the supply chain so that the company profits increase by 10% of the revenue reflected in the 2015 financial statement due to lower inventory costs.

Reference to contract management

According to Staedtler, SABIC incurred a loss of 20% of the contract price in 2013 (11). In reference to the key terms of contracts, the Repudiatory breach of contract, implied obligations in a commercial contract, limitation of liability, and recoverable losses constitute the key areas to focus on.

A category of expenditure

According to the financial statement that ended on 31 December 2015, it is noted that Kayan incurred expenses in the distribution and supply of polymer feedstock for the production of different finished and semi-finished products in Europe, Africa, Asian and other parts of the world (Staedtler 19). One key category of expenditure is 24,635.4 SAR mn in 2015, which reflects leasing stock inventory stores expenses for the storage and onward supply of polymer, the feedstock for European plastic manufactures. The category of expenditure is classified as operating leases with assets classified as fair market asset value with the rental payments of the stores charged on the interim consolidated statement.

The sourcing plan

Drawing on the inventory expenditure and the theories of resource planning, the source plan is shown in table 4. The rationale is to achieve inventory management objectives, which include cushioning the company against fluctuations that could lead to financial loss, effective use of materials, better management of people and machines, effective control of outputs, and better control of the distribution of stocks (Lozowski 67). By effectively managing the resources, this could positively improve the company’s cash flow despite the current financial indicators already showing projected significant losses (Zairi 12). Value addition could address storage, cost control, foresting needs, and customer satisfaction needs.

Role of procurement and supply

The role of procurement and supply chain in managing company inventory for Kayan includes different elements that are discussed hereafter.

Inputs that can be made by the stakeholder

Based on stakeholder theory where value creation and the direct impact of costs dominate, stakeholder inputs should be in the provision of support in procurement and planning. The goals are to reduce feedstock costs, optimal asset utilization such as inventory assets, lower shipping costs, and increase the value of polymeric feedstock material. The inputs could be in terms of the model structure shown in figure 9.

Techniques for value addition on inventory expenditure

Value addition in the procurement and supply chain system can be achieved by investing in human, social, financial, and natural capital to facilitate the inventory process and reduce expenditure in this area. That is in the context of establishing a reliable and steady supply of polymer feedstock to reduce the risks of disruption in the markets. Another approach is to build storage facilities near the production site.

The result could be an increase of 30% export level of the polymer and reduction of operating and inventory costs (Luciani 6). Typically, a similar approach led to the creation of 36 new investors with investment totaling SR 4.6 billion. Another technique is to improve internal processes. Improvement of internal processes in 2013 underpins the 900+ new patents that were registered in the financial year’s statement of 2013 which amounted to SR 25.3 billion.

The next technique is to create downstream economic value by attracting more investments in the area. The other techniques that have been suggested in academia include leveraging value chain partners, innovation, attract and retain the right contractors, and invest in product tracking. That is in addition to the use of better sourcing mechanisms and third party logistics.

In theory, Kayan’s inventory and warehouse expenditure can be reduced by using stock cycles based on adding economic value, low order transactions using automated information systems, and low inventory holding costs. The other approach includes reducing forecasting tools to optimize the supply chain network. The other areas of improvement include minimizing purchasing minimums, accurately determine upstream and downstream forecasts, and optimize price and quantity breaks. Kayan reported a much weaker than expected loss of SAR368mn, which was written down resulting in SAR19mn profit. Typically, by focusing on the item, payment, vendor, contract, and category analysis, the expenditure could reduce by 24% to SAR476mn.

Inclusions that should be made in contracts formed in the future

Different sections and articles binding the company with upstream and downstream contractors in the procurement and supply chain have been used based on different laws. Article (16) details the relationship between partners in a contract on liabilities, joint ventures, and Article (17) that regulates the relationship among the members in a contract. Article (21) details the publication of the partnership or terms of the contract between the supplier and the consumer in a procurement and supply chain relationship.

This is in accordance with the service agency regulations under commercial laws of Saudi Arabian Royal Decree M/2 (1978) and in accordance with clause 7.1that applies among contracting parties. It is critical to invoke section 6 to enforce Force Majeure, where any party to the contract can be punished to avoid Repudiatory Breach to avoid an Ampurius case.

Measures that can be taken to select effective suppliers

The key measures include using past performance data to measure and determine the performance of bidders, examining the supplier perceptions about procurement and supply chain activities, developing partnerships, and ensure the supplier is certified. The other elements to consider include pricing, the quality of services, warranties & claim policies, operating controls, and inventory costs.

Any aspects of the purchase/supply that may require negotiation

In the context of SABIC supply chain relationships as provided for by Kayan, the aspect that requires negotiation includes how to optimize supply chain networks by involving highly trained and skilled people to reduce costs and increase efficiency.

Conclusion

In conclusion, Saudi Arabia Basic Industries Corporation (SABIC) petrochemical company deals in a wide range of petrochemical products with Kayan operating the dedicated function of supplying polymers under the SABIC Company. The Polymer is a feedstock polymeric compound for a wide variety of plastics manufactured in Asia, Saudi Arabia, and other middle east companies, and the European markets.

Typically, the company has different methods of identifying the right suppliers to reduce different categories of expenditures such as the inventory and warehousing of polymers. Different methods have been proposed that can be used to select the right suppliers in the procurement and supply chain network besides adding value to the organization. Among the methods that work well is the AHP method that is based on multiple criteria and weights with preferences.

Works Cited

Alturki, Khalid Hamad. “Voluntary disclosure by Saudi companies.” Affane Aji, Chadia 388 (2015). Print.

Alolayan, Abdulrahaman Ali, and Darlington Richards. “Internationalization of Chemical MNE Corporation: A case from Saudi Arabian Corporation” SABIC”. International Council for Small business (ICSB), 1.1 (2015). Print.

Christopher, Martin, and Helen Peck. “Building the resilient supply chain.” The international journal of logistics management 15.2 (2004): 1-14. Print.

Derrouiche, Ridha, Gilles Neubert, and Abdelaziz Bouras. “Supply chain management: a framework to characterize the collaborative strategies.” International journal of computer integrated manufacturing 21.4 (2008): 426-439. Print.

Falter, Wolfgang. “Practitioner’s Section.” Journal of Business Chemistry 12.2 (2015). Print.

Greco, Salvatore, Benedetto Matarazzo, and Roman Slowinski. “Rough sets theory for multicriteria decision analysis.” European journal of operational research 129.1 (2001): 1-47.

Ishizaka, Alessio, and Ashraf Labib. “Review of the main developments in the analytic hierarchy process.” Expert systems with applications 38.11 (2011): 14336-14345. Print.

Lozowski, Dorothy. “SABIC signs alcohol-technology licensing agreement.” Chemical Engineering 117.10 (2010): 67-68. Print.

Luciani, Giacomo. “The GCC refining and petrochemical sectors from a global perspective.” Eckart Woertz (Dubai: Gulf Research Center, 2007) (2007). Print.

Packowski, Josef. LEAN Supply Chain Planning: The New Supply Chain Management Paradigm for Process Industries to Master Today’s VUCA World. CRC Press, 2013. Print.

Razmi, Jafar, Mohamed Zairi, and Angappa Gunasekaran. “The application of analytic hierarchy process in classification of material planning and control systems.” International Journal of Services and Operations Management 2.4 (2006): 352-366. Print.

Shalan, Sara A. Bin, and Mourad Ykhlef. “Solving Multi-objective Portfolio Optimization Problem for Saudi Arabia Stock Market Using Hybrid Clonal Selection and Particle Swarm Optimization.” Arabian Journal for Science and Engineering 40.8 (2015): 2407-2421.Print.

Sheffi, Yossi. “Supply chain management under the threat of international terrorism.” The International Journal of logistics management 12.2 (2001): 1-11. Print.

Stadtler, Hartmut. “Supply chain management: An overview.” Supply chain management and advanced planning. Springer Berlin Heidelberg, 1.1 (2015): 3-28. Print.

Zairi, Mohamed. “Managing customer satisfaction: a best practice perspective.” The TQM Magazine 12.6 (2000): 389-394. Print.

Introduction

Industrial purchasing is one of the most important types of purchasing. This supposition is based on the fact that after the purchase of raw materials the latter will be converted to the finished product. Therefore, one of the aspects of the business on which the industrial purchasing relies heavily is marketing. The suppliers can connect to the customers and offer their services on the basis of the client’s wishes and requirements. It is important to remember that a lot depends on the supplier who makes the ultimate decision concerning the collaboration with a given customer. This system can be functioning on the basis of a bidding system where both parties (manufacturer and customer) will only be able to connect when their requirements are in line with the necessities or possibilities of the other party. Nonetheless, the key idea of such a strategy is to create demand first (not supply).

Analysis

As has been mentioned above, the key feature of the website designed for the procurement department would be a bidding system. The customers will register at the website and enumerate their needs in their online inquiry. The suppliers will be able to see these requests and choose a preferred partner. The selected options will be featured on the Wall so as to allow the supplier to choose their ideal customer. On the client-side, there will be numerous requests from the suppliers and the former will be free to choose their favorite supplier from those who are featured on their own Wall. The key idea of this approach is that both parties will not have to go through an irrelevant procedure of weeding out the options they are not interested in. Instead, they will be exposed to the personalized selection of possible business companions who possess the necessary traits.

So as to ensure that the parties connect with each other successfully, they will be asked to fill in their profile data carefully. The idea is that the more information they provide, the easier it will be to find a suitable supplier/ customer. If the supplier presents in-depth information concerning their products, they will be able to build an extensive customer base much faster. Regardless, this website may allow the customer/ supplier to stay anonymous if they want. Every registered member of the website is able to see the post anyway. The website also features a search box with specific filters (country, product type, and much more) that provide the end-users with an important possibility to tailor their search results to their most refined preferences. One of the key advantages of this website is that it offers worldwide partnerships to registered companies and customers.

Conclusion

Overall, the website innovates the way in which the customers and suppliers see their businesses. The partnership possibilities are infinite due to the highly-customizable interface of the search engine. The prospects for both parties seem optimistic, and net expansion is foreseeable. This project can be helpful for businesses that are interested in building their worldwide corporate network. It is not the usual retail website. Quite contrarily, it is a professional network aimed at creating demand for the products and services while complying with the requirements of both suppliers and customers. Marketing is the basis of the approach as it can be successfully applied to the modern business setting and modified dynamically when it is necessary.

Introduction

Green Procurement

Green procurement has been recognized as an effective means of reducing unwanted environmental effects related to production, distribution, and consumption of products around the world since the 1980s (Emmett and Vivek, 2010). It is a concept that has drawn heated debates among business owners and other stakeholders. According to Worthington (2009) “There is no single definition of sustainable procurement-not least because sustainability is a contested concept-and applications vary across organizational hierarchy and sector”.

However, Farahani (2009) thinks otherwise and gives a definition by explaining that “green procurement, also known as sustainable procurement is a spending and investment process typically associated with public policy, although it is equally applicable to the private sector”. The topic, which is widely linked to the wider agenda of sustainable development, has in the recent past been a point of interest for many businesses, governments, organizations and other stakeholders.

The level of acceptability among businesses and organizations for a long time has widely varied with the industry and region a business is in. However, this is slowly changing as more countries take the issue up with importance and relevance to their economy and environment. According to Friend and Nicholas (2009), “There is a general acceptance in many countries that it involves a higher degree of collaboration and engagement between all parties in a supply chain”. As acceptability continues to grow in more industries, “many businesses have adopted a broad interpretation of sustainable procurement and have developed tools and techniques to support this engagement and collaboration” (Phyper and Paul, 2009).

Aim of the study

Perform an in-depth analysis of the development of green procurement in Hong Kong.

Objectives

• Explore the true situation of green procurement development among different industries and the different size of organizations in Hong Kong
• Research on their knowledge of green procurement
• Explore the genuine obstacles as well as incentives for the organizations to implement green procurement
• Investigate how the external factors such as globalization and CSR affect the organization to introduce the green procurement
• Analyze/forecast the future development of green procurement in Hong Kong
• Present recommendations on how to improve and accelerate the development of green procurement in Hong Kong

Purpose of research

The research which will form the basis of the dissertation is inspired by the continuous debates that exist on the role of green procurement in sustainable development. It is also inspired by the recent wave of pressure from environmentalists and other stakeholders to ensure that current developments and investments do not mean sacrifice the state of the environment in future. As a researcher, I believe that all organizations in all industries should be responsible for the negative environmental and social impacts resulting from their day-to-day procurement processes. Therefore, the recommendations at the end of this research will be based on what measures will have been proven significant in conserving the environment according to the study.

Literature review

Green procurement

According to Anderson and David (2009), “green procurement broadens the price and quality framework to take account of third-party consequences of procurement decisions, forming a “triple baseline” of external concerns which the procuring organization must fulfil”. The framework of ensuring green procurement is discussed with regard to the environment, social considerations and the economy.

