Abstract
Procurement is one of the most important business processes in any given business organisation. The success of this practice can make or break the competitive advantage enjoyed by the company in the market. In this paper, the author looked at procurement practices of two companies operating in Victoria, Australia.
The two companies are Montana Foods Limited and High Country Meats Limited. The author settled for the two companies given that their operations mostly revolve around Victoria. It was found that the success of these two companies is informed by their procurement practices.
Both companies have automated their processes. However, it was found that the participation of other employees in the procurement process varies in the two companies.
Introduction
Every organisation makes purchases, including for services and commodities, to meet most of its objectives. The procurement process is, therefore, meant to add value to a company’s operations (Garrido & Gutierrez 2004, p. 322). Depending on the organisation, the tendency to purchase and procurement procedures varies.
To understand some of the procurement processes, the author of the paper identifies two organisations, both found in Victoria, Australia. The two organisations identified for the study are Montana Foods Limited and High Country Meats Limited.
The author examines the procurement practises of the two companies. The author draws parallels between the procurement practices in the two companies in a bid to find out which set of procurement practices is best suited to a company.
The author relies on the aforementioned comparison to identify some of the inefficient procurement practises. To this end, the theories learnt in the coursework will be applied in a bid to improve procurement practices.
The author will examine some aspects of procurement to give credence to the topic. According to Christiansen & Maltz (2002, p. 46), the activities of Supplier Cooperation Program have a direct impact on the procurement practices.
The direct impact is precisely the reason why the paper examines such activities in the two companies. The activities are examined in relation to the product, process, and logistical developments between the company and the suppliers. The two companies are Montana Foods Limited and High Country Meats Limited.
While still on the aspects surrounding procurement practices, the author examines the stress testing conducted on the processes. In addition, the paper examines several categories of risks involved during the procurement process.
Upon the establishment of risk, the author will apply the theories learnt to analyse how the risks can be minimised and, ultimately, eliminated.
Montana Foods Limited
Montana Foods Limited is a private business entity that has been in operation for close to a decade, having been registered in 2006. According to Manta (2013, p. 13), the company is situated within the Broadmeadows area of Victoria, Australia.
Operating in the manufacturing industry, Montana Foods deals with the processing of milk by-products and, more specifically, cheese.
From Manta (2013, p. 13), it is established that the company, famously known for its Beer Cheese, has a staff of about 173 individuals.
It is important to note that the company is gender sensitive, owing to the fairly even gender distribution among the employees. Out of the 173 personnel, 100 are female, evenly distributed in all positions in the company.
With a steadily growing reputation of cheese supply, the company has a significant stake in the dairy market within Victoria area. With only one location, the company has an annual turnover of more than $20,000,000. It is, therefore, evident that the company’s marketing strategies are paying off.
High Country Meats Limited
High Country Meats Limited is a private company located within the Cobram area of Victoria, Australia. Registered in 2008, the company deals in meat and related products. It is both a wholesale and retail distributor (Manta 2013, p. 18).
High Country Meats has a staff of about 150 personnel. Gender is factored into the engagement of staff owing to the equal distribution of people from both genders in the business enterprise.
It is important to note that the company has a single location in the Cobram area. Such a situation allows it to command a huge stake of the meat market in the region.
According to Manta (2013, p. 26), the company has an annual turnover of more than $50,000,000. Such a figure attests to the company’s competitive edge in the market. From the stated figure, the turnover can only get higher.
The Procurement Process
As Chopra & Sondhi (2004, p. 53) rightly put it, procurement is the process where a company purchases goods and services whenever they are required at a favourable cost. The fact that procurement is a process implies that there are steps to be followed.
Several companies have developed different approaches of procurement process, all in a bid to give them a competitive edge in the market.
It is important to note that most companies have automated their procurement processes. One of the systems employed in the procurement process is the Enterprise Resource Planning (ERP) system. The system is business management software that companies use to manage their operations.
It is used in such diverse areas as material purchasing, product planning, inventory control, and distribution. In addition to the ERP, companies use the Electronic Data Interchange (EDI).
Both systems help to hasten the procurement process. EDI is the standardised method of transferring data from one computer to the other over different systems or networks.
It enables companies to conduct business transactions, such as sending orders to warehouses, tracking shipments, sending invoices, and other e-commerce transactions. Notwithstanding the automation, the steps in the procurement process remain relatively the same.
According to Zsidisin & Ritchie (2009, p. 34), the first step in the procurement process is the identification of what the organisation requires. It could be anything from raw material, a service provider, components that go to make an end product, among others. To this end, a Purchase Requisition (PR) is prepared.
Regardless of whether the process is automated or not, the buyer is furnished with a PR, which indicates the commodity or service required by the ordering department.
The purchase requisition could go to a procurement department with a whole team of people dealing with the order, or one person who could be designated as a procurement officer. From there, the process proceeds to the next step.
The second step is the evaluation of suppliers (Supply Chain Management 2013). The buyer identifies the various suppliers in the market. The supplier must, naturally, supply the commodities relevant to the buyer’s requirements.
