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Futura Foods Ltd:Buying Goods And Inventory Controls

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Question:

Discuss about the Futura Foods Ltd for Buying Goods and Inventory Goods.

 

Answer:

Introduction

If a company is not managing its procurements efficiently, there's no doubt that that business will be losing a lot of money on its projects. A project management plan must be identified and necessary steps taken from the beginning of the project to the end. These steps include; the items to be procured, the risk associated and its mitigation, type of contract and its approval process, vendor management, project scope and its budget and performance metrics for procurement activities.

Procurement is the process of acquiring something. In this case it is obtaining goods or services that the business needs to fulfill its purpose (Spina, Caniato, and Ronchi, 2013). These tasks include; financing purchases, negotiating prices, buying goods, inventory controls and disposal of waste products. This process ends once the company is in possession of the goods and for the process to be profitable the cost of procuring should be less than the selling cost of the product plus other cost incurred. The procurement department helps a company achieve sustainable growth and ensure the sourced supply creates value. The procurement process generally has three objectives i.e. to support requirements of the operation, mange the procurement process and the effectiveness of supply base and finally develop purchasing strategies that support the firm’s goals and objectives.

A procurement manager manages all the procurement activities under this project. First, they review the procurement list before submitting it to the procurement department and settling on a contract to determine whether to make or buy the item and later begin in vendor selection, contracting and purchasing process.

The supply chain is made of, manufacturers, and logistics of sourcing products to the customers and a network of suppliers (Janvier-James, 2012). Supply management is, however, the process of governing supplies chain to make sure that both the manufacturers and the supplier's operations is effective and efficient and the products are of the desired quality (Christopher, 2016).  To achieve this, the company partners with commercial teams to ensure responsibly sourcing of material and also to develop a demand forecast. It is also responsible in balancing inventory in order to make certainty of the right supply of goods and services. It helps a company to gain a competitive edge by making sure the products are available in the best condition and at the right time.

Sourcing is finding and locating raw materials, goods and services that a certain project need. It involves finding the best suppliers for the least expensive goods and services and it involve scouting, quality testing, negotiating and market research. This step happens before a company makes its first sales and hence it relies heavily on getting the best sources.

Global sourcing is the process of acquiring goods and services such as raw materials across global boundaries. Its main aim is to exploit efficiencies such as lower cost of raw materials, low trade traffics and low cost of skilled labor (Hitt, Ireland, and Hoskisson, 2012). Modern transportation and communication technologies have eased this strategy and make it profitable despite the challenges involved in doing business across borders. It involves sourcing from countries with a low minimum wage and low manufacturing costs.

 

Literature review

Wanscoor (2010) suggests that supply chain management is more sustainable and goes beyond integration logistics involving planning in a sequence of execution of operations. Ethics is indeed one of the most popular competencies among buyers. Richard Calvi (2010) stated that procurement practices are geared towards reducing costs and that companies are responsible for their supplies actions and they must ensure compliance with the standards. The supply chain in this content appears as a significant factor in protecting companies from unethical behavior and accused of irresponsibility (Stadtler, 2015).

Halldorsson (2007) argues that practices of procurement and supply chain management are understood better by initiating multiple perspectives from economics, i.e., cost analyses, strategic management and sociology, i.e., resource dependency theory. Shook (2006) supports the same case as he used a well-established theoretical perspective resulting to a better understanding and explained activities like outsourcing, buyer- selection and supplier- selection relationship management.

Integration of supply chain process involves the collaboration of work between the conventional system, suppliers, buyers and the shared information. Larson and Halldorsson (2004) works, proposed an essential model on for perspectives of supply chain verses the logistics. ‘Unionist' view that supply chain consumes logistics while ‘traditionalist' is just one of a small part of logistics and ‘intersectionist’ treat supply chain management as a primary strategy with logistics.

Strategic procurement representation is described by the activities that take place in supply link and terms of environment and structure. Supply performance indicators that measure efficiency and effectiveness are in terms of essence of quality, cost, time, and flexibility (Arzu, Akyuz, and Erman, 2010). It is everyone’s responsibility to maximize utilization of resources since the resources are scares. The effectiveness of supply link shows broadly how well objectives are achieved.