“Environmental concerns are the dominant macro-level justification for sustainable procurement, born out of the growing 21^st-century consensus that humanity is placing excessive demands on available resources through unsustainable but well-established consumption patterns” (Kane, 2009). Many authors and experts in the industry agree that green-procurement stands out in sustainable procurement. Justifications to pursue and invest in green procurement include the need to address climate change and mitigation of over-exploitation of all scarce resources.

Even though the ultimate green procurement is viewed as total avoidance of purchase, businesses realize that this is not realistic. Some of the green procurement examples include using renewably sourced timber for construction, serving organic food in workplace canteens and purchasing energy-saving light-bulbs, just to mention a few. Zhu (2007) advises that in order for companies to develop and sustain green procurement, they should have properly formulated guidelines and procedures. These procedures should then be adhered to during purchases to ensure environmentally responsible procurement.

Application in sustainable development

Green procurement is applicable at every level of the economy starting from the central government to the private sector. In the central government, its application is mainly in designing investments and formulating criteria for spending. Today, governments are more concerned about meeting the needs of the present while being sensitive to those of the future. Solutions are formulated to encourage development today while ensuring that development in the future is not sabotaged. “While broad-based green procurement strategies are most prominent in the European Union, it is increasingly becoming common in other regions, particularly the Asian region” (Lin, 2011).

Green procurement is also applicable in devolved and local government. Like Erdmenger (2003) explains “at market-level, sustainable procurement is typically instrumental; authorities seek to address policy through procurement”. Local bodies and government departments can adopt green procurement to address buying challenges. Solutions arising from green procurement will contribute to environmental and community goals. It is further applicable in areas where equality and diversity are sought.

Most significantly, “green procurement helps local governments improve sustainability and reduce environmental impacts through developed toolkits such as the one by California Sustainability Alliance” (United States Transportation Security Administration, 2008). This enables them to create green jobs, reduce environmental damage and save money. However, for these benefits to be realized, procurement organizations must take a broad approach to green purchasing, reflect on localized economics and cross-cut green procurement targets.

Another area of application is the private sector. According to Sarkis and Qinghua (2010), “its proponents aspire to see its application across all areas of the economy”. The same author explains that influencing its application in the private sector is not straightforward. “This means that the private companies themselves have to be self-motivated to embrace the best practices in procurement, those that promote sustainability” (Kane, 2009). Application in the private sector is possible through shareholder pressure, a willing management and enlightened leadership among other principles. The government can influence the application of green procurement in the private sector indirectly through its purchasing power that presents a persuasive environment to them.

Approaches to green procurement

While there are no clearly defined structures under which green procurement should be implemented, there are two most plausible approaches. The first one is the product-based approach. This is where an organization begins by assessing their environmental credentials through its products’ movement and then moves ahead to assess that of their suppliers. This strategy is mostly applicable to those businesses who are want to use the process as a measure of the impact of a product for marketing purposes. It is also effective for those companies that want a vivid understanding of their suppliers and their processes.

The second approach is supplier-based where “an organization may analyze the CSR (Corporate social responsibility) management systems of a supplier and whether its practices conform with the law and with the CSR standards of “buying” organizations” (Esty and Simmons, 2011). This approach is used when an organization wants to measure the amount of environmental and social risks they are exposed to by their suppliers. If implemented correctly, it is an effective way to establish if a company’s suppliers meet its environmental standards.

Role of CSR

Asian Development Bank (2005) defines CSR as a “built-in, self-regulating mechanism, whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms”. CSR activities affect investors, management, employees, consumers, communities, the environment, and other stakeholders. All these stakeholders play different roles to ensure CSR initiatives benefit each of them equally.

The right CSR initiatives in different regions are ensured through laws and regulations, awareness and training corporations on how they can benefit from CSR. Benefits are spread across all stakeholders and include supported development in communities, allowing employees a chance to participate in beneficial activities to the communities, building a reputation for a business and its brands, as well as support for government-initiated development activities and plans. Major challenges for corporations in their efforts to implement CSR include lack of finances, resistance by communities, lack of support by governments, and legal challenges that arise as a result of being involved in different community activities.

“Procurement businesses are beginning to include aspects of corporate social responsibility into their projects, but it is arguable that the role of CSR is still not clear” (Jonker, 2006). Every stakeholder has a role to play to enable the industry mature in its implementation of CSR. Investors have to be willing to input more finances to support CSR initiatives. Communities play a significant role in helping procurement companies identify social needs that need to be addressed. Clients play a role by putting pressure on procurement companies, as well every business that has a procurement department to do business responsibly.

Supply chain management

The concept of supply chain management resulted from increased competition in the grocery industry due to recession. Supply chain an industry body ensuring maximum responsiveness to consumer demands and minimizing costs in the supply chain. Through supply chain management, customers can be served better and faster. A relationship between customers and trading partners ensures that they are served at a minimum cost. “Advanced technology, infrastructure, business structures and competition calls for the most effective way of serving customers by delivering the right products, at the right time, and at the right costs” (Organization for Economic Co-operation and Development, 2000).

For supply chain management to benefit both businesses and consumers, there are prerequisites that have to be in place to ensure its effectiveness and efficiency. The most important and main focus areas are product replenishment, category management and enabling technologies (McNail, James and George, 2011). Category management enhances supply chain efficiency by addressing infrastructure concerns. Effective supply chain management is only possible if there is an effective and efficient infrastructure system in place. Infrastructure determines how accessible goods and services are, as well as the level of interaction between consumers, manufacturers and the rest of the supply chain.

Category management gives it an exceptional success by optimizing introductions, assortments and promotions. Efficient customer response is not just about timely delivery but also about ensuring quality deliveries in appropriate packaging. Optimizing assortments and promotions give consumers quality and a variety to give each one of them exactly what they want.

The second prerequisite is the product replenishment. Product replenishment focuses its attention on integrated supplies, automated store ordering, continuous replenishment and a synchronized production. It is also the element of the supply chain which ensures reliable operations through cross-docking and other available systems. Suppliers and consumers rely on these elements to have correct deliveries made at the right time and in correct quantities.

There are different paths identified in supply chains from the manufacturer to the consumer. “The aim of product replenishment is to integrate the different paths to a logistic chain which will create one effective and efficient route to ensure the consumer is constantly reached” (Humphreys, Shiu and Chan, 2001). Several logistical methods such as cross-docking and order support systems make it possible and fulfil the product replenishment prerequisite for the supply chain to work.

The last prerequisite is enabling technologies. They include electronic fund transfer, electronic data interchange, activity-based costing and item coding, and database maintenance. Technologies such as the electronic data interchange allow everyone on the supply chain to minimize their inventories by reducing order processing time (Humphreys, Shiu and Chan, 2001). They allow a direct connection between different parties on the chain without a need for physical interaction. Different parties can receive messages which were left while they were offline and this keeps the communication going.

Information technology has made it easier for the supply chain to communicate and deliver on time, which is the whole essence of the chain. Enabling technologies have made it easier to deal with logistical problems which become bigger as markets become more global. Database management makes it easy for suppliers to trace their products while electronic fund transfers make payment convenient and safer. Other prerequisites include demand management and supply management. Demand management makes it possible to manage forecasted demand while supply management is the process and method of modern buying (Organization for Economic Co-operation and Development, 2003).

Overview of government green procurement in Hong Kong

Public sector

Procurement in the public sector adopts principles recommended by a study of the development of environmentally responsible product specifications and review on market availability carried out in the year 2000. There are marketing schemes in tender valuations during the purchase of stationeries and paper products (Ho, 2006).

Environmentally preferable products are given priority during government procurements. These include recycled paper, water-based paints, ultra-low sulphur diesel and rechargeable batteries, just to mention a few. The tables below show the state of green purchasing in Hong Kong by the government in the period between 2002 to 2004.

Table 1. Green purchasing by the Government Logistics Department (GLD) between 2002 and 2004.

Table 2: Recycled paper purchased by GLD.

Private sector

Green procurement in the private sector is purely on a voluntary basis. There are no laws or regulations obligating businesses to adopt green procurement strategies. The scope of green procurement in private businesses is dependent on the company’s policies, the cost of environmentally preferable products and measures, as well as the commitment of management (Chan, 2008). It is also highly dependent on customers’ demands and the company’s response to them. Public pressure has in the recent past played a significant role in the company’s policies, especially those that touch on the environment.

It is also notable that private companies are more driven by the benefits they gain from initiatives. “Organizations practising sustainable procurement meet their needs for goods, services, utilities and works not on a private cost-benefit analysis, but with a view to maximizing net benefits for themselves and the wider world” (Lee, 2009). This may result in resistance to good policies and measures that do not offer them any benefits.

However, from studies carried out in the past, it is evident that sustainable development and a preserved environment benefit every business regardless of the industry they have invested in. It is for this reason that the private sector should be equally aggressive in researching on and establishing measures that promote sustainable development. “In doing so they must incorporate extrinsic cost considerations into decisions alongside the conventional procurement criteria of price and quality, although in practice the sustainable impacts of a potential supplier’s approach are often assessed as a form of quality consideration” (Organization for Economic Co-operation and Development, 2010).

The private sector can be encouraged to get involved through performance measures used to compare the cost of implementing green procurement and what the cost of ignoring it. By accurately measuring the extent to which the economy and environment have been impacted by the existence or lack of green procurement processes, it is possible to evaluate the value of their investments and their effectiveness. If the benefits are not felt, the cost of investment becomes more than the benefits accrued. In this case, the model is failing and maybe there would be a need to restructure how legislation and processes are developed. The evaluations play an important role in the decision making processes over future developments.

Recent developments

Since the year 2000, the government of Hong Kong has placed a significant level of importance in green procurement by starting with the public sector through the Government Logistics Department (GLD) under Hong Kong Special Administrative Region (HKSAR). Through the department, the government has developed green specifications for products that it regularly procures. By placing these products in categories, the government is able to identify those that have green alternatives. Out of the 38 categories reached at by the GLD, 19 are considered to have “green” alternatives which the government gives preference. To understand these measures better, Zhu (2007) explains that “in implementing green purchasing within the HKSAR Government, the Stores Procurement Regulations (SPR) were amended in 2000”. The author explains further that the amendments were done “to require government departments to give consideration, as far as possible and where economically rational, to purchase products with improved recyclability, higher recycled content, greater energy efficiency and reduced use of toxic substances, amongst others” (Zhu, 2007).

In 2008, the country’s green purchases amounted to HK$ 1.76 billion, compared to the total procurement made which was worth HK$ 3.92 billion (Ho, Nicholas and Gilbert, 2010). A policy framework published in 2005 outlines the government’s plan for a period of 10 years beginning 2005 to 2014. In this plan, the government pledged to a green procurement policy that gives directions and guidelines on how government procurement should be done. The plan covers the process of selecting, purchasing and maximizing the use of environmentally friendly products and services. It outlines that preference should be given to those products whose usability is sustainable without compromising the environment. Following up on the plan, Ho, Nicholas and Gilbert (2010) report that “after a task force in economic challenges meeting in June 2009 and in the policy address 2009-10, the HIKSAR chief executive further announced that the government will expand the scope of green procurement and take the lead in making Hong Kong a green city through legislation”.

Methodology

Background

Primary data used in this research project will be collected from a survey conducted on 30 people from the sector. The survey will be conducted in cooperation with organizations and staff federations in the procurement industry. It will be aimed at informing the various discussions on green procurement, as well as its role in a sustainable environment, the economy and livelihoods of people in different economies, in this case, Hong Kong. Involving all people at different levels of professionalism in the sector, regardless of their race or religion, will ensure that the survey collects comprehensive information and all stakeholders in the industry are represented.

The initial findings of the data will be focused on these main questions;

1. What are the genuine obstacles as well as incentives for the organizations to implement green procurement?
2. What is the influence of external factors on the planning and implementation of green procurement in Hong Kong?
3. Is green procurement a necessary trend or an optional development to organizations in Hong Kong?

The survey will target 30 participants. Such an average number will ensure that more views are represented and the data is not too much to sort out and.

Another source of information will be from an interview with 2 experts in the procurement industry, one from a company and one from a university procurement department. Participants will be chosen from their level of experience and understanding of professional development in procurement. The interviews will be aimed at understanding how the culture of green procurement is appreciated in Hong Kong organizations, by studying how they are able to ensure sustainability and minimal damage to the environment. The interviews will further discuss the need for green procurement development and training in Hong Kong organizations and its role in the region’s development.

The interviews will be used to further establish how this has been taken up in various levels of the region including in the government level, local level and the private sector. They will further be used to seek the experts’ opinion on how through regulations, the sector is being forced to establish green channels of doing business. The interviews will also be significant in discussing the role of respecting organizations internal environmental policies and how green procurement mechanisms can be used as a solution to different challenges facing environmental sustainability in Hong Kong.