Upon the establishment of the suppliers available, the buyer then proceeds to tender out the process. At this point, suppliers place bids from which the buyer will carefully select the most cost effective to meet the required quality standards.
The tendering process is guided by a set of criteria followed by the procurement staff to make sure that basic standards are maintained in picking the right suppliers.
The criteria can be set on minimum or maximum costs within which to operate and the type of material needed. The criteria make the procurement process less cumbersome.
After the tendering process is completed, the buyer will then have to approve a supplier, depending on the merits of the bid. At this stage, the buyer will issue a purchase order (Esper & Davis 2007).
From the purchase order, the supplier will be furnished with the quantity and date of delivery of the commodities demanded by the buyer. It is incumbent upon the supplier to ensure that the specifications indicated in the purchase order are fully met.
Failure to meet the specifications may lead to a breach of contract or a reorder at the cost of the supplier, which will delay production operations, where time is of essence.
Finally, the procurement process is terminated upon the receipt of the commodities purchased from the supplier. All the relevant documentations confirming the supply should be kept by both the supplier and the buyer. It is from such records that payments and any other enquiry with regard to the procurement are made.
Confusions can arise with regard to the process, which may force the parties involved in the procurement process to refer back to the documents to clear any issues that may arise from the order.
The ultimate goal, however, is for the buyer to ensure that the cost of the purchase made notwithstanding, the business is capable of making profits. That is the core mandate of every entrepreneur.
As earlier indicated, companies follow the steps mentioned above in their procurement processes. However, to remain competitive, various companies have employed practices that give their respective procurement processes a competitive edge.
Some of the practices include supplier – buyer relationship, the use of technology, and the team- based procurement approach. According to Zsidisin & Ritchie (2009, p. 51), a company’s procurement process is best evaluated using such practices as those mentioned and discussed above.
The Procurement Process at Montana Foods Limited
By virtue of operating in a manufacturing related industry, Montana Foods purchases a wide array of commodities. Such commodities range from raw materials to machines, as well as related parts (Manta 2013, p. 76).
In order to remain competitive, the company opted to automate its procurement processes to make them more efficient. It is the practice of automation of the procurement process that sets Montana Foods Limited apart from the rest in the industry.
Several benefits of the electronic procurement process at Montana Foods worth noting include the improved contract compliance, as well as the shortened procurement cycles.
In addition, the electronic procurement practice has increased the accuracy of the production capacity. It is also important to note that the practice has improved the visibility of the supply chain.
The Procurement Process at High Country Meats Limited
The meat wholesaler and retailer have incorporated several practices into its procurement procedures. First, the company has automated most of its procurement processes. Procurement processes at all levels, which include direct and indirect procurement (Manta 2013, p. 78), have been automated.
In addition to the automation, the company has built long term relationships with reliable suppliers. It is, therefore, interesting to note that High Country Meats has not changed any of its suppliers for a long time.
Finally, the company has transformed its procurement process to make it more of a team effort as opposed to a one man show.
Comparison of Procurement Practices in the Two Companies
After looking at the procurement processes and practices carried out by the respective companies, the author finds it interesting that both companies have automated their procurement processes.
However, the variance of the procurement practices is distinguished by how High Country Meats adopts a holistic approach. High Country Meats makes the process a team effort and, further, builds a budding relationship with customers. On its part, Montana Foods remains rigid on the two fronts.
For instance, whereas High Country Meats improves the supplier relationships, Montana Foods does not make any relevant improvement as far as relationships with their clients are concerned. As a result, inefficiencies in the procurement process arise when some suppliers fail to meet the set deadlines.
According to Esper & Davis (2007, p. 57), such inefficiencies have prolonged the procurement cycle. A prolonged procurement cycle affects the normal operations of a company and, subsequently, dilutes possible gains in profits.
In the opinion of Christiansen & Maltz (2002, p. 177), a good relationship between a supplier and a buyer is beneficial as it improves service delivery to customers. The two argue that sustaining one trusted supplier is better than interchanging suppliers, owing to the reliability factor.
A trusted supplier will, subsequently, minimise the costs of procurement, owing to the abolition of certain aspects of the procurement process, such as bidding.
Another discrepancy in the procurement practices of the two companies is the teamwork aspect. In Montana Foods, the procurement process is designated to a single officer. On its part High Meats has turned the process into a team affair.
In High Country Meats, representatives from each department are nominated to sit in the procurement committee. It is from there that decisions are made.
Chopra & Sondhi (2004, p. 54) point out that turning procurement into a teamwork affair boosts the morale of the members of staff. As a result of this, the process becomes more efficient.
Supplier Co-operation Programme Activities
In order to ensure that there is an improved cooperation between the supplier and the buyer, there are several activities that are undertaken with that regard. According to Christiansen & Maltz (2002, p. 189), some of the activities include the logistics development, as well as the process and product development.
As far as High Country Meats is concerned, the activity most looked into is the Logistics Development.
As already discussed, the company has a single source logistics procedure, which is beneficial both to the supplier and to the buyer. The most outstanding benefit, according to Christiansen & Maltz (2002, p. 189), is the short procurement cycle on the buyer’s part.
