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Global Procurement Purchasing And Supply Chain Management

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Question:

Discuss about the Global Procurement Purchasing and Supply Chain Management.
 
 

Answer:

Introduction

Global procurement is perhaps one of the most important aspects of an organizational operation. This is because of one important reason hat in absence of a reliable and productive procurement system; it would be difficult for the Company to be competitive in the net profit margin. Procurement is such a process that prepares the platform for a homogenous profit margin if the strategies are up to the mark. The traditional form of procurement have largely been re[placed by some modern form of procurement such as computerization, e-commerce and outsourcing. All the mentioned techniques are important from an organizational perspective; however, the feasibility of all the process depends heavily on the administrative and financial department. These techniques have somehow brought revolution in the world of procurement. This is because of such reasons that most of the companies prefer to go for such solutions for their procurement related problem (Adamson, Dixon & Toman, 2012).

This assignment highlights the problem in one of the leading companies of the United States for the Vinyl production. The sales figures have taken a good growth between the periods of 2001-2006; however, the profit margin is a big concern for the Company. The existing director of procurement identifies the problem. It has been identified that procurement is the one problem that is hampering the profit growth of the Company. Generally, Company tends to lose their more than half of the returns in purchasing the raw materials and all the rest procurement related process.

The main purpose of the assignments to find some effective solutions to the problem identified. It has been strictly ordered from the management that the Company need more than 1% profit growth in the coming one year. This assignment tries to cover the concept of all the available procurement solutions that could provide a relief to the profit growth of the Company.

Concept of Procurement

Procurement is a process through which Company maintains its purchasing process in the market. This is something that needs to be robust in order to reduce the cost of manufacturing to the maximum possible level. Three of the most usable and productive method of procurement are computerization, e-commerce and outsourcing (Ate?, 2014).

 

Issues in DVS Corporation

Durable Vinyl Sliding is one of the leading names in the in industry of Vinyl in the United States. The Company is continually engaged in climbing up the ladder of success; however, one problem has caused certain disruptions in the management. The Company is suffering of having a poor purchasing method, which is affecting its profit growth to a considerable level. From 2001 to 2006, it has witnessed a significant drop in the profit margin. This is because of the fact that the new director of procurement is thinking of having some remedial solutions to the problem identified. The director has believed that two techniques are very important in this context, which could efficiently cut down the highlighted problem. Those two methods are computerization and e-commerce. Apart from all these factors, one factor is also very important in this regard, which is the outsourcing process (Bäckstrand, Tiedemann & Hedén, 2015).

Probable solutions

Computerization, e-commerce and outsourcing have been identified as the possible solutions to the problems identified. However, they have no such idea about the best possible method, which could actually sort out the problem of the Company. As far as computerization is concerned, the Company is less engaged in computer related operations. They mainly do an internal form of inventory management and stock reporting in the computer. They have not been advanced in all of the three identified solutions (Baily, 2013).

Advantages & disadvantages of remedial strategies: Advantages

Advantages of using computer are enormous. This is because of the working dimensions, which the platform provides to the organization. Following are some of the advantages of using computerization process in the procurement (Baker & Parkinson, 2016):

Less dependency on manual works – This is one of the most important aspect of the computerization process that helps in cutting down in the manual form of working to the maximum of possibilities. This is helpful in reducing the manufacturing cost a bit. This is because of the fact that the usage of computer would lessen down the requirement of participation of manual working people in the organization (Cook, 2016). This would help in cutting down on the labor, which is extremely important for reducing the expenditures. However, computerization would also attract one computer operator who is well versed with all the required working requirement of the organization. The computer operator needs to be efficient in the operation of procurement software systems. This is because of the fact that the software is well structured for the procurement related operations and this can efficiently manage all the involved operations in the procurement process. Following are some of the benefits of procurement software system (Christopher, 2016):

  • This would enable the automatic creation of the purchase order needed to be sent to the vendor
  • Enable the sending of purchase order through fax or mail
  • Enables the follow up with the vendors on the purchase order and also work as a reminder on the purchase order
  • Helps in maintaining a vital area of inventory, which is one of the major at the warehouse area
  • Helps in creating the financial statement, which indeed is very important to have a good idea on the production and the manufacturing
 