Another significant topic of discussion with the interviewees will be stakeholders’ satisfaction and their role in ensuring quality in the sector. This topic will cover promotions and policy development, as well as how they are being addressed in the procurement sector. Process improvement will be analyzed to understand how by making effort to make a production system better, the procurement processes can achieve sustainability. Other important measures to be discussed in the interview will include the role of a good corporate culture, policy enrichment and effective implementation.

Data analysis and discussions will be written from the findings in different academic resources, the survey and the interview. It will review and classify findings from different statistics and the situation in Hong Kong as far as skill green procurement is concerned. It will also present statistics and information collected from the outlined sources to get a professional understanding of the topic. The findings will be used to structure an argument and different discussions. The industry’s position and capability to manage already in place will also be reviewed, discussed and evidence presented. The results will be interpreted and a more detailed examination given.

Participants

To collect comprehensive data and information, this study will be conducted on 32 participants. 30 will participate through questionnaires while the other 2 will be involved as interviewees. It will be open to employees of one of the leading procurement companies in Hong Kong. The survey will encourage participants from all categories and levels of the profession in the company to ensure equal representation. It will target 30 participants, a number that was decided on to ensure easy manageability of data.

Professionals in the area of procurement will account for 70% of the participants. Half of these are expected to have not less than 5 years of experience in the field. The remaining 30% of the participants will include those with experience in environmental matters, including those working for organizations that offer environmental solutions, government representatives in the environment department, and non-governmental organizations working to rehabilitate the environment. To ensure gender balance in the study, 50% of the participants will be female, while the remaining percentage will be male. There will be an age limit of 30 years to ensure information is only collected from experienced participants. The questionnaires will be accessible to the participants for a set period of time to ensure participants fill them at their own time without pressure.

Data collection will also include two interviews. The interviewees are expected to have a good understanding of procurement and the environmental aspects of procurement. They will be further expected to understand green trends in the procurement industry, especially in Hong Kong. Since the interviews will be used to discuss the existing trends, challenges and future solutions to environmental challenges in procurement, a long term experience in this area of study will be required. It is expected that an interview with the head of the procurement department of a university in Hong Kong will meet the expectation of the study. Another proposed interview will be with the procurement department of a sizeable property developer in Hong Kong.

Recruitment

Recruitment will be done by using social network and online forums to reach out to targeted participants. The snowball technique will also be used to reach the targeted number of participants required for the study. In this technique, people familiar with the study will be used to reach out to more people who will then be directed to the research’s weblink. For the interviews, the participants will be contacted on the phone by fetching their numbers from directories. All participants will be presented with adequate explanations and guidelines for the study. All participants will also be required to fill and sign a consent form agreeing to voluntary participation.

Data collection

The research methodology applied in this research project would be designed to achieve the set objectives of the paper. It will include the study of books, academic journals, online articles, past projects by different authors, government statistics and non-governmental bodies. To understand the background of the problem, literature relating to skill mix in the nursing sector will be reviewed. Primary data will be through interviews with experts and key stakeholders in the procurement industry.

Primary data collection will be done by administering questionnaires and doing interviews. Secondary data will be collected from past research projects, government and non-governmental statistics and other relevant sources. The questionnaires will be filled online and will be divided into three sections. The first section will be used to understand the participants’ understanding of green procurement. The second section will seek to understand the participants’ view of the current position of green procurement in Hong Kong. The third section will be used to understand their views on what needs to be changed and what should remain as it is, as well as the benefits of undertaking the suggested solutions.

Case design

The case design will be comprehensive and complete enough, to allow stakeholders to understand and utilize the information in decision-making easily, whether they were part of the research team or not. These stakeholders include consumers, manufacturers, logistics companies, distributors of various products, environmental bodies in the country, and the government of Hong Kong. Reviewing the case design will be critical to ensure its validity and applicability. Cross-comparing the case design and its outcome, with similar research projects conducted in the past, will help this research to highlight commonalities and identify areas where the results need to be strengthened. Data analysis tools and software will be beneficial when sorting out data and identifying patterns. As Vardeman and Jobe (2001) argue, “data analysis techniques can help gain greater insight into trends being investigated”.

Justification of the methods

Appreciative inquiry

“Appreciative inquiry is based on the assertion that problems are often the result of our own perspectives and perceptions of phenomena” (Vardeman and Jobe, 2001). The approach will be applicable when identifying what has worked well in the past and applying it in the current situation. This proved the most applicable methods when researching on the procurement sector’s development and strategic planning. The method will prove particularly relevant when gathering information that will help the sector develop its development plan.

Case study design

According to Jupp and Roger (2006), “case studies are particularly useful in depicting a holistic portrayal of a client’s experiences and results regarding a program”. In order to implement any green initiatives, the sector will need to confirm the effectiveness of its programs and processes. This entails evaluating their strengths, weaknesses and threats. A case design in this research will include arranging a wide range of information from different sources and similar projects in the past from the procurement industry and other stakeholders. Comparing the results and patterns of the past project will then help this research make relevant conclusions and recommendations. The evaluation will include both straightforward comparison and in-depth analysis.

Interviews

Interviews are a brilliant way to pursue in-depth information about a project. They are particularly helpful when a case needs follow-up, and when answers are required from a particular person (Jupp and Roger, 2006). The best way to get information during interviews is to ask open-ended questions. Preparing for interviews will involve choosing settings with the least level of distraction, explaining the purpose of the interview to the interviewees, explaining the purpose of the interview to them, and recording it for reference purposes. This method of research will be beneficial when trying to understand the concept of green procurement, how it can be made better, and any other information that does not involve a large target group.

Questionnaires

Questionnaires will be the most convenient and easy way to collect data from a large population. They are easy to design, and since they do not require a lot of time, it is easy to have respondents to cooperate. Their disadvantages include the fact that they do not allow the researcher to examine complex issues. Since the target group in this research project will be 30 people, questionnaires are considered the most efficient way of gathering information and opinions from such a number of people.

Data analysis

Vardeman and Jobe (2001) define data analysis as “the process of inspecting, cleaning, transforming, and modelling data with the goal of highlighting useful information, suggesting conclusions, and supporting decision-making”. Data analysis comprises of diverse techniques depending on the type of data, and expected outcomes. When conducting a study on a wide topic such as procurement, data mining is an indispensable technique since it involves discovering knowledge, as opposed to describing it.

“In any study focusing on attitudes and perception, the importance of primary data cannot be over-emphasized” (Vardeman and Jobe, 2001). In such a project, it is expected that at least 90% of the questionnaires distributed will be returned and filled correctly. Interviews will be scheduled early to guarantee enough time for preparation by participants. Secondary data will be extremely valuable and will be collected to augment the research. Before any data is collected, permission will be sought from different authorities such as the relevant ministries and organizations where participants work. An initial visit to these organizations will be crucial for introductory purpose, familiarization as well as seeking consent for the research project.

Data analysis tools and software will be beneficial when sorting out data and identifying patterns. As Jupp and Roger (2006) argue, “data analysis techniques can help virtually any research project gain greater insight into trends and insights in the area of study”. Available data analysis tools today include business intelligence platforms, online analytical processing, excel power, among many others. Answers to close-ended questions will be analyzed in percentages while others will be individually analyzed and discussed.

Material

Participants will be required to fill a three-part questionnaire. The questionnaires will be available both online and in hard copy to allow participants to fill them at their own time and comfort. There will be an available weblink where those who want to fill them online can access them. The questionnaires will be available for a considerable duration of time depending on when they are distributed or open for participation. Materials needed for this activity will include the questionnaires themselves, a weblink and detailed instructions of what is expected of the participants.

Interviews will be conducted on the phone and any information required from government officials will be accessed online, after consent from concerned authorities. Sample investigative questions in this survey will include having participants explain what they understand by green procurement, giving examples of experiences they have had themselves in green procurement-related initiatives. Financial resources required for the project are outlined in the budget available at the appendices.

Project time schedules

This research dissertation will be completed in a duration of 3 months

Ethical considerations

There will be a number of ethical issues expected to arise during the formulation of this research study. These issues are further expected to arise during the collection of data for the project. One of the most fundamental principles to be followed in this research project is voluntarism participation. The principle requires that no participant should be coerced to participate in a research or give false information. A participant must also give consent before their identity is revealed if there is a need to do so, although, for such a project, anonymity would be applied.

During a research project, ethics also demand that the process must not subject the respondents to any danger or harm, a factor that will be taken very seriously. A researcher is supposed to apply the principle of anonymity to protect them from the consequences of revealing the information they do. It is also the respondent’s right to be treated with respect and dignity during the study. These ethical issues are expected to be adhered to when this research project is being conducted.

Limitations

Limitations expected in the research exercise include language barriers since the procurement industry in Hong Kong employs a considerable number of foreigners. This is expected to make it a bit difficult to collect views for the study. Lack of cooperation from some respondents is expected to be a significant challenge, as well as fears that they may not give accurate answers or take too long to respond. Conducting a research project is an expensive activity and finances will be a challenge. These challenges will be addressed by conducting the survey in English which is the language in which this paper will be written and using translators for participants that do not understand English. There will also be comprehensive explanations about the scope of the research to respondents to ensure they understand the objectives of the study. Explanations and elaborations are aimed at minimizing resistance and enabling respondents to complete the task as fast as possible. There will be a proper costing and allocation of funds before the task commences to take care of any financial challenges that may arise.

Green procurement as a subject raises very many controversies. Many businesses disagree on key issues related to the topic, especially those that are not cost-effective enough for them. While many feel that its initiatives could help solve several environmental challenges in the procurement industry, they disagree on how policies should be formulated and who should govern the changes that arise. Businesses affected by this industry feel that key decisions and their implementations should be left to them. Government officials on the other hand feel that it’s their responsibility to foresee any decisions that affect the environment. Such controversies and debates could pose as a challenge during the research. Too much-contradicting information and opinions may make it hard for the paper to come up with a well-supported conclusion.

Expected outcome

For the proposed study, it is expected that it will be possible to identify the role of green procurement in Hong Kong. The survey will be focused on green procurement and how it allows contributes to sustainable development. It will focus on the role of green procurement on transferability of environmental benefits to other areas of the economy and knowledge among consumers, suppliers and other stakeholders in the industry. It will study the allocation of different skills in Hong Kong to ensure green procurement is well understood and appreciated in the region.

Through interviews conducted on experts in the area of procurement and information gathered from government and non-government sources, it is expected that it will be possible to fully understand the background of the topic and present a comprehensive argument. It is expected that from the information gathered, it will be possible to identify what stakeholders have done so far, what is working and what has failed. Such information will be vital for any country or city with ambitions of using green procurement to promote sustainable development.

This research is significant to every citizen of the city of Hong Kong. Every region recognizes that the quality of the environment determines its future. By ensuring proper environmental decisions are made, a city’s investments and developments in other sectors are bound to produce results. The research is also significant to the procurement industry and those who have invested in it, policymakers and other involved stakeholders. It is significant to the direction that procurement training and skill development takes in the organization. It is further expected that the results will help shape the way procurement and its role in sustainable development are viewed.

Green procurement as an only solution or diversification technique will be researched on and discussed. From the literature review, using green procurement as a diversification technique serves more benefits than using it as the only solution to sustainable development. Diversifying the skills and responsibilities of those in the industry allows them to do perform more responsibilities while being able to deliver in their core responsibilities. This argument will be further researched, evidence gathered and evidence presented on which among the two best applies in achieving sustainable development in Hong Kong.

In the process, the research will also establish practical guidelines for the city of Hong Kong to maximize the benefits of green procurement. There will be practical guidelines for stakeholders in the industry considering it as an option to ensuring sustainable and safe development for future years. Necessary resources and steps will also be established through a comprehensive literature review on the subject. It is expected that steps and guidelines gathered on the same will be relevant, comprehensive and viable enough for easy implementation. Professionalism in the

The research will further help understand the value of quality in skills in the context of green procurement. Quality of skills in the industry is a term that has different interpretations depending on the approach that a person takes. It is defined as the extent to which a product or service satisfies a person or a group. Quality in procurement is the process of meeting the expectations of manufacturers, distributors and consumers. Quality of procurement in many industries is viewed in terms of the degree to which the probability of an optimum process’s outcome is influenced by the care services given. In this industry, quality is judged based on various domains. These domains include effectiveness, capacity, safety, equity access, reliability and timeliness (Chan, 2001).

Through the research, it will be possible to give suggestions and recommendations on the best quality improvement models. There are various quality improvement models in procurement that have been developed to ensure that services and products availed to clients are up to standard and that they meet the expected quality level. In long-term business processes and policies, extra attention needs to be to ensure that implemented measures are efficient enough and relevant for a long period of time. Applicable quality improvement models in procurement include Quality Assurance, Total Quality Management, Performance Improvement and the ISO standards, among others.