 A company has other functions like finance and human resource which has their performance measured but this is not the same case in procurement hence failure to establish procurement function performance leads to biased and irregular decisions with costly consequences. Companies need to have coherent methods of performance measures put in place (Colicchia, and Strozzi, 2012). A performance system can measure both financial and non-financial actions while industries that do not have a good system, their procedures and processes are of low performance, they face employee turnover, and their customers are dissatisfied. Li (2016) concluded that supply chain practices lead to better competition and improved organization performance

Strategic management has three main approaches namely; management and development of key suppliers, purchasing coordination and procurement internal operations (Touboulic, and Walker, 2015). It is seen as vital functions of the organization with the potential to access to suppliers, improve the quality of products, and improve the efficiency of operations among others.

Buying firms get their value for money through a competitive procurement process from available suppliers range. Strategic procurement purchases start with what is needed hence eliminating wastage in the process.

 

Case study

Futura Foods UK Ltd is a UK based company that deals with dairy products such as goat and cow cheese, milk, additives and is specialized in white cheese such as feta and halloumi. The company supplies more than 50 countries with these products and has production facilities in Romania, Denmark, and Austria. These facilities have different practices, and routines for procurement meaning purchasing is done at each site, and the full strength possibility to purchase has been made impossible. To change this situation, Futura Foods Ltd has decided to change the situation by moving from a decentralized procurement industry to a centralized one.

It is one of the largest dairy products producers in Northern Europe with more than 250 employees and a production of over 20,000 tons per annum.

Futura Foods was established in 2001 but was later acquired by Nordex Foods in 2013 which is a privately owned Danish company, and the acquisition was a result of the benefits that Futura Foods would benefit from the group and the enthusiasm of investors to quicken the brand's development.

Futura Foods produces continental cheese, and its total market contributes to a 418.8 million Euros which is approximately 7% of the entire market. To supply this large population requires a significant amount of milk raw material which in most cases is insufficient. This is because most of the residents in the UK rely on white collar jobs and disregard farming. 

Food industries impose enormous challenges to the producers. Local suppliers in the UK have been performing ineffectively mainly because of high competition, are more expensive and harder to acquire in high quantities; as a result, the company relies on international suppliers where they import 50% of the daily products mostly from Greece.

Futura Foods use internet based application software called e-procurement. It is an effective and less expensive procurement software that represent important procurement consideration, i.e., ability to transfer data and hence to enable current pricing. This system has advantages such as lower transaction costs, enhanced productivity, leveraged purchasing, customization and more strategic sourcing (Stadtler, 2015).

The e- procurements methods used by Futura Foods are such as e-MRO solutions which are a system of processing/ acquisition purchasing requisition, and placing purchasing orders using a software system using internet technology. The company also uses web-based ERP which enables purchasing from the preferred supplied catalog (Magal, and Word, 2011).

 


The core problem in this system is that the suppliers are unwilling to adopt this system due to the high training cost and a higher risk of data compromise. This system has a problem of rapidly growing multiple standards and is unsure whether the service provider will be obsolete or if it will survive (Kwak, Park, and Ghosh, 2012). The integration required may not deliver the right data to the right system to allow actions to be taken in time. The system provides for error processing, and incorrect data leads to the incorrect load being ordered (Mishra, Devaraj, and Vaidyanathan, 2013). It also faces the risk of network problems when transmitting data especially from the UK to Greece or vice versa 

The system harbors too much room for error. The whole system is interdependent meaning one element affect another. The issues in the procurement include;

  • The software needs to be updated over time
  • Misunderstanding of what the system could deliver (Zhu, Dou, and Sarkis, 2010).
  • Processing error
  • Liquidity risk as there are insufficient cash flow controls
  • Inability to initiate change if new metrics are not understandable/ actionable.
  • Enterprise resource planning (ERP) is very expensive to maintain and implement (Colicchia, and Strozzi, 2012).

Futura Foods is subjected to increase competition from domestic and international markets such as Dairy UK Ltd, Acorn dairy and Wells farm dairy that compete with the intense to limit the market share that other food industries acquire. These incentives force Futura Foods to continually shape their strategy and value proposition by differentiating themselves from other food industry

Dairy products are in demand both locally (UK) and around the world. Futura Foods is one of the biggest companies that deal in the food industry. The company supplies dairy products to residents in the UK and globally too. The company is a global leader who specializes in quality and differentiated products, and it focuses on growing export market (Galizzi, and Venturini, 2012). The company supplies its products to a large part of northern Europe, America and also parts of Africa.