Disadvantages

Despite of all the advantages that are mentioned above, it has certain disadvantages also that are mentioned as follows (Ghemawat, 2013):

  • Dependability on the computer system would be enhanced, which can lessen down the physical input of labor to some extent
  • Computer systems do also produce some errors in works, which can hamper the operation as the generated purchase order might have some errors in it
  • Software can be corrupted with the use of hacking software, which is a serious threat to the security of the Company’s confidential information
  • Back up is required for the people who is operating the procurement software because in case of any absenteeism of the concerned people, Company would not have any alternate option for its maintenance
  • Everything is stored in the computer system, which makes this important for the Company to have some backups in the form of a procurement software operator

E-commerce: Advantages

E-commerce is captivating the attention of the entire world business because of its operational appeal. It has taken the business to the next level. It has not only benefited the organizations but it is also benefitting the common people those who have small income (Heizer & Barry, 2013). Even those common people can also open up their own business by just registering on the e-commerce platforms. However, the platform is benefitting the organization also in numerous ways. The beneficiary part of the technology has made this already popular in some potential market such as China, India and US.  Following are some of the benefits, which the organization can derived from the usage of e-commerce:

Convenience Enhancement – It has made things convenient because organizations can now search for their requited task on their fingertip. They can easily search for those products that are not reachable physically. The technology has lessened the distances in between the different business countries (Jakomin & Kobilica, 2014).

Allows Comparison – It allows comparison to the organization. Organization can now have access to the high range of products, which was never possible before with the traditional form of purchasing (Johnsen, Howard & Miemczyk, 2014).

Accessibility with different clients – The technology would narrow down the differences in between different organizations. Things, which was never possible before have now been made possible because of the advent of the technology. Different clients can now interact with each other while no having any previous relations with them. This is because of the fact that the interface brings different nature of person or group closer to each other for the achievement of their demand (Monczka et al., 2015).

Disadvantages

Following are some of the disadvantages that the e0comerce can bring to the business:

Poor Quality of Products – The products quality can be poor because of the fact that the resources can have less trusted sites that are hard to be identified. This is one of the problems, which can even play with the earned reputation of the Company. The Company is just trying some other ways to reduce the margin of manufacturing costs to the most possible extent. However, they have no clues and answers for the cheating over the products (O'Brien, 2015).

Delivery of goods – It can be delayed for some unknown reasons, which is very bad from the perspectives of the organizational values. It can hamper the deadline of the production, which is a bad sign for organizational values (Pooler & Pooler, 2012).

Absence of Private Touch – This is one of the most vital losses, which the e-commerce can cause while purchasing something through the e-commerce technology on the platform. Business relationship is one of the most important aspects that bind one organization to another (Ross, 2015).

 

Outsourcing: Advantages

Following are some of the advantages of outsourcing (Rushton, Croucher & Baker, 2014):

  • It reduces the work strain to the desired level of the organization, which indeed decides on the sectors that are needed to be outsourced
  • Outsourcing brings solution to the complexity of business operations
  • Organizations can decide accordingly to allocate the outsourcing of the desired domains of working
  • Outsourcing is a good source for the reduction of expenditures in the Company, which is very important for an organizational perspective to have less manufacturing costs
  • Enhances the profit margin by allocating some of the departments works to some other locations
  • Outsourcing some of the business domains is comparatively cheaper in India, which is one of the reasons behind the fact that most companies have their outsourcing in India such as TalkTalk and BT

Disadvantages

Despite of all the advantages that are mentioned above, outsourcing has some notable disadvantages, which is hard to ignore. Some of the notable disadvantages are as follows (Wisner, Tan & Leong, 2014):

  • Quality is at risk with the outsourcing of business to some other countries. This is because of the fact that the parent Company tends to lose its firm grip on the operation of the outsource locations
  • Company have no direct control on the outsourcing locations, which is a strain to the organizations as it is not feasible to have a physical visit to the outsource locations on a regular basis
  • Companies have indirect control on the outsource locations by means of mailing, fax and video calling; however, these all options are not capable enough to ensure a robust performance of the outsource locations
  • Language is another barrier for an outsourcing type of business
  • Legal issues of the outsource locations is another problem that might hamper the outsourcing operation. This is one such problem, which has no solid negotiations for it.
  • Labor issue is another potential problem in the outsource locations that can well disturb the operation of the Company