The research will be conducted with an understanding that green procurement is entrusted with a huge responsibility of improving the quality of life of a population. For regions and industries where procurement plays a more significant role than just ensuring the accessibility of goods and services, satisfaction is both paramount and critical. As more regions compete to have the best procurement processes in the world, several challenges and barriers are evident. Policy implementation has been a major obstacle for stakeholders who seek to invest in the industry. This is especially so when environmental matters come into place. The industry is strongly guarded by long policies and procedures of implementing even the smallest initiatives. The rate at which technological innovations and procedures become obsolete is also an issue of concern. As a result, small projects and initiatives which take too long to be implemented might end up being irrelevant by the time they are complete.

Available green procurement techniques include quality assurance which is involved with monitoring and evaluation procedures and techniques in a project to ensure that desired quality standards are met. It is applicable to ensure that goods and services at any level of the supply chain are up to the recommended standard. Important techniques in quality assurance include putting in place checking and monitoring measures. The process involves assessment of quality to identify outlying results so as to check if they indicate any inappropriate results.

Performance improvement is a significant technique easily applicable to green procurement to improve sustainability. Performance improvement is a concept that works towards continuous improvement and consistence in quality. It is more focused on instilling accuracy in a particular process rather than trying to single out the errors present (Chan and Lorett, 2008). It values the empowerment of individual processes through ensuring their capability to improve quality, organizational learning, awareness and being sensitive to the needs of those dependent on a process. This model encourages continuous improvement, identification and prevention of defects (Zhu, Joseph and Kee-hung, 2008a).

The research is further expected to help understand how organizations can be empowered to perform more through green procurement. When well equipped and trained, government and non-government organizations will be able to research on better processes. Organizations further need to be equipped to minimize wastage, a key pillar of green procurement. By implementing such initiatives, organizations that have not been able to utilize their procurement capabilities to improve on efficient will be able to do so.

The research is also expected to gather views and suggestions on the role of technology in the successful implementation of green procurement. Technology is important for effective management of key processes as the industry tries to implement and benefit from green solutions. “Technology influences management and workforce in any sector by analyzing production, resource impact, routine to non-routine operations, structure impact, industry impact and work impact as well” (Zhu, Joseph and Kee-hung, 2008b). It allows the stakeholders together with the workforce to match the resources available with technology, through different approaches. The management and leadership of organizations are able to run operations more easily changing techniques and processes to better and modern ones. Through such benefits, community green procurement can be taken to a level where it serves more purpose in different industries.

It is also important to note that green procurement features personnel administration, organizational management, industrial management and manpower management in procurement companies. People in an organization are a key determinant of how successfully designed measures are going to be and how long they will last. It is expected that these views will be discussed in the study. As the labour markets get more and more competitive and the need for talent becomes more obvious for optimum performance, human resource managers are facing major challenges as they try to get the best in the market, retain them and ensure they have consistent performance. The procurement industry has especially been hit by retention and staff relevance problem as a result of constantly changing needs in the field. Such challenges will automatically affect the way formulated policies and suggested solutions are implemented.

From the study, it will be possible to establish and discuss internal and external factors that influence the adoption and implementation of green procurement in Hong Kong. Internal factors to be discussed in the study include labour policies, training and support policy, shareholders and the labour market. External factors include government policies, legal factors, technology, social corporate responsibility and globalization as identified by Lin (2011). Since the procurement industry is a significant part of every region’s economy and involves external transactions, the behaviour of different economies has enormous effects on its operations. The role of economical changes and trend in how green procurement can be achieved will be discussed.

As Arimura, Nicole and Hajime (2011) argue, “successful industries are becoming more adaptable, resilient, quick to change directions, and customer-centred”. The procurement sector today is constantly changing and demands strategic planning and organization. Technological innovations such as Transport and Fleet Management Systems have made it easy for the sector to handle information related to skills, knowledge, training, trends and development. It is expected that through the interviews and study of different literature, it will be possible to confirm these arguments.

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Introduction

E-procurement is basically computerizing the process of procurement for any business. In e-procurement, the business-to-business and the business-to-customer interactions for the procurement of supplies and raw materials for a business are conducted through online transactions and electronic data interchange, and enterprise resource planning systems. The model for the interactions conducted through the electronic data interchange for e-procurement can vary depending on the requirements of the parties and the business. They can range from bid-based transactions to the discounted offering and special rates for special clients and customers.

E-procurement is supported by an electronic application that runs on the concepts of a supply chain/ value chain system. The procurement activities can be conducted through many types of e-procurement. The main six types however include options pertaining to using a web-based ERP system. In this, the procurement acquisitions and requisitions are conducted through the ERP system. The e-MRO option is similar to the ERP option but allows the business to order the management, repair, and operating supplies which are not relevant to the product.

The e-sourcing option enables the business to identify new suppliers for different categories of purchases. The e-tendering allows for sending requests to the suppliers in the online market and receiving their proposals. The e-informing option allows the business to gather data and information from the internal as well as the external parties that are involved in the e-procurement.

The main activities/ tasks that are associated with e-procurement pertain to indent management, tender management, auctions, vendor management as well as the management of contracts and catalogs.

The Current Procurement System at Grant Group

The Grant Group is a food products provider to the likes of supermarkets and food retailing companies. The company has about 20 buying specialists who operate using traditional and conventional procurement procedures. As a result in the dynamic and competitive market, the company has low margins to operate with.

The procurement agents in the company operate on a face-to-face contract dealing basis most of the time. However, some form of technical expertise is used by the company. a fully established technology-based solution is not used as the staff at the company has varying degrees of competency in information technology and computer system skills. The data transfer currently in the company is performed invoicing manually for the market inquiries, the quotations, purchase orders as well as shipping and dispatch details. For this hard copies of the documents as well as softcopies on mails and facsimile are employed in the operations of the business.

The business of the Grant Corporation is such that the business purchases materials from a range of suppliers. Some of the suppliers have very sophisticated management systems for the supply while others are still base on redundant and old legacy systems. The role of the IT function in the company has been to improve the customer interaction-based systems while the operations of the company have not been migrated to innovative business and enterprise management systems.

Proposition

The company should reevaluate and reassess the performance of all its business functions. The supply chain and procurement segment have to be reviewed in terms of their efficiency, their performance, their costs as well as their appropriateness of contribution to the business objectives and goals. Aside from this, a single platform system will have to be launched which will provide the company with the capability to have electronic transactions through electronic data interchange. The procurement system would be linked to the systems of the suppliers for the company. This will enable the company to keep track of shipments and dispatched goods that have been sent by the suppliers to Grant Corporation.

Specific requirements that will arise due to the system pertaining to human resources, IT as well as technical training and hardware/ software requirements.

The human resource requirements pertain to hiring technically skilled people to implement, manage and repair the e-procurement system. Internet and network administrators, as well as e-procurement specialist consultants, need to be hired. Aside from this, the staff with redundant jobs will need to be either relocated or released from the company.

The technical training requirements pertain to training the supply and procurement staff/ agents at the company to use the system. Their computer and technical skills pertaining to the system need to be enhanced to make them capable to use their systems.

The hardware and software requirements that will be arising pertain to the ERP system for the management of the business operations, a supply chain management module that highlights procurements activities as well. This should enable internet-based e-procurement activities. Aside from this, a server-based Windows platform will be required to run the ERP and e-procurement systems on the desktops. The hardware requirements pertain to sourcing the Laptops, desktop computers as well as establishing a centralized server with a data repository with data warehousing capability.

Aside from this e-procurement system will have to be monitored and evaluated for repairs and performance. Benchmarks can be made against the performance of the competitors to establish performance objectives and goals.

Success Factors

The main success factors that have contributed to the successful adoption of the e-procurement systems in the industries pertaining to the effort taken by the companies and their management. It is essential for the companies divulging in the e-procurement technology to know how much they are willing and able to spend. The companies should their homework specific to their requirements and expectations from the systems technology.

The right tools for the job need to be highlighted and a feedback loop on the progress of the development and the implementation of the system needs to be set up. Other success factors include aligning the business processes and the systems with the incentives and the objectives of the business and employing the continuous improvement [philosophy for the business operations. (‘10 Key Strategies to Assure e-Sourcing Savings & Success’, 2004) “Although e-procurement has substantially streamlined the procurement and coordination processes for indirect goods, many companies operate multiple e-procurement solutions.

For integrated procurement solutions, the paper recognizes the need for an overall procurement strategy and organization, an alignment of various e-procurement solutions along the procurement process, and the need for integrated system architectures. Companies also have to realize that no standardized e-procurement solutions exist” (Puschmann, 2005)

Barriers to Change

The main barriers that arise for change specific to the adoption of new technology for the implementation of e-procurement pertain to internal barriers. Research has provided “that the internal barriers impeded e-integration more than either upstream supplier barriers or downstream customer barriers” (Frohlich, 2002)

Some of the internal barriers which may arise pertaining to the lack of ownership for the project, fear about the quality of the new system, insufficient and incorrect knowledge about the system, lack of proper technology and human resources for the implementation, roll out, and employment of the e-procurement system as well as the current/ legacy system from which the data needs to be migrated to the new system. The most important barrier however is the commitment and the attitude of the management towards the e-procumbent system implementation in the business. “There is a need for education for all SME management on the benefits and drawbacks to using e-business solutions.

Inter-organizational information systems that are required to link supply chain partners can be a serious barrier to online solutions. There is a significant dependency among supply chain partners in decisions on adopting online links. Flexibility, agility, and ability of SMEs can help them to use partial e-business solutions for low volumes of business, but this approach can be very ineffective when transaction volumes are large.” (Archer et al, 2008)

Expected Business Benefits from e-Procurement Introduction

The benefits that can be expected by the company pertaining to a highly efficient system for procurement, a faster and more efficient value chain for the company, continuous improvement based structure if operations, access to more suppliers on the internet, increased utilization of spot and special discounts offered by suppliers online. The company will also be able to connect to the key suppliers through the online medium, which will save money and costs for the company in terms of transaction and communication costs. Moreover, paperless buying would be introduced in the company along with an online/ electronic framework for requesting invoices, quotations, analyzing the quotations, and presenting the need to ship or dispatch the data as it would be shared through the internet medium between the parties involved.

Advantages of Introducing e-Procurement

The advantages of the e-procurement system include the fact that the Grant Company is able to get access to the right suppliers at the time when supplies need to be ordered for the operations of the company. The real-time-based transactions reduce the transaction costs, time as well as complexity by providing a direct interface between the supplier and the company, enabling the company to get more work done in the shortest time possible.

Moreover, the just-in-time techniques can also be supported by the e-procurement systems. “In general, the biggest advantage of e-purchasing is the reduction of inherent inefficiencies in the purchasing process, leading to lower product costs. An additional advantage is the availability of analytical data in real-time, data that can be used to manage inventory to quickly take advantage of additional cost-saving opportunities.” (Morrison, 2001) The company is also able to reduce its postage handling and stationary costs through the paperless operations of e-procurement

E-commerce-based systems like e-procurement are also beneficial in terms of providing a medium for two-way communication, identifying the trends and the problems in the markets as well as enabling the company and its suppliers to respond much more quickly to stock-outs. The companies are also able to grow much more quickly with the increased technological resources and efficiency in their operations with the e-procurement system.

Moreover the small, as well as large scale operations of the business, are able to attain advantages from the implementation of the e-procurement system. “Right now, large companies are leading the way in e-procurement. Because of the costs involved, smaller companies are lagging behind. One way for smaller organizations to take advantage of e-procurement’s benefits is to consider using application service providers (ASPs). By running their e-procurement and finance software on an ASP’s hardware, the smaller company can get the benefits of e-procurement without the cost of actually owning and maintaining the hardware. “(Roche, 2001)

Disadvantages of Introducing e-Procurement

The main disadvantage which is generated through the implementation of an e-procurement system is that the power is shifted on to the vendors who can take advantage of the competition in the market for their own benefits. The increased reliance on operating on the paperless and online platform while establishing links with the suppliers in the market. In such a situation the suppliers have access to information about the company, which others might not have. The vendors in this situation can take advantage of the information provided to them and share them with the competitors of the company in the market for personal benefits.

Other disadvantages pertain to the technical problems which can arise due to the use of the e-procurement system. The EDI technology implementation can result in snags as well whereby the purchase orders and the invoices generated can have errors. These errors however are usually caused by humans at the time of configuring the systems. “Additionally, Information Week, explains that numerous firms “sign on for E-procurement without anticipating the long road ahead.