On the supplier’s part, the most conspicuous benefit of the single source logistics is the improved supply chain visibility.
Categories of Risk
According to Wu & Blackhurst (2009, p. 162) and Chopra & Sondhi (2004, p. 57), there are four categories of risks. The categories include disruptions, delay, systems, and capacity. Each of the categories is brought about by various factors unique to them.
The two companies discussed in this paper have risk factors associated to them when they are examined individually and, subsequently, compared to each other.
High Country Meats Limited
Chopra & Sondhi (2004, p. 57) point out that the procurement process risks being disrupted owing to several factors, which the author finds unique to High Country Meats.
For instance, the company’s reliance on a single source supplier, who cannot meet the production capacity, risks delaying normal operations of the company in the event that the supplier fails to deliver the order on time.
As a result of insolvency, a supplier may, likewise, be incapacitated and the failed delivery will result in a chain reaction of events that will, subsequently, disrupt the service delivery of the company. In order to avoid such a situation, Chopra & Sondhi (2004, p. 57) argue that it is important to evaluate all the suppliers.
When it comes to delays as risks in the procurement process, Chopra & Sondhi (2004, p. 58) find that inflexibility at the supply source is a contributing factor.
In addition to that, the two propose that high capacity utilisation by the suppliers is another contributing factor. As far as High Country Meat is concerned, the author is of the opinion that the company should increase responsiveness in order to mitigate such risks.
Montana Foods Limited
As far as the procurement of commodities at Montana Foods is concerned, the author finds that one of the procurement related risks results from the systems. From the practices initially outlined, it was established that Montana Foods relies heavily on its electronic procurement processes.
From Chopra & Sondhi (2004, p. 57), it is evident that overreliance on systems is potentially risky in the procurement process.
One major contributing factor is that the systems may malfunction and, as a result, compromise the whole procurement process. To mitigate the effects of such a risk, it is incumbent upon the company to ensure that there is prior or alternative back up in case the systems fail (Esper & Davis 2007, p. 57).
Capacity is yet another risk factor associated with procurement, according to Chopra & Sondhi (2004, p. 57). Owing to the volume of its operations, the capacity of procurement at Montana Foods is relatively high. The high capacity is in itself a risk factor, owing to the costs involved.
For instance, a supplier can cite financial constraints as an inhibiting factor to the delivery of the commodity required.
To mitigate the effects of such a risk, the author opines that there should be an aggregate demand associated with the procurement process. According to Svensson (2000, p. 168), this demands that a manufacturing company should purchase commodities that are urgently needed.
Conclusion
It is evident that no organisation can avoid making purchases. From such purchases, the normal operations of the organisations are realised. It is incumbent upon each and every member of the procurement team to invest in practices that will put their company at the pinnacle of success.
Some of the most relevant procurement practices include embracing technology and making the procurement process a team affair. It is important to note that by improving the relationship between a supplier and a buyer, the procurement process yields more benefits to a company.
Some of the benefits that a company stands to gain from enhanced procurement practices include reduced costs and improved visibility of the company.
According to this author, companies should strive to ensure that they develop proper procurement practices. According to Monczka, Landfield & Guinepero (2008, p. 98), this is important in order for the company to remain relevant.
Companies should strive to adopt the most efficient procurement processes that will enable them meet their timelines in the production process, as well as meet the demand of their own clients within normal reorder levels.
It is also important to note that if the best practices in the procurement process are adhered to and scaled down to the employees of the company, then efficiency and cost saving to boost profits are realised.
Companies should be able to experiment with varying methods used in the procurement practice to see what works best for them in relation to their core business. It is important to note that what works best for a service provider will not necessary work for a goods provider. The opposite is true.
Procurement managers must take this into account when they are choosing the appropriate procurement method.
As demand grows, it follows that procurement managers need to review the procurement procedures that will accommodate the growth and still maintain the profit margin of their companies, bearing in mind the efficiency levels of the process chosen.
The roll out of any new system or change of procurement process should bring on board all members of staff to enhance smooth transition with minimum hitches and interruptions.
Procurement practices can make or break the companies’ edge in the market. In case of a lapse in the purchasing and supply system, there are setbacks in other processes associated with the company.
It is, therefore, important for any company to optimise the operations of its purchasing department to make sure that the department maintains its position in the market.
The importance of the procurement process in any company cannot be downplayed. The point was highlighted by comparing two companies operating in Victoria, Australia.
References
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Christiansen, E & Maltz, A 2002, ‘Becoming an “interesting” customer: procurement strategies for buyers without leverage’, International Journal of Logistics, Research and Application, vol. 5 no. 2, pp. 177-195.
Esper, F & Davis, S 2007, ‘Logistics learning capability: sustaining the competitive advantage gained through logistics leverage’, Journal of Business Logistics, vol. 28 no. 2, pp. 57-82.
Garrido, MJ & Gutierrez, J 2004, ‘Determinants of influence and participation in the buying centre: an analysis of Spanish industrial companies’, Journal of Business & Industrial Marketing, vol. 19 no. 4/5, pp. 322-323.
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