procurement management

procurement management

Introduction

This paper shall look at how to organize the department of procurement at Futura Foods, which is a major distributor of quality cheese in U.K. and Ireland. It is currently one of the leading cheese importers in UK and supplier of Greek dairy products.  It is evident from many theories that the organization of supply function is a broad terminology because it involves putting an effort in organizing both internal and external factors in the organization. Though, the thesis shall revolve around the internal arrangement of the procurement department of the Future Foods in relations to the globalization. The paper will also trace and evaluate critically current literature sources dealing with procurement management as well as project risk. The knowledge from the literature will be used to develop reliable solutions to current problems. The complex model of project risk and procurement management will also be evaluated thereby allowing critical and systematic sound judgments with reference form substantial ideas that can be justified.  Finally the paper will do an assessment of the theories, models and concepts applied in the procurement management and project risk and this will help in demonstrating the value or the importance of risk management in relation to development and maintenance of sustainable procurement process.

Procurement importance for organizations operating globularly in complex markets

The key significance of purchasing as well as its potential commitment of the supply function is a subject in fashion these days. Currently, 60% of the organization’ business income is put into acquiring of materials, while half of the cost of products sold is created from the procurement department (Camarinha-Matos, 2014). Therefore, any change in the procurement function of the business appears to have an immediate positive effect on its income (Shubik & Livne, 2012, p. 32). Because of this significance, the way the procurement function is planned as well as organized is of critical value. In other words, choices related with how the procurement department is organized together with being staffed will impact on how and where those potential positive effects will happen.

It is critical to begin by characterizing the idea of organization plan. In this sense, organization plan alludes toward assessing and choosing the structure, and formal system of communication, a division of work, coordination, control, and authority together with responsibility need to accomplish an organization’s objectives. The combination, as well as coordination of each of those components forming the term of organizational design, demonstrates the complexity of this procedure. Organization design is an unpredictable web reflecting the pattern of associations and coordination of innovation, task together with individual segments (Shubik & Livne, 2012, p. 45). Organization plan choices within procurement are a complex subject since purchasing exercises are never restricted to the procurement office yet rather incorporate a few functions. As an issue of reality, purchasing exercises cut over the whole organization as well as rise above organization borders. Therefore, it isn’t an errand that is one-sidedly controlled and executed, which expands the unpredictability that leaders confront sorting out the supply function of the organization.

Also, the environment changes continually, and business needs to adjust to those changes keeping in mind the end goal is to survive. In an environment described by worldwide competition and high client demands, the structure of the organization is a basic segment of business aggressiveness, and it is the situation in the organization structure of procurement. As Basu & Wright (2017) proposes, the design of the procurement function should bolster and empower the organization to meet its objectives towards its outer condition. The test here is the way to execute the fundamental plan changes to accomplish such help. Besides, the required plan changes that will best suit a particular organization rely upon the particular setting and condition inside which it is installed. Besides that, some researchers propose that there is no ideal approach to organize. Instead, every organization efforts have its points of interest as well as difficulties that change both in time and any contingent on the point of view taken.

Project Risk and Procurement Management

On account of the food distributor business, provider claims that organizing is significantly more troublesome than in different businesses since producing farms are not as dominant about their production. In general, the food import business is inserted in a high is embedded in a high complexity stemming from the surrounding as well as the way operations are organized to adapt to this condition. Supply organization should in this manner adapt to such complex quality and ensure the organization to conquer it (Dinsmore & Cabanis-Brewin, 2011, p. 56).

Above all, organizations in the food and development business are embedded in a condition where government controls and industry guidelines make the framework hard to change. Furthermore, food import organizations under the dairy product business are faced with different sources of hazard, which result in an excessively dubious condition. Theories have recommended project related, administrative, financial, technical, and legal as well as supply related risk as the common danger that needs consideration by these organizations, just to give some examples. Although, supply risk is of general concern for these organizations as pointed by many theorists the approach to handle or mitigate supply hazards is by setting a suitable framework for general supply selection management and supply selection administration. The determination of the best-in-class supplier, alleviate the potential supply chances that can influence the task’s progress. All together for the supplier selection procedure to be considered as effective, as far as fewer hazards involved, data or better knowledge of the particular product’s provider market is required (Eglin, 2013, p. 34). Consequently, dairy product importers need to adjust their supply – acquiring – organization, to empower such legitimate provider selection process, which constitutes a noteworthy test for them.