They dive into projects only to learn that E-procurement applications are limited in the types and scope of purchasing activity they address. Managing electronic catalogs with thousands of products, providing employees with the right mix of products and adequate information about them, and making it easy to search for items can also be tricky, requiring additional tools and threatening the efficiencies promised by moving purchasing to the Web.” (E-Procurement – PROCUREMENT METHODS, PROS, AND CONS)

Conclusion

It is recommended that the Grant Group should implement the e-procurement solution as the benefits attained by the company in terms of more reliable procurement operation, efficient and cost-effective business processes, as well as leverage it would provide the company in the market and the industry, outweigh the disadvantages and risks the company is exposed to.

References

‘E-Procurement – PROCUREMENT METHODS, PROS, AND CONS’. Web.

‘Internal Barriers to e-procurement adoption’. Web.

2004, ‘10 Key Strategies to Assure e-Sourcing Savings & Success’, Supplier Selection & Management Report, Vol. 4 Issue 11, p1-13. Web.

Archer, N., Wang, S., Kang, C., 2008, ‘Barriers to the adoption of online supply chain solutions in small and medium enterprises’, Supply Chain Management, Vol. 13 Issue 1, p73-82, 10p. Web.

Frohlich, M.T., 2002, ‘e-Integration in the Supply Chain: Barriers and Performance’, Decision Sciences, Vol. 33 Issue 4, p. 537-556, 20p, 6 charts, 3 diagrams. Web.

Morrison, M.H., 2001,‘E-PROCUREMENT’, Nursing Homes: Long Term Care Management, Vol. 50 Issue 7, p. 8, 3p. Web.

Puschmann, T., 2005, ‘Successful use of e-procurement in supply chains’, Supply Chain Management, Vol. 10 Issue 2, p. 122-133, 12p. Web.

Roche, J., 2001, ‘ARE YOU READY FOR e-Procurement?’, Strategic Finance, Vol. 83 Issue 1, p. 56-60, 4p. Web.

Executive Summary

This paper analyses the conditions and terms of the contract between ADCO and Emirates Transport for the provision of light transport services coming into effect on the first April of 2014. The contract terms influence the distribution of coercive and expert power in a positive way for ADCO by introducing effective consumer protection mechanisms, such as the system of disciplinary actions and the right to make final decisions on issues involving substitutions and vehicle acceptability.

Also, the contract is beneficial to the service receiver in terms of knowledge power since it grants ADCO the right to access and audit the contractor’s facilities and information (HR, financial operations) peculiar to the provided services. The contract terms allow ADCO to effectively reduce different types of risks, such as poor performance, delays resulting from the contractor’s fault, waste mismanagement, or the contractor’s purchasing of goods from ADCO’s competitors. To sum up, ADCO is recommended to continue the mutually beneficial relationships and consider implementing communication strategies suitable for low-power and high-interest stakeholders.

Introduction

The readiness to agree to concessions and make compromises does not remove the significance of contractors’ interest in conducting highly profitable activities while minimizing obligations and risks as much as possible. This paper contributes to the discussion of the issues of power and risk distribution by evaluating the contract for the provision of light transport services. The sides to the contract are Abu Dhabi Company for Onshore Oil Operations (ADCO) and the Emirates General Transport and Services Corporation (Emirates Transport).

Background Information

ADCO’s contractor is one of the largest providers of public transportation and logistics services in all seven emirates making up the country. The contractor’s transportation services are mainly utilized by educational institutions and various organizations in the government sector (Emirates Transport, “Who We Are”).

The service provider collaborates with multiple public sector organizations, including the UAE Ministry of Education, the Emirates National Oil Company, the Union Railway, the Emirates Post Group, and other clients (Emirates Transport, “Who We Are”). ADCO, a part of the ADNOC Company Group, is a leading onshore gas and oil producer in the Emirate of Abu-Dhabi that operates eleven gas and oil fields (ADNOC Onshore). In the contract with Emirates Transport, this organization goes under the name ADCO, but its present brand name is ADNOC Onshore.

The Five Forces Framework proposed by Michael Porter is widely used to analyze factors contributing to competition in particular industries, thus informing businesses’ decision-making peculiar to strategic development. Regarding its additional uses, the analytical framework applies to much more specific units of analysis, such as particular opportunities for making contacts with organizations in the public sector. Taking the forces into account, it is possible to deduce that the supplier of vehicle rental services to ADCO is currently in a relatively safe position when it comes to the competitive landscape (see figure 1).

New competitors’ emergence is unlikely since Emirates Transport fills the transport rental niche by having contracts with different companies in the government sector, ranging from the UAE Ministry of Interior to the Department of Transport (Emirates Transport, “Emirates Transport Service Guide” 21).

Another factor that would reduce the potential incumbents’ willingness to enter the market is the accessibility of Emirates Transport’s services in more than forty locations throughout the territory of the UAE (Emirates Transport, “Emirates Transport Service Guide” 18). The threat of substitute products is non-existent in this case since there are no services outside of the transport rental market that would provide the same benefits. Emirates Transport actively invests in innovation and uses smart tracking devices to improve fleet management and control and offers complex follow-up support and integrated services, which contributes to its uniqueness as a service provider to large organizations.

The supplier’s fleet includes vehicles manufactured by top car producers that enjoy popularity among individuals and corporate clients, thus having power in the market. Emirates Transport is much less likely to sustain unbearable losses from car price fluctuations than smaller transportation and car rental services. Finally, Emirates Transport has to raise quality standards to represent the UAE Government honorably, but buyers, when it comes to the government sector, do not have plenty of service providers to choose from.

The total fleet of Emirates Transport consists of more than 30,000 cars, buses, trucks, and other types of vehicles, and the corporation employs over 10,000 qualified drivers and 2,000 maintenance specialists (“Emirates Transport Service Guide” 1). This access to abundant human and technical resources makes Emirates Transport capable of meeting the needs of organizations in the government sector, thus making the corporation attractive as a contractor. At the same time, Emirates Transport sells its services in high volume and to well-educated buyers, which increases buyer power (Emirates Transport, “Annual Report 2018: Transforming to Stay Ahead” 17).

Contractual Terms and the Distribution of Power

According to the text of the contract, Emirates Transport takes on the obligation to provide high-quality light transport services to ADCO and accepts responsibility for a wide range of tasks associated with such services. In concordance with the formalized written contract, Emirates Transport shall work diligently and apply force to meet the expectations of ADCO regarding several types of services. The scope of service includes the provision of properly functioning vehicles to ADCO and transport maintenance and management services for eight types of light vehicles in four geographic areas, including Abu Dhabi, BAB, NEB, TPO, and other areas that ADCO may want to add in future.

Emirates Transport undertakes to provide any resources needed to fully meet ADCO’s expectations at its sole cost and expense. Examples of such resources include the appropriately trained human resources, supervision, and staff training activities, equipment for vehicle maintenance, and other materials critical to timely service provision. Thus, Emirates Transport is fully responsible for bearing employee remuneration expenses when it comes to its staff members and any other individuals or organizations that assist it in the provision of services to ADCO.

For its part, ADCO shall provide Emirates Transport with information and assistance needed to obtain customs duties exemption and any permits to work from ADCO or other ADNOC subsidiaries. Upon receiving the correctly prepared invoices from Emirates Transport, ADCO has thirty days to make the full payment or start alternative actions, such as requesting credible evidence of Emirates Transport’s expenses, and so on.

The size of an organization plays a critical role in assessments related to the distribution of power associated with entering into mutual agreements. The total number of employees in ADNOC Group exceeds 55,000 people, whereas Emirates Transport has more than 17,000 employees (“Emirates Transport Service Guide” 1). ADNOC Onshore makes part of one of the largest organizations in UAE, and the difference between its size and the size of its contractor is also evident when it comes to annual revenues.

Mendelow’s matrix is a simple and effective tool for stakeholder analysis that draws links between the types of interested parties and the preferred stakeholder communication strategies to be implemented (Cheshmberah 144). Applying this model, it is possible to conclude that Emirates Transport is a highly interested stakeholder that, however, does not have much power to influence ADCO’s organizational goals and ways of doing business (see table 1).

For instance, the analyzed contract contains multiple examples of ADCO’s attempts to reduce its contractor’s power by maintaining maximum decision-making control. At the same time, ADCO has the right to partially or fully terminate the contract for any reason without being liable for the contractor’s loss of anticipated profits or related damages (ADNOC 29). Considering that, Emirates Transport is interested in meeting ADCO’s performance expectations and complying with the contract terms to the maximum possible extent.

Table 1. Emirates Transport’s Position in the Mendelow’s Matrix.

Having analyzed the contractual terms accepted by both ADCO and Emirates Transport, it is possible to say that the agreement does not influence the distribution of power in a negative (for ADCO) way. To begin with, specialists from ADCO have managed to formulate the contractual agreements that help the organization to preserve maximum power and put ADCO in an advantageous position when it comes to the ability to control collaboration and influence another party’s behaviors. Legitimate power is the source of power that refers to an individual’s ability to impact others because of the position held in an organization (Twalh et al. 47).

The contract does not give much legitimate power to Emirates Transport. It is, among other things, evident from the contract term 7.2, according to which Emirates Transport should not appoint or replace its representatives without obtaining written approval from ADCO (ADNOC 19).

The contractual terms accepted by Emirates Transport and ADCO also result in the uneven distribution of power between the parties if attention is paid to imposing direct influence by sanctions. The so-called coercive power refers to an entity’s ability to use negative reinforcements, such as penalty charges or the threats of early abrogation of a contract resulting from dissatisfaction (Twalh et al. 47). As it follows from the clause 5.11e, the service receiver can exercise its coercive power in multiple ways, including the right to reject any vehicle that it regards as unsafe and lay Emirates Transport under an obligation to retire and replace the vehicle without delay or face immediate disciplinary actions (ADNOC 40).

This aspect of the agreement is advantageous for ADCO in many ways; most importantly, by introducing it, the company reduces the risks of getting unsafe services that could cause damage to its property, employees, or even reputation. Additionally, by reserving the ultimate right to decide which vehicles should be replaced, ADCO effectively reduces the risks of fraud associated with other experts’ involvement in the procedure of vehicle condition assessment.

ADCO’s coercive power also allows it to take all remedial actions that it considers necessary (withholding direct payments to the contractor, terminating the contract on an ex parte basis, confiscating the performance bond, or alternative actions) in some instances. As for particular examples, ADCO can influence Emirates Transport’s employee relationship practices by implementing the mentioned actions following the contractor’s inability to comply with the UAE Labor Law and contractual obligations regarding wage payments (ADNOC 18).

The contract terms also contain detailed descriptions of how ADCO and its representatives will exercise coercive power in case of isolated incidents involving the contractor’s employees or equipment. According to the contract terms, ADCO introduces eight categories of disciplinary actions, ranging from formal warning letters to total deductions of specific vehicles’ pro-rated daily rates (ADNOC 59). With that in mind, the terms enable ADCO to punish the contractor for non-compliance in multiple ways.

To continue, the contract terms give more expert power to ADCO even though the contractor’s rights also include access to information peculiar to ADCO’s facilities and operations (Arora and Rao 4). Concerning expert power, in many cases, the terms of the agreement enable ADCO’s representatives to act as the sole judges of the evidence. For instance, when evaluating a case of non-compliance that is not explicitly discussed in the contract, ADCO can use its expert power to categorize the case at its sole discretion (ADNOC 59). Similarly, ADCO has the right to make final decisions concerning whether the substitutions for vehicles, equipment, or any materials offered by the contractor are adequate (ADNOC 15).

Regarding knowledge power, ADCO’s contractor can access information about ADCO’s operations, plans, and assets if it influences the contractor’s ability to fulfill its obligations. This fact, however, does not give much power to Emirates Transport since it is obliged to use and share such information only with ADCO’s consent and solely to deliver the specified services in full and on time (ADNOC 28). Apart from information concerning equipment and facilities, the contract grants ADCO the power to access information about the contractor’s workforce size, utilized employment conditions, staff members’ skills and experience, duty rosters, and other types of documents (ADNOC 19).

ADCO’s knowledge power also finds reflection in its and its representatives’ right to copy, access, and audit the contractor’s printed and digital documents relating to payments to be submitted by ADCO (payroll files, receipts, expense support documentation, etc.) (ADNOC 22). Considering this and the fact that no non-disclosure obligations accepted by ADCO are mentioned in the contract, ADCO seems to possess more power than its contractor when it comes to knowledge.

Risks between the Supplier and ADCO

Government-owned organizations predominantly prefer to take the risk-averse approach to contracts with suppliers, which is the case of ADCO. To prevent many disputes related to contract implementation and address risks related to amendments, negotiators should develop guidelines concerning which party has the authority to make amendments and whether other parties can reject them (CIPS; CIPS Knowledge 3). The contract terms accepted by ADCO and Emirates Transport contain such specifications that significantly reduce the risks of unmet needs for ADCO. Thus, if ADCO needs additional drivers or vehicles beyond what is specified in the contract, the contractor has about two weeks to comply with the request or provide evidence of the non-availability of the required vehicles (ADNOC 38).