Strong competition and globalization manifest have led Futura Foods to develop international purchasing strategies of their dairy products, especially from Greece. These strategies involve dramatic price reduction, increased responsive to customers, quality milk products, and better financial conditions. The global purchasing has however raised public awareness of regulation for food safety with the Greece sourcing companies. The suppliers sometimes are unable to comply with the social responsibility, environmental, quality and safety standards hence affecting company’s relationship with its customers (Momoh, Roy, and Shehab, 2010).

The scarcity of dairy raw material in the UK is another factor that causes Futura Foods to source its raw material from Greece. Most residents of UK are not farmers and dairy farming is done by only a few organizations, but it is still insufficient to serve the whole country.

 


Global sourcing transport is also another challenge that Futura Foods is facing, refrigerated transport of frozen dairy products requires a temperature ranging from -10celcius to -25Celcius as these extremely low temperatures inhibit the growth of the microorganism (Ismail, and Nielsen, 2010). Most global sourcing lacks the cold rooms with the right temperatures required for the transport resulting to products perishability.

Futura Foods is facing some challenges doing international business with the Greece companies. These problems include;

  • Global pricing strategies used in the UK and Greece.
  • Choosing the right global shipment strategies.
  • Different foreign laws and regulations used in the two countries
  • The use of different currency and their fluctuations over time
  • Communications and cultural differences
  • Political risks
  • Environmental and health issues, i.e., the health regulations in the dairy industries are different in both countries hence creating conflicts.

The power of supply in Futura Foods is seen as low because there are a wide variety of products within the UK who are willing to enter the market by gaining a market share and gaining exposure. The company uses different categories of suppliers such as wholesalers and distributors, independent suppliers and importers (Srivastava, Franklin, and Martinette, 2013). To cater for the greedy suppliers, Futura Foods are using several ways to mitigate supplier power, i.e., building a two-way relationship to work together to achieve low production cost and rewarding honesty of the loyal suppliers (Nair, Narasimhan, and Bendoly, 2011).

Due to the scarcity of raw materials, most suppliers from the UK sell their products at a high price resulting to customers not buying the product at all. This is a threat to the company, and it effects to low profits or even sometimes loses (Sarac, and Dauzère-Pérès, 2010).

Futura Foods are faced with the problem of choosing the right local supplier that they can manage. In the recent past, they have had challenges managing disloyal suppliers which sometimes resulted in a high price in their products.

The buyer power that customers have over Futura Foods is seen as extremely high. This is because the products produced by the company are of very high quality and they also give their customers very favorable and the best possible prices to maintain the market share (Mann, 2012). If Futura tries to increase the prices, they will lose the customers to the competitors, and hence they try to keep the customers happy to gain a good market share in the industry.

The biggest threat that Futura Foods faces is the threat of substitution especially substituting the packaging style that the company uses. If these malicious people can sell their products with the packaging style belonging to Futura Foods Company, then the company loses sales and faces a threat of losing customers as this directly impact the basis of value of the products

UK dairy market was initially seen as an attractive market for new entrants to jump in the industry. With the stronger implementation of the law and forced changes in business practices competition has now increased in the market. Large-scale industries such as Futura are however trying to mitigate this problem by maintaining a low price for their products and therefore hindering potential competitors from entering the market (Wilkinson, 2013).

Recommendations

There are varieties of issue that has been addressed with Futura Foods procurement process such as room for error across a variety of areas. Futura Foods should have well-thought-out strategies for implementation for e-procurement, this include; 

  • They should focus on ease of its so as to improve the end user acceptance of its system.
  • Make sure of the efficiency of the processes before they apply automated solutions.
  • Ensure sufficient funding and resources are made available and support from the top management.
  • Define the metrics for measuring process efficiency, cost and e-procurement technologies and link incentives for the business units and procurement to these incentives.

Other recommendations include;

  • Futura Foods should ensure that their suppliers should have cold room during transportation of the products to avoid perishability of the dairy products.
  • Future Foods should start its dairy farming to cater for the scarcity of raw material
  • They should spend time on researching for loyal and manageable suppliers.

Conclusions

Globalization has led to the fast improvement of quality products resulting in high level of market pressure (Margalit, 2012). Supply chain networks have increased resulting in difficulty in quality management, and for this reason, companies have experienced more significant uncertainties and delayed points, and hence greater monitoring, coordination, and communication are required in the firms and the biggest challenge is that even the small and minor challenge in the supply chain have dangerous effects on other parts of the supply chain network (Colicchia, and Strozzi, 2012).