Another component portraying the multifaceted nature faced by dairy product importers organizations is the reliance amongst undertakings and the numerous on-screen characters participating within as well as outside the organization’s limits, generally, vulnerability together with interdependence, supports the utilization of a decentralized way to deal with decision making as well as  local coordination through project-based operations. In any case, this circumstance brings about many difficulties for these organizations, which influence the potential commitments of acquiring specific supplies. On the other hand coordination and participation is tight within as well as in connection with the project. However, coordination between the undertaking and the continuous system is weak. For instance, coordination can be weak even between various elements inside the firm even if it is not for perspectives identified with the project. Results of this have been tended to in writing, for example, the constrained probability that central specialist has on interceding in local operations to get advantages, such as economies of scale. On the other hand, players at the undertaking level may take choices that negate the objectives of the organization as a whole. Secondly, the impermanent and customized nature of an undertaking, which concentrates only on part on the expectations, makes sharing of knowledge troublesome between people. An issue with this is that knowledge a dubious process that happens at the individual level as opposed to at the organizational level. Not making use of the encounters picked up makes specific cost wasteful aspects for the customer as another expectation to learn and adapt is jumped on each new development project (Heizer & Render, 2014, p. 89).  The key appears to lie on advancing endeavors to cultivate coordination among projects in their boundary as well as putting less accentuation on the task limit. In this manner, dairy product import organizations that are ready to compose their supply work with the configuration that can outperform this activity.

Analytical framework

This section introduces an audit of the applicable hypothesis after procurement in an organization. This part shows a survey of the pertinent hypothesis after purchasing organizing that has empowered the creators to give answers to the exploration inquiries and in this way satisfy the reason for this proposal. Besides, factors to gauge execution of the procuring organization are displayed. Ultimately, the section closes with the administrative viewpoints to be considered while organizing the purchasing function (Herst, 2014, p. 23).

The purchasing organization

Strategic acquisition is defined by some theorist as a procedure of implementing, planning, controlling as well as evaluating operative and strategic purchasing decisions for coordinating all actions of purchasing functions in the direction of propelling opportunities with the firm’s capabilities and meet the long-term objective (Hessle, 2014, p. 66). To ensure that the strategic purchasing organization goals are met, many organizations shall implement that decision that will lead to the achievement of the performance of the purchasing department or the entire organization. Therefore, the organizational plan is made in such a way that it aims at meeting all the organization functions like coordination, control, assignment of task responsibility and authority together with resource allocation in this part the organization analyses the structure of the procurement function like those members that should be involved in the procurement procedure of a particular product or service.

In this aspect, the review on purchasing structure conforms to the structure of the organization since the operation is either directly or indirectly affected by attributes of the conditions which it is embedded. Therefore there is a relationship between the organization as a whole and the procurement function. So in the next sections shall represent the conceptual framework that incorporates the structure, environment as well as purchasing organization (Hessle, 2014, p. 72). This context was adopted by the purchasing organization in the case study. The conceptual framework that is incorporated in the purchasing organization is divided into external factors such as environmental as well as internal factors but not within the purchasing organization such as product attributes.

Structural characteristics of the purchasing organization

It varies with the conditions that are prevailing as well as the context of the organization. It gives a new view towards the purchasing organization where it is characterized by different degrees of formalization, standardization, consolidation as well as the configuration of the procurement center. Let us have a glance at these factors. To start with, standardization is the degree at which all the organization action together with routine are defined and performed by the general procedure, norms, and regulations that legitimize the business. Standardization can be achieved through the product and the process as in the supply chain review. It is believed that the utilization of the standards ensure variability is achieved as well as reduce the eventuality that can take place in the purchasing activities since they allow for the implementation of the task. The second aspect formalization refers to the magnitude to which purchasing actions are prescribed according to the policies, rules, and procedures. It also regulates communication line and decision processes. It works out in reducing the uncertainty that prevails in the purchasing situation (In Wang, 2016, p. 35).  To some extent it compliments standardization since it provides the mechanism through which task is executed fairly through the organization, controlling of behavior and allows for prediction.

Also, size of the buying center can dictate the number of individuals that should be involved in the process of purchasing. It is normally a variable of lateral involvement that shows the number of different departments or functions that should participate in the decision of procurement together with vertical involvement that shows the number of levels in the organizations that should a decision be made.  Another aspect is the configuration that describes the incorporate the design in the business that is vertical and lateral controls as well as the number of position in various segments. The complexity of the factor is attributed to features such as departments, positions, and control structure required in any purchase situation (In Wang, 2016, p. 47). The Central location is also a factor that gives authority, power and responsibility within a single organization and contrary decentralization distribute the position of the unit among departments in the organization.

The values of theories, models and concepts to the project risk as well as procurement management

The organizational buying behavior

The literature tends to give a solution to the pre-contract or the demand of management phase in the procurement process. Application of this theory is different in aver organizational buying behavior in terms the level of risk that prevails in the organization. The theory is perceived to be political since the decision on what to purchase, specification drawing, short listing of potential suppliers, assessing suppliers and bidding is typically political process. To add on that this theory dictates how conflicts in decision making should be handled (Lember, Kattel, & Kalvet, 2013, p. 43).

Economic contracting literature

This theory tends to exhibit opportunistic behavior that can risk the value of money the buyer pays. The critical part of this theory is drawn from the agency theory that gives the principal the power to delegate task for implementation and carry out the task as the principal could have executed the task. It is the principle that gives the ownership and control of the business where managers act on behalf of the principal. This review ideally addresses the strategic misrepresentation as well as the moral hazards since it brings into attention to the experience, the notion of search together with goods credibility (Lember et al., 2013, p. 67). Therefore for purchases to take place information is vital between the buyer and the seller.