Both parties may face various adverse events, but the supplier seems to have taken more risk compared to ADCO. Using Porter’s analysis of the contractor, it is reasonable to suggest that the moderate intensity of rivalry will contribute to the contractor’s motivation to perform at its best to avoid early termination of the contract (figure 1).

Additionally, common risks are linked with the provision of false or inaccurate information (“Misrepresentation;” Weitzenböck 12). ADCO effectively addresses this issue by demanding compliance with its code of conduct for third parties (ADNOC 6). In general, ADCO is in a favorable position when it comes to collaboration with Emirates Transport since it is well-protected, and the potential threats are not very likely to happen (see table 2).

Table 2. SWOT Analysis: ADCO’s Collaboration with the Contractor.

STEEPLE analysis is an assessment tool that focuses on external factors affecting businesses and can be helpful when it comes to risk analysis. Certain asymmetry of power observable in the contract between ADCO and Emirates Transport gives rise to the unequal distribution of risks between ADCO and the supplier. As for the socio-cultural factors affecting collaboration and risks between the parties, religious customs of the areas in which ADCO operates may result in requests to change the contractor’s working schedules (ADNOC 15).

Another socio-cultural factor refers to the immigrant workforce – according to the contract agreement, the contractor is solely responsible for obtaining all documents necessary to import foreign workforce and meet these employees’ accommodation, educational, healthcare, and daily living needs (ADNOC 18).

The technological factors specifically relevant to the case are presented by the use of innovative vehicle monitoring systems. As per the contract, the contractor will have to use ADCO’s in-vehicle monitoring system (IVMS) equipment with due care and diligence and return it in proper condition (ADNOC 46). Any tampering with such devices should be recognised as violations of HSE requirements and incur disciplinary actions (ADNOC 59).

The environmental forces impacting the parties to the contract include being expected to comply with environmental protection regulations. The contractor, for instance, is held responsible for observing waste disposal practices approved in the UAE, including the use of the customer’s waste disposal facilities based in Al Ruwais (ADNOC 16). Unpredictable factors, such as weather, may also incur risks on the contractor and even ADCO since adverse weather conditions (excluding natural disasters) are not classified as force majeure circumstances (ADNOC 32).

The contract terms do not explicitly discuss any specific political factors that can create risks for ADCO. The contractor, at the same time, faces risks in case of its employees’ dissatisfaction with employment terms since any strikes or protests involving the contractor’s staff are excluded from the definition of force majeure causes, and delays resulting from such events should lead to disciplinary actions (ADNOC 32).

To continue, both parties are greatly affected by certain economic factors. As part of the ADNOC Group, ADCO is interested in preventing losses resulting from the contractor’s collaboration with its key competitors, such as Saudi Aramco. Therefore, the terms require the contractor to give preference to Abu Dhabi subcontractors and merchants whenever practical, including using diesel oil provided only by ADNOC or its official distributors (16). Another economic factor affecting ADCO is the risk of cost overruns resulting from unexpected circumstances that the contractor cannot control. For instance, increases in fuel prices by more than 20% should lead to the revision of vehicle hire rates on a negotiated basis (ADNOC 67).

Regarding the legal factors, the contractor is obliged to comply with the UAE Labor Law in any aspect of its collaboration with employees, including the timely and full payment of wages, overtime work wages, paid day-offs, workers’ health insurance, and so on (ADNOC 72). The contractor is also obliged to indemnify ADCO against any sort of penalties resulting from alleged violations and infractions of rules and laws by Emirates Transport and its employees/agents and defray all of such expenses (ADNOC 31). Concerning ethical forces affecting the parties, the contractor is anticipated to get acquainted with ADCO’s Third Parties Code of Conduct and comply with all of its provisions (ADNOC 30).

Conclusion

To sum up, the terms accepted by Emirates Transport demonstrate its readiness to seize on an opportunity for building strategically important partnerships. The contract grants significant coercive and knowledge power to ADCO, enabling it to act in a way to minimise the risks of receiving unsafe or inappropriate services. With that in mind, from ADCO’s perspective, the contract can be regarded as a valuable opportunity.

Recommendation

Based on the evaluation of the contract terms, the following recommendations can be provided to ADCO:

• Continue to collaborate with Emirates Transport on the previously agreed terms and conditions;
• Keep the service provider motivated and informed by resorting to different strategies, such as meetings, communication with the contractor’s personnel, and facility audits;
• Make sure that the contractor gets only accurate and up-to-date information about ADCO from ADCO’s managers and employees;
• Consider developing strategies to reduce the risks of unintentional disinformation of the contractor by ADCO and prevent associated expenses or delays.

References

ADNOC Onshore. “Who We Are.” ADNOC. Web.

ADNOC. Contract No. 15509.01 Between Abu Dhabi Company for Onshore Oil Operations (ADCO) and Emirates General Transport and Service Corporation for Provision of Light Transport Services. 2014.

Arora, Saloni, and Rableen Kaur Rao. “Integrating Leadership, Power and Politics and Its Impact on Organization.” IMPACT: International Journal of Research in Humanities, Arts and Literature, vol. 6, no. 4, 2018, pp. 1-6.

Cheshmberah, Mohsen. “Projects Portfolio Determination Based on Key Stakeholders’ Expectations and Requirements: Evidence from Public University Projects.” Journal of Project Management, vol. 5, no. 2, 2020, pp. 139-150.

CIPS Knowledge. P&SM: Writing Contracts. 2013. Web.

CIPS. “Procurement and Supply Cycle.” 2014. Web.

Emirates Transport. “Emirates Transport Service Guide.” Web.

Emirates Transport. “Annual Report 2018: Transforming to Stay Ahead.” 2018. Web.

Emirates Transport. “Who We Are.”. 2019. Web.

“Misrepresentation.” The Free Dictionary by Farlex, n.d. Web.

Twalh, Abdulaziz Awad, et al. “Power and Influence: CEO Power and the Use of Tactical Influence.” Journal of Management and Strategy, vol. 7, no. 2, 2016, pp. 46-52.

Weitzenböck, Emily M. English Law of Contract: Terms of Contract. Norwegian Research Center for Computers & Law, 2012. Web.

The success of procurement executives in a firm depends on their ability to develop effective purchasing operations and execute them timely without bloating the firm’s expenditure. Procurement managers have to optimize the firm’s profitability and enhance the firm’s long-term survival. Therefore, procurement managers have to strike an optimal balance between the firm’s desired level of customer service and satisfaction, and the accompanying costs as Rink and Fox (2011) postulate.

The task of procurement executives is to gather information on potential suppliers and evaluate them, conduct value analysis, and then expedite shipments to consumers. Following herein is an exposition of General Electric Company’s procurement and acquisition practices touching on the coordination and acquisition with actual product demand, procurement services inventory management, and the scheduling of production supply chain management.

General Electric Company (GE) is currently producing on a lean Six Sigma product development process. While quoting a GE’s investor update in 2017, Patrick (2017) maintained that GE planned to streamline operations and its supply chain via a myriad of changes meant to increase profits and lower costs. Currently, GE deals in a wide a range of products and services spanning from aircraft engines and parts, medical imaging, financing and power generation to industrial products, and oil and gas production (Reuters, 2019) implying that the firm uses a wide range of products for that. According to Ku (2012), GE uses about three billion pounds of material annually spending about 50% of its annual cost on the acquisition of raw materials.

According to Ku, GE uses up to 70 of the first 83 elements of the periodic table in addition to about nine rare earth elements such as yttrium, cerium, terbium, lanthanum, europium, neodymium, dysprosium, lutetium, and gadolinium. 97% of the rare earth materials used by GE come from China. Additionally, GE uses recycled end-of-life parts via SOS Metals Company which the Precision Castparts Corp. casts for GE (Ku, 2012). As The Strategic Sourceror (2015) posits, GE is also in pursuit of mergers and acquisitions with its long-term suppliers as exemplified by the acquisition of Metern Corp. of New Jersey – a supplier for GE since 1970.

GE has had to outsource its manufacturing plants to developing nations, establish research and development centers outside US borders, shifting company divisions and head offices to foreign lands, as well as focusing more on exports (Mullock, 2016). This implies that GE averts incurring heavy transport and logistics costs by moving its production plants close to the source of raw materials and cheap labor. Offshoring and outsourcing have a significant impact on GE’s quality and supply chain. GE has seeming performed well with the diversification strategy. GE is a highly innovative and a diversified conglomerate and is both a make-to-order and an engineer-to-order type of a producer.

The factors outlined above coupled with the desire of GE to reduce inventory, cut costs through “rigorous” supply chain management, and “revamping” the supply chain so that it is “aligned directly to the CEO (Patrick, 2017) the Minimum Stock Levels (MSL) is the best inventory management model for GE. Nonetheless, the MaterialRequirementsPlanning(MRP) inventory management model can also work for GE. MRP streamlines business processes, controls order processing, and is ideal for manufacturers and fabricators (Fontaine, Martilla & Russell, n.d.). The only detriment with MRP is that it does not keep inventory levels low.

Given the vast variety of GE’s products and administrations, coupled with the broad geographic scattering of its production plants, GE utilizes various suppliers and sources for the wide assortment of raw materials, structures, segments and parts required for its activities. A portion of these suppliers or their sub-providers is constrained-source or sole-source providers, while some are third-party suppliers and others are contract manufacturers and service providers(CSIMarket.com, 2019).

An interruption in conveyances from GE’s outsider providers, contract producers or service givers, capacity limits, disruption of production, cost increments, or diminished accessibility of raw materials or items, could adversely affect GE’s capacity to meet its duties to clients or, even worse, increase GE’s operations costs(CSIMarket.com, 2019). Quality and sourcing issues experienced by outsider suppliers can likewise unfavorably influence the quality and viability of GE’s items and administrations and result in obligation and reputational loss/injury to the firm.

References

CSIMarket.com. (2019). General Electric Co’s (GE) suppliers by company, division and industry – CSIMarket. Web.

Fontaine, D., Martilla, K., & Russell, L. (n.d.). GE Aviation inventory management (pp. 1-45). Lynn, MA: Worcester Polytechnic Institute. Web.

Ku, A. (2012). Materials Sustainability at General Electric [PDF] (pp. 1-10). Boston, MA: General Electric Company. Web.

Mullock, H. (2016). Impact of globalization on General Electric (GE) policies. Web.

Patrick, K. (2017). GE aims to reduce inventory, manage supply chain ‘rigorously’. Web.

Reuters. (2019). Company profile: General Electric Co. (GE.N). Web.

Rink, D. R., & Fox, H. W. (2011). Coordination of procurement activities with demand: An expanded conceptual model. Innovative Marketing, 7(1), 78-87. Web.

The Strategic Sourceror. (2015). General Electric Co. restructuring supply chain operations to increase profit margins. Web.

As far as monetary and commerce are concerned, affluence is the worth of chattels net owned of the liabilities owned in a given time. The property encompasses those that are concrete i.e. land as well as capital and financial thus; currency and premiums. Wealth in this case is acquired if available resources are employed in innovative and strategic ways.

Logistics is one of the intricate tasks facing a company, as it entails a high degree of coordination that encompasses diverse organizational entities with divergent as well as conflicting objectives. The genesis of the underlying conflict is enhanced by the cardinal objective as far as the physical distribution (PD) is concerned. Thus quantifying the best means of moving merchandise from the production chamber to the client. This objective is achieved by curtailing the collective allotment cost of allocating goods to the clients based on the worthiness of the services. The holistic distribution cost covers consignment, shipping costs, warehousing charges, packing, freight cover, costs for storing, etc. Diverse integrating pragmatic allocating costs contribute to enormous intricacies in meeting the objectives revolving around the trade-offs. For example, a company could curtail the inventory handling expenses by augmenting the rate of consignments to the clients, however, this would as a result increase the expenses for consignment. Anomalies of this nature construct the necessity for coordination and global organization of PD’s functions. The necessities have been exponentially acknowledged and have prompted most firms to incline their PD functionalities under the auspices of independent patronage. In this respect, conduits to coordinate as well as curtail the expenses of physical distribution functionalities can’t proceed beyond the acknowledgment of the companies client service specification which should in this case be determined in the first place. The intricacies evident in the functionalities of integrating PD utilities are complicated to certain dimensions by the vacuum emerging when it comes to choosing between minimal PD costs and maximum client service.

The crisscrossing routes of client’s utility demands, as well as PD coordination objectives, enhances another region of serious conflicts. The determinant of this antagonism is the fact that most companies constitute segments that, in a bid to increase sales, opt for hefty echelons of clients contentment and others that are determined to downsizing on the PD expenses. Since these are both legitimate objectives, the firm’s transworld function could as well benefit through mutual integration. The implicit behind is that global decision making should be done by certain sections of the company after evaluating grave consequences about expenses and taxes regarding the specific client services, which in this case enhances the companies ability to make benefits.