The dairy food is a risk business to deal with, and the uncertainties can't be ruled out from this industry, and since they are unavoidable, a proper risk redresses mechanism could minuses the impact (Ismail, and Nielsen, 2010). Dairy industries priorities like Futura Foods are to ensure that the products are suitable for consumption. Efficient supply chain management provides for hygienic measures throughout the process by adhering to proper food value requirements

 

References

Janvier-James, A.M., 2012. A new introduction to supply chains and supply chain management: Definitions and theories perspective. International Business Research, 5(1), p.194.

Christopher, M., 2016. Logistics & supply chain management. Pearson UK.

Stadtler, H., 2015. Supply chain management: An overview. In Supply chain management and advanced planning (pp. 3-28). Springer Berlin Heidelberg.

Stadtler, H., 2015. The performance impact of implementing web-based e-procurement systems. International Journal of Production Research, 48(18), pp.5397-5414.

Magal, S.R. and Word, J., 2011. Integrated business processes with ERP systems. Wiley Publishing.

Mishra, A.N., Devaraj, S. and Vaidyanathan, G., 2013. Capability hierarchy in electronic procurement and procurement process performance: An empirical analysis. Journal of Operations Management, 31(6), pp.376-390.

Spina, G., Caniato, F., Luzzini, D. and Ronchi, S., 2013. Past, present and future trends of purchasing and supply management: An extensive literature review. Industrial Marketing Management, 42(8), pp.1202-1212.

Touboulic, A. and Walker, H., 2015. Theories in sustainable supply chain management: a structured literature review. International Journal of Physical Distribution & Logistics Management, 45(1/2), pp.16-42.

Arzu Akyuz, G. and Erman Erkan, T., 2010. Supply chain performance measurement: a literature review. International Journal of Production Research, 48(17), pp.5137-5155.

Colicchia, C. and Strozzi, F., 2012. Supply chain risk management: a new methodology for a systematic literature review. Supply Chain Management: An International Journal, 17(4), pp.403-418.

Colicchia, C. and Strozzi, F., 2012. Supply chain risk management: a new methodology for a systematic literature review. Supply Chain Management: An International Journal, 17(4), pp.403-418.

Kwak, Y.H., Park, J., Chung, B.Y. and Ghosh, S., 2012. Understanding end-users’ acceptance of enterprise resource planning (ERP) system in project-based sectors. IEEE Transactions on Engineering Management, 59(2), pp.266-277.

Momoh, A., Roy, R. and Shehab, E., 2010. Challenges in enterprise resource planning implementation: state-of-the-art. Business Process Management Journal, 16(4), pp.537-565.

Morris, M.G. and Venkatesh, V., 2010. Job characteristics and job satisfaction: understanding the role of enterprise resource planning system implementation. Mis Quarterly, pp.143-161.

Ismail, B. and Nielsen, S.S., 2010. Food politics: How the food industry influences nutrition and health (Vol. 3). Univ of California Press.

Galizzi, G. and Venturini, L. eds., 2012. Economics of innovation: the case of food industry. Springer Science & Business Media.

Srivastava, M., Franklin, A. and Martinette, L., 2013. Building a sustainable competitive advantage. Journal of technology management & innovation, 8(2), pp.47-60.

Wilkinson, J., 2013. Threat of New Entrants (one of Porter’s Five Forces). Strateg. CFO.

Margalit, Y., 2012. Lost in globalization: International economic integration and the sources of popular discontent. International Studies Quarterly, 56(3), pp.484-500.

Mann, M., 2012. The sources of social power: Volume 3, global empires and revolution, 1890-1945 (Vol. 3). Cambridge University Press.

Hitt, M.A., Ireland, R.D. and Hoskisson, R.E., 2012. Strategic management cases: competitiveness and globalization. Cengage Learning.

Ismail, B. and Nielsen, S.S., 2010. Invited review: plasmin protease in milk: current knowledge and relevance to dairy industry. Journal of dairy science, 93(11), pp.4999-5009.

Nair, A., Narasimhan, R. and Bendoly, E., 2011. Coopetitive buyer–supplier relationship: an investigation of bargaining power, relational context, and investment strategies. Decision Sciences, 42(1), pp.93-127.

Zhu, Q., Dou, Y. and Sarkis, J., 2010. A portfolio-based analysis for green supplier management using the analytical network process. Supply Chain Management: An International Journal, 15(4), pp.306-319.

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