Network and inter-organizational relationship

In this review, it addresses the ongoing supplier management relationship and also focuses on performance improvement and supply innovation. It enhances the relationship between the buyer and the seller thereby creating more networks. In this literature, it addresses organizational buying behavior but has its major ground in economic sociology (Lowe, 2013, p. 58). This theory looks into the intersection between the supplier and the organization, together with the wider environment. It gives a new approach towards risk management in procurement through its scope management planning activities under the context of networking.

Integrated supply chain management

Finally, under this review, it focuses on operational delivery steps required in the procurement process as well as management and monitoring of the supplier’s relationship. It also gives a summary of P&SCM practice implication. It involves material management, logistics as well as operational management and it is based on behavioral economic theory.  It brings integration of the entire supply network as enclosed hence a manageable system. The SCM literature adopted the game theory to bring a point of reasoning on how buyers and seller can cooperate innovatively and in long-term basis so that they develop a large poll of value instead of a static pool of value (Lowe, 2013, p. 24).

Risk management importance in developing and maintaining sustainable procurement

It is evident that risk management has managed and developed a suitable procurement through a general rule responsibility which can be negotiated and put across on the contract to be delivered by the parties. Whereby the responsible party can opt to bear the burden of the risk or incur the product and services supplied.  So to mitigate technological and market risk, the potential prospect supplier has a high likelihood to accept responsibility on their side and pay for insurance whose cost shall be inclusive the contract negotiated by the procurement organization through a payment plan (“Risk Management,” 2015, p. 38).

In other cases where the procuring organization lacks organizational acceptance of innovation as well as public service innovativeness, they shall be responsible for the burden hence require the procurement function to invest more in the venture before it begins.  Through this, they can invest all through the lifeline of the project or get information as well as monitor progress as a mitigation plan (Tátrai, 2015, p. 89).

Next importance of the risk management in procurement falls under financial risk where it is not easy to allocate the risk to any party and is variable with the factors that are prevailing.  For instance, assurance on access to finances may be shared by both the supplier and procure in projects that are deemed to be large though can be shifted to the supplier only when it is a small project. It is also subject to the potential rewards as well as expectations for future earnings. In many cases cost overrun are allocated on the agreement or how they occur whereby cost overrun due to incomplete contracts are shifted to the procuring while miscalculation is shifted to the supplier (Wang & IGI Global, 2012, p. 89). Cost overrun due to macroeconomic problems and they can be dealt with turbulence risk, and its solution is found in an organization and turbulence risk. The insurance cost is negotiated between the parties that bare the risk in totality.

Finally, organizational and turbulence risk become the most difficult to foresee since they can be made explicit in any project and allocated though if they are normally implicit and are taken as a broader political responsibility.  The external factor can share some risk from the procurement such as research grants; special research guarantees in case of the lead market and venture capital (Xu, Chen, & Cui, 2013, p. 7

References

Basu, R., & Wright, J. N. 2017. Managing global supply chains.

Camarinha-Matos, L. M. 2014. Virtual Enterprises and Collaborative Networks: IFIP 18th World Computer Congress TC5. Boston, MA: Springer US.

Dinsmore, P. C., & Cabanis-Brewin, J. 2011. The AMA handbook of project management. New York: American Management Association.

Eglin, I. (2013). Procurement management.

Heizer, J. H., & Render, B. 2014. Operations management: Sustainability and supply chain management. Boston: Prentice Hall.

Herst, A. C. 2014. Lease or purchase: Theory and practice. Boston: Kluwer-Nijhoff.

Hessle, S. 2014. Global social transformation and social action: The role of social workers.

In Wang, Y. 2016. E-logistics: Managing your digital supply chains for competitive advantage.

Lember, V., Kattel, R., & Kalvet, T. 2013. Public Procurement and Innovation: Theory and Practice. Public Procurement, Innovation, and Policy, 13-34. doi:10.1007/978-3-642-40258-6_2

Lowe, D. J. 2013. Commercial management: Theory and practice. Chichester: Wiley, Blackwell.

Risk Management. 2015. The Procurement and Supply Manager’s Desk Reference, 125-136. doi:10.1002/9781119205098.ch7

Shubik, M., & Livne, Z. 2012. Naval Procurement Problems: Theory and Practice. doi:10.21236/ada117045

Tátrai, T. 2015. Stages of Development Towards Sustainable Public Procurement. International Public Procurement, 271-286. doi:10.1007/978-3-319-13434-5_14

Wang, J., & IGI Global. 2012. Project management techniques and innovations in information technology. Hershey, PA: IGI Global (701 E. Chocolate Avenue, Hershey, Pennsylvania, 17033, USA.

Xu, M., Chen, Q., & Cui, L. 2013. An Improved Approach for Supplier Selection in Project Material Bidding Procurement. Computational Risk Management, 3-10. doi:10.1007/978-3-642-15243-6_

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