Strategic trade planning is mainly to determine the objectives as well as issues in a bid to constructing strategies to achieve those objectives and resolve those issues. Strategic scheduling is decentralized, among trading status developing plans for their respective segments of answerability. A comprehensive evaluation of the trading backdrop is a fundamental constituent of strategic planning. Functional plans, projects, or implementation programs are constructed to enhance stratagems in a bid to allocating time and resources respectively. Response improves strategic plans. Monumental forms of responses do survey the monetary statistics and reports on the efficiency of stratagems as well as progress toward objectives. The panel of managers does the consultancy part, review, and acknowledgment functions than it does an active construction aspect in the strategic planning.

1. This is a document that defines the employment of the production raw material to process the goods required, otherwise the systems in a given time frame as well as within certain expenses.
2. The transformation of a trading proposal into a holistic product processing timeframe entailing what is to be integrated or manufactured, when, with what materials achieved when and the costs entailed. MPS is instrumental in the constituents of resources necessary for scheduling
3. This is the time allocated explosion of the resources necessary regarding the Bill of raw materials, Lead Times, Order Quantities, and safety stocks to determine.
4. PAC stands for (Production Activity Control), this entailed the conversion of the proposals into functions, reporting of the outcomes acquired, and revising proposals and actions as demanded by meeting projected targets. In a nutshell, PAC changes the plan into a function by guiding the proposal. This encompasses standard pre-master scheduling or orders, manpower personnel, resources, and collective necessities.

The beginning point; comprehending the current scenario.

1. Objectives: comprehending what the company should look like.
2. Strategy: constructing suitable measures of change that will then drive the process ahead.

The difference between the MTO and the MTS is that MTO companies process goods on a make-to-order basis due to the curtailed lead frequency acquired when implementing modern processing cardinals that include lean production, while MTS companies manufacture products in relatively high volumes. These volumes are rather high at the production stage.

1. Single level: this is where the quantity filed illustrates the quantity needed per assembly of the parent item.
2. Intended: this is where applied reports are similar to the single level report with the exemption that the parent of items is shown to the top.
3. Summarized: is where used report is a derivative of the intended report
4. Multi-level bill:
   1. Item master file: includes header information such as description, lead time, quantity on hand, and available
   2. Work center master file: constitute all the necessary statistics on work center including capacity, number of machine and labor hours, efficiency, utilization.
   3. Routing file: a series of operations required to make the item
   4. Bill of material file: comprise of a listing of the single level quantities to integrate a parent

In the selection of a supplier it is imperative to consider; the ethical standards, financial viability, openness to site evaluations, supplier’s order entry system, insurance, and litigation history, the scope of supplier resources, and the ability to meet the required dates.

The demand plan is the collective, collaborative best judgment of the sales and marketing functions of the business.

• Creating of the demand plan
• Communicating the demand plan details
• Create a consensus plan detail
• Managing the exemptions.

Inflation forces and unpredictability in the external environment have influenced corporate inventory policies. The vacuum created within company’s encompassed the reduction of inventory holdings while simultaneously ensuring adequate product availability. To try to enhance inventory control through demand management and sales projection often proved inadequate. The reduction of feedback time regarding customers has been the focus instead of trying to precisely predict demands arising in the future.

Annual carrying Cost= Average Inventory* C= Q/2*C

Cost = 8/100*Euro 1.750,000

Cost = Euro 140,000

Thus Annual Carrying cost = 1.750,000* 19/100

= Euro 332500

The inventory scheduling and control system is a clustered legal framework and decision-making policies employed in maintaining items at desired levels, which together with the inventory evaluation functions will indefinitely have a profound effect on the economy of the organization.

Executive Summary

Driving value through the procurement process enhances the identification of all needs within the company. The paper discusses the acquisition of equipment by Abu Dhabi National Oil Company (ADNOC), an oil and gas holding company in Abu Dhabi as a tool to improve the quality and effectiveness of the institution. The procedure involved is critical in ensuring the maximization of profits and the reduction of the cost of production. The importance of writing the article is to analyze the vital gaps for improving the system in establishing modern techniques of procurement. The main findings in the paper are that communication and involvement of the stakeholders is one major aspect of adding value to the process.

Other factors affecting the procurement system in the company are the demand and supply of drilling and production chemicals, gaskets, valves, and safety equipment for engineers on the different sites operated by ADNOC. There is a need to enhance the purchasing cycle to make provision for efficient sourcing of goods that are delivered in time without compromising the quality of products. The effectiveness of the procurement department is critical in improving companies’ efficiency and achieving the goals set. The equipment has high demand in the institution, but limited suppliers due to their high cost or the lack of availability from a quality perspective. The price mechanisms applied must conform to the situation of the industry and have the ability to control the costs. Different elements in the market render the systems expensive to purchase. The high demand and insufficient supply of material and equipment for engineers are major aspects that influence the prices. Finally, the paper sums up with a conclusive paragraph that discusses the important elements discussed.

Introduction

The modern procurement and sourcing processes have the capability to focus on lowering the costs of supplies. The processes have shifted the subject to major business needs with the aim of accomplishing the goals by taking into account important aspects such as product quality and reliability. Moreover, through the emphasis on the vital categories within the business, organizations can manage and build supplier relationship that is perceived to enhance delivery results. Supply chain management has become a major concern in different companies. As the world’s market becomes competitive, the profitability depends less on raising the prices. Consequently, there is the need for enhancement of productive innovation, faster response to time, and higher quality. Similarly, there is the need to grow the cross-collaboration as a way to drive the modern generation to more advanced strategies. Implementation of diverse methods is critical in resolving challenges facing organizations. Procurement is a process of obtaining products by making decisions of when and how much to purchase. The procedure at the procurement department of ADNOC in Abu Dhabi ensures that the appropriate quality and quantity of materials and equipment are acquired at the lowest cost and suitable source.

Driving Value through Procurement and Supply

The purchasing cycle in the organization makes provision for all departments to have a link to information about the functions and other related operations. The services have been enhanced through a reliable association of long-lasting affiliation with both international and local vendors. Consequently, the involvement of an experienced team provides the clients with the best equipment suited for most of their needs. In the modern world, optimization of procurement is considered as a host of most benefits and added tremendous value. From a company’s perspective, the obvious advantages of efficiency within this department are the maximization of financials (Chima, 2011). Managing the procurement process enables an organization to gain immediate upfront cost savings by attaining services, contracts, and other items. In order to apprehend the process of procurement, see Figure 1 below.

ADNOC is the seventh biggest oil producer in the world. It is also one of the companies with the lowest costs of operations per barrel due to the characteristics of its onshore and offshore sites. A fully functioning department of procurement ensures that products and services required by their engineers on the different sites (rigs) are bought through an efficient and cost-effective method. Moreover, having a clear understanding of the spending allows the management to have higher bargaining power with the vendors (Srivastava & Verma, 2012). With this added benefit, the company can fully maximize the profits by acquiring what seems to be unavailable to it. Visibility into budgets and spending patterns makes a provision for an organization to leverage any additional cash flow. A fully operational department can contribute to greater preparedness and efficiency. Besides, many perceive the procurement process as a single-dimensional procedure within the company (Daniel, Keen, & McPherson, 2010).

An optimized purchasing cycle makes provision for efficient sourcing of goods that are delivered in time. Updating the department of procurement in ADNOC ensures that the supply chain can navigate through unforeseen challenges such as volatility of commodities. Moreover, it creates an avenue of distinguishing between successful sellers from underachieving vendors. Any competitive edge of this institution makes a difference between new customers and levels of sale (Chima, 2011). A progressive procurement procedure can allow the business to seek more innovative products and services. Besides, entrusting the procurement department enables it to source modern equipment and chemicals with high efficiency of achieving the intended purpose (Ross, 2011). For a better understanding, see Figure 2 below.

Recommendations for Improvement of Procurement System

An effective procurement procedure has room for improving the companies’ efficiency and bottom line. However, to improve the performance of this department, it is critical to have a strategic plan that aims at achieving the set goals. The first technique of success in ADNOC is to provide the team with the required procurement tools that enhance the process. Consequently, it is imperative to incorporate a strategic sourcing procedure. Oil and gas organizations aim at offsetting the barriers of expensive systems and equipment. It is important to note that new products are not the solution to achieving efficiency (Mumford, 2012). With a proper organization of operations, ADNOC can be equipped to enhance innovation, keep the costs low, and have an improved response to the customer’s name, the engineers on sites, and their client overseas ultimately. In reality, continuous competitiveness and growth in this industry will require the management to enhance the alignment of functions in the procurement department especially with the current crop of oil prices.

Areas of Improvement for ADNOC

ADNOC can achieve benefits that apply to most facets of the oil and gas companies. Benefits such as reliability, quality, environmental performance, and safety can help to improve the position of the institution within the global market. Reliability is an important factor in the supply chain since it makes the provision of timing and quality. Buying materials or contracting services for engineers on different sites influences the productivity of the company. If the operations of the institutions are delayed as a result of the poor procurement process, the profit margins are reduced. It is important to improve the diversity of selecting vendors. The equipment and services purchased must have the ability to enhance safety in the drilling operations.

Improvements and refining the procurement process make a provision for the management to focus on the stakeholders’ engagement. In the modern business environment, traditional techniques are perceived as time-consuming, expensive, and harbor major drawbacks. The key priority of planning within this department in ADNOC is to audit and improve the communication with the bidders. In some cases, the purchase of materials for engineers on different sites can be tedious, and the strategy to acquire quality products renders it important to involve the major stakeholders before making decisions. Moreover, the contact between the buyer and seller makes provision for a full trial that enhances accountability throughout this process (Walker & Brammer, 2009). It is important to ensure that all vital roles within the supply chain are met.

Collaboration with Stakeholders

To ensure that a virtuous cycle operates effectively, there is a need to guarantee the continuity of efficient communication throughout the procurement processes. ADNOC uses common tools that permit the company to all other interested parties when they are required. Consequently, the application of collaborative solutions gives the stakeholders access to definitive information about the institution. It is important to bring a combination of supply-side and buyer-side parties at all stages of the procedures (Goodwin, Harris, Nelson, Roach, & Torres, 2013). By promoting this, the organization has better chances of acquiring quality equipment that encompasses innovation and the right specification. For instance, organized meetings between end-users and suppliers in the chosen company have shown an interesting result with regards to the timely delivery. Indeed, as suppliers are able to understand the full requirements from our end users, the time required to procure the products or services is lower as well as better matching the needs and requirements.

Collaboration is an effective tool that builds a stronger, transparent affiliation between the company and its partner (Mumford, 2012). It is a critical benefit for the delivery of quality products for efficient operations in the organization.

Collaboration is perceived as the preferred method of driving greater value through sourcing. The investments in ADNOC ensure that it fosters both internal and external involvement of the stakeholders as a game-changer in the procurement department. Moreover, specific features such as automated centralization, workflows, and functions need to be established for the purpose of enhancing compliance, enterprise performance, and risk mitigation (Forgues & Koskela, 2009). Engagement with stakeholders can improve the delivery of services and achievements of the goals. Consequently, the development of a proper guide of the procurement process renders it easier to communicate to the relevant parties. Besides, it is important for the management to define the engagement objectives to enhance accountability.

The process makes provision for selecting the best method to involve the players and influential stakeholders to interact. Similarly, the organization can have a strategy to develop metrics of its success by ensuring that the efforts are focused on the important issues affecting the procurement process (Mumford, 2012).

Organizational Policies and Procedures

In the modern business environment, it is critical to reducing the costs of procuring equipment and enhancing the results despite the challenges faced by a company. Consequently, there is the need to establish a governed supply chain (Ponte, 2009). Acquiring better services from a team of experts leads to the improvement of commitment and endorsement of leadership within an organization. Moreover, the alignment of the staff maximizes the effectiveness and develops a commensurate benefit to the institution (Monczka, Handfield, Giunipero, & Patterson, 2015). The adoption of a hybrid approach allows a combination of strategic plans and decentralized execution of enhancing the services. See detailed information in Figure 4 below.

Setting the conditions for the procurement process is one way to enhance accountability and reliability in ADNOC. Moreover, it is the responsibility of the team members to commit their effort in ensuring quality that determines reliability. Enhancement of confidentiality is a major aspect of promoting transparency. Besides, adhering to the company’s values is vital in achieving the goals of this department (Arnaboldi, Azzone, & Giorgino, 2015). Similarly, it is a way to enhance safety for the staff operating the equipment. The success of ADNOC relies on both internal (engineers) and external stakeholders (Government of the UAE and other governments) (Amina, Baazaoui, & Abdellatif, 2015).