Best feasible remedy to the addressed issue

All the mentioned solutions are good in their own region; however, outsourcing looks to be the most feasible solution to the problem highlighted in the Durable Vinyl Sliding Company. The solution has the potential to improve the profit margin of the Company to a considerable level if some of the negative aspects of it are taken care of with some robust counter options (O'Brien, 2015).  

 

Justification for the selection

E-commerce is also very effective in enhancing the profit margin of the Vinyl Company as it has in it numerous of material that are cheaper than the normal market rates. This is very important as it lowers down the purchasing costs, which has long remained a problem to the Vinyl Company. However, e-commerce platform does not offer any guarantee for the quality products. This is less safe for the Vinyl Company as the Company is lower in profit but higher in sales. The lower in quality production might hamper the sales figure, which would add another problem along with the reducing level of profit (Baily, 2013).

Computerization is also very handy as it can reduce the number of labor those who were engaged in manual form of working. It would also lessen down the expenditures to some extent; however, it cannot efficiently lower the purchasing expenditures. Therefore, it is less effective in lowering the purchasing problem of the Company (Baily, 2013).

Outsourcing would be the recommended option for the reduction of manufacturing costs in the concerned Company. It would cut down on the expenditures on some of the departments of the Company, which it intends to outsource to some other locations may be in India because of low labor costs in the country. This is an undeniable fact that outsourcing can bring some challenges for the management of outsourcing business. It can also hamper the quality of service as the outsource locations might not produce the same image of the Company as that of its parent country. However, it is still useful in cutting down on the expenditures and enhancing the profit margin. This is because of the fact that the desired departments of the Company would find their shifting to an outsource locations, which offers low labor costs. All the shifted departments would incur comparatively lesser expenditures, which can efficiently reduce the entire manufacturing costs and would hence enhance the profit margin (Ghemawat, 2013).

Conclusion

Global procurement is a complex subject that needs expertise study on the subject matter. The absence of a solid procurement option, DVS Corporation has had faced a considerable reducing profit margin from 2001-2006. The sales figures are increasing but the profit margin was performing inverse to the sales figures. After concluding the entire discussions, it is handful to predict that outsourcing would be the most recommended options against the reducing profit margin of the Company. Despite the flaws, which the outsourcing has, it is still a potential option for the Company. Nevertheless, examples of numerous companies are presenting the same verdict.

 

References

Adamson, B., Dixon, M. and Toman, N., (2012). The end of solution sales (pp. 60-68). Harvard Business School.

Ate?, M., (2014). Purchasing and Supply Management at the Purchase Category Level: strategy, structure and performance (No. EPS-2014-300-LIS).

Bäckstrand, J., Tiedemann, F. and Hedén, E., (2015). Competitive advantage based purchasing matrix: a portfolio-approach to differentiated purchasing strategy. In 24th Annual IPSERA Conference, Amsterdam, March 29-April 1, 2015 (Vol. 24).

Baily, P.J., (2013). Purchasing and supply management. Springer.

Baker, M.J. and Parkinson, S.T., (2016). Organizational buying behaviour: purchasing and marketing management implications. Springer.

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

Cook, T.A., (2016). Mastering purchasing management for inbound supply chains. CRC Press.

Ghemawat, P., (2013). Redefining global strategy: Crossing borders in a world where differences still matter. Harvard Business Press.

Heizer, R. and Barry, R., (2013). Operation Management, Sustainability and Supply Chain management (Vol. 11). Pearson, UK.

Jakomin, I. and Kobilica, R., (2014). Planning model of purchasing logistics in outsourcing. Transport Problems, 9(1), pp.69-81.

Johnsen, T., Howard, M. and Miemczyk, J., (2014). Purchasing and supply chain management: a sustainability perspective. Routledge.