Demand and Supply Factors Affecting Procurement

The purchase of drilling and production chemicals, gaskets, valves, and safety equipment for engineers on the different sites in the oil and gas industry is a sensitive task to undertake. The demand for the equipment within the organization is high since they are used to run everyday operations. Moreover, by viewing the procurement system, decisions must be made to award the supply tenders to the appropriate contractors. Equipment remains critical in the drilling process of ADNOC, and the procurement department must ensure its existence. On the other hand, oil and gas companies require a large amount of capital that renders the industry more restricted. For this reason, institutions dealing with the necessary tools are fewer, and this aspect lowers their availability. Such elements in the market make the systems expensive to purchase (Daniel et al., 2010). Therefore, it is important to have a strategic plan for acquiring the products by ensuring that quality goods are delivered to the company.

The current pricing mechanisms render it effective for the industry to control the cost of drilling equipment. Nonetheless, a careful examination of all the products and services needs to be done for the purpose of establishing a standardized value. Moreover, the risk can be undertaken by experts within the procurement department. By regulating demand for the tools, prices can be lowered to a suitable level where the cost of production is minimized. Similarly, the strategy can be used for improving their quality.

Conclusion

Driving value through the procurement process ensures that deployed procedures are effective in delivering quality products within the company. Moreover, purchased techniques and tools enhance competitiveness in the market. The challenges involved include both external and internal changes that render it hard for the organization to drive the costs down. The company’s performance in the oil and gas industry can be examined through the help of a competitive benchmark. Besides, properly implemented and planned programs in the sourcing procedures enhance the effectiveness of the business and the quality of products and services. Furthermore, this route of attaining advantage by pioneering procurement is important for institutions in this industry bearing in mind that the equipment is expensive. Commercializing and developing new ideas is achieved through strategic decisions within this department. To be clear, the process within ADNOC is critical in ensuring cost reduction and profit maximization. The application of leadership qualities in managing the department makes provision for improving the effectiveness of the institution. So, procurement is a key step in the value chain for quality assurance and competitiveness. The margin generated is the difference between the value given to the product or service and the costs associated with its creation until its commercialization.

References

Amina, R., Baazaoui, A., & Abdellatif, T. (2015). The influence of internal marketing on the behavior of the expatriate employee and on the determination of the external customer satisfaction. Humanistic Management Network, 21(15), 1-20.

Arnaboldi, M., Azzone, G., & Giorgino, M. (2015). Performance measurement and management for engineers. New York, NY: Elsevier.

Chima, C. M. (2011). Supply-chain management issues in the oil and gas industry. Journal of Business & Economics Research (JBER), 5(6), 27-36.

Daniel, P., Keen, M., & McPherson, C. (2010). The taxation of petroleum and minerals. New York, NY: Routledge.

Forgues, D., & Koskela, L. (2009). The influence of a collaborative procurement approach using integrated design in construction on project team performance. International Journal of Managing Projects in Business, 2(3), 370-385.

Frazier, D. (2014). A survival guide for government contractors. Raleigh, NC: Lulu Publishing.

Goodwin, N., Harris, J. M., Nelson, J. A., Roach, B., & Torres, M. (2013). Microeconomics in context. New York, NY: Routledge.

Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing and Supply Chain Management. New York, NY: Cengage Learning.

Mumford, M. D. (2012). Handbook of organizational creativity. San Diego, CA: Elsevier.

Ponte, S. (2009). Governing through quality: conventions and supply relations in the value chain for South African wine. Sociologia Ruralis, 49(3), 236-257.

Ross, D. F. (2011). Introduction to supply chain management technologies. Boca Raton, FL: CPR Press.

Srivastava, R. M., & Verma, S. (2012). Strategic management: Concepts, Skills, and Processes. New Delhi: PHI Learning.

Walker, H., & Brammer, S. (2009). Sustainable procurement in the United Kingdom public sector. Supply Chain Management: An International Journal, 14(2), 128-137.

Executive Summary

Supply management is needed in modern corporate trading. It involves purchasing supplies and raw materials for business operations. It is closely related to procurement. The latter entails sourcing materials from external agents. Strategic procurement is vital for an organization’s success. The reason behind this is that companies can acquire needed products in the right amounts avoiding surpluses. In this paper, the author has analyzed procurement and supply and the aspect of seismic surveys.

Opportunities for Procurement and Supply

Introduction

Supply management refers to the procedures of modern corporate trading. The methods entail purchasing supplies for internal utilization and raw materials for use in manufacturing. The process also involves acquisition of merchandise for inventory. The goods are later sold in the distribution and retail chain. Most businesses refer to the buying of services as contraction. According to Cowell, supply management is a systematic process comprising more elements than traditional buying. It majors with management materials and service inputs, suppliers, and sustaining input purchase procedures.

Procurement is slightly different from supply management. It refers to the purchase of materials and other inputs from peripheral sources. Before making acquisition decisions, firms consider a wide range of factors. They include delivery and handling, price variations, and benefits. According to Booth, procurement entails making purchasing choices on the basis of scarcity. The factors taken into consideration include the availability of data and the importance of applying economic evaluation procedures. Sound procurement strategies have numerous advantages. They aid firms to monitor their progress.

Opportunities to Create Saving and Efficiencies

Savings and efficiencies are vital for a company’s growth. To create savings ADCO can apply the following five rights of procurement. They include:

Right price: Determining the right price for products is always a challenging task for most businesses. However, it is the duty of firms to ensure they procure materials at the right price. According to Lieberman and Hall, (2012) costs of merchandise dictate the value finances invested in acquisition of materials. Markets keep on changing. Due to this, firms should look for right prices by benchmarking and bargaining with suppliers. In the case of ADCO, the company should focus on working with a wide network of firms worldwide.

Right quality: Quality refers to the suitability of a product or service offered by an organization. ADCO focuses on providing quality work by finalizing terms and conditions within reasonable time. To maintain and increase quality service provision, ADCO aims at adopting the concept of frame agreement for recurring services.

Right quantity: Right quantity refers to the purchase of needed products with minimum cost. For an organization’s operations to run effectively, it is vital for it to maintain a regular flow of resources. ADCO should work to ensure surplus purchases are avoided. The reason behind this is that excess products result in overstocking. In addition, capital is blocked and inventory costs increase.

Right time: The time taken to purchase products is very important for an organization. In the Oil and Gas industry, production is a continuous process. Due to this, the reorder level for each product is determined by the principle of the right time. To create savings, ADCO focuses on revisiting contracts and the procurement sequence. Through this, the company will shorten the duration of various processes in KPI. A delay in supply of materials hinders the production process.

Right place: Right place refers to the location of manufacturers or warehouses. According to Handfield, Primo and Paulo (2015) the right place for material acquisition is affected by various factors. They include transportation and material handling costs. In ADCO, minimizing costs and determining the right place for products acquisition is the primary focus.

Besides the five rights of procurement, ADCO can create efficiencies in other ways. They include maintaining close ties with business administrators who major in business needs and requirements. In addition, the company can focus on managing supplier performance and risks.

Conclusion

Sound procurement and supply channels are vital for an organization. The reason behind this is that the chains play pivotal roles in the success of companies. Reefke, Ahmed and Sundaram point out that procurement and supply determine profitability. In addition, the five rights help organizations to determine how they can work to generate savings and efficiencies.

Profile of Function

Introduction

Profiles of function are used to ensure a corporation focuses on attaining its set goals. They define the desired future scale and what the company aims to achieve over a certain period of time. Due to their purpose, profiles should comprise various characteristics. They are required to present the current state of the firm and its purpose. In addition, sound profiles should offer guidance and inspiration to employees. In ADCO, the primary focus is maintaining the highest business and ethical standards. In addition, the company’s profile of function advocates for commitment and core values and working to meet shareholders’ expectations.

Improving ADCO’s Profile of Performance

ADCO since its founding has been guided by sound function profiles. However, the company needs to improve its profile of function to enhance continuity in achieving goals. The Oil Company does this in various ways. They include developing long-term plans for procurement of work and services. Engage employees at different levels of the organization in the process of developing strategic goals. The move can be done by having meetings and sharing ideas on the way forward. In addition, more resources should be allocated to the workers. The initiative will enhance motivation leading to productivity. ADCO’s profile of performance can also be improved by updating technologies and strategies used. Such a move will result in more efficient development and production. For decades, the company has been growing into a complex business. To guarantee continued effective running of the corporation, ADCO should ensure it develops technical competence and sound leadership.

Conclusion

Profiles of function are important to all organizations. Their primary function is to make an organization’s strategies and direction be known. According to Hightower (2009) the report should be developed in a way that inspires employees. When a profile of function plays a motivational role, workers tend to remember the strategies and goals set in place.

ADCO Collaboration with Stakeholders

Introduction

Stakeholders are individuals, groups, or organizations that are affected by the outcome of a project. Hilyard (2012) states that investor engagement is the involvement of stakeholders as partakers in an organization’s decision-making process. The third-party groups are involved in different stages of procurement. Failure to engage key stakeholders early is a common point of failure in the procurement process.

It is important for ADCO to identify and map its stakeholders. The figure below shows a conventional mapping of these parties:

How to Increase Early Engagement of ADCO’s Stakeholders

To increase the early engagement of investors, an organization needs to first develop a comprehensive understanding of who are the key stakeholders. In addition, it is important to determine what they care about and how they relate to the company’s plans. Once a firm identifies the main stakeholders, it can involve them in pre-bid meetings held at the early stages of the procurement process. In addition, the company should ensure it communicates and updates Investors on the latest procedures undertaken. To ensure effective and quick communication, the organization can use automated channels. Figure 2 is a representation of stakeholders’ engagement by use of Mandelow’s Matrix Model.

High power high interest represents the key stakeholders such as executives in the organization. Due to this, their needs are of primary concern and must be met. High power, less interested category comprises players such as investors. The lower power, high-interest group is composed of finance, suppliers, and legal teams. In every organization, the parties are required to have sufficient and up-to-date information regarding the company’s operations. On its part, low power less interested does not possess much data. The parties include employees in the helpdesk or reception.

Conclusion

Investors’ engagement is vital for the success of a company. In addition, it facilitates business transformation. Despite the benefits, a majority of organizations spend valuable time gathering data and developing strategies that are never implemented. The reason behind this is that they lack stakeholders’ support. To avoid this, firms should devise ways of engaging investors early in the procurement process.

Organizational Policies and Procedures

Introduction

Policies and procedures can be conceptualized variously. They involve regulations put in place by an entity to achieve its long-term objectives. To this end, the regulations have a purpose. They inform primary choices and undertakings carried out within the confines set by the entity. For all employees to be familiar with the policies and procedures, they are published in booklets and availed in other different forms.

Need for Policies and Procedures

In all organizations, buyers involved in the acquisition process are required to be familiar with the company’s policies and procedures. The reason behind this is that the rules dictate the corporation’s conduct of sourcing and purchasing activities. To facilitate effective procurement and supply, ADCO tends to be guided by rules from various sources. They include Abu Dhabi Chamber of Commerce, handbooks, and ADNOC guidelines. Policies and procedures also ensure efficient, ethical, and accountable purchasing activities within a business. In addition, clear and sound guidelines facilitate the efficient implementation of supply chain undertakings. In ADCO, the rules are updated on an annual basis in accordance with the changes made.

The figure below shows ADCO’s policies which govern employees’ operations and conduct.

Conclusion

Each company has its own set of policies and procedures. According to Butter (2007) the rules and guidelines dictate the day to day procurement and supply activities of an organization. In addition, the principles have various benefits to a company. They include enhancing financial stewardship, reducing business risk, increasing employee productivity, and supplier relations.

References

Burt, DN & SD Petcavage, Supply management, 8th edn, Boston, McGraw-Hill Irwin, 2010.

Butter, D, Procurement, Amsterdam, Tinbergen Institute , 2007.

Booth, C, Strategic procurement organising suppliers and supply chains for competitive advantage, London, Kogan Page, 2010.

Cowell, FA, microeconomics: principles and analysis, Oxford, Oxford UP, 2006.

Handfield, RB, M Primo & M Paulo, ‘The role of effective relationship management in successful large oil and gas projects: insights from procurement executives’, Journal of Strategic Contracting and Negotiation, vol. 1, no. 1, 2015, pp. 15-41.

Hightower, R, Internal controls policies and procedures, Hoboken, N.J, Wiley, 2009.

Hilyard, J, The oil & gas industry a nontechnical guide, Tulsa, Okla, PennWell, 2012.

Inkpen, A C & MH Moffett, The global oil & gas industry management, strategy & finance, Tulsa, Okla, PennWell, 2011.

Reefke, H, MD Ahmed & D Sundaram, ‘Sustainable supply chain management decision making and support: the SSCM maturity model and system,’ Global Business Review, vol. 15, no. 4, 2014, pp. 1-12.

Bibliography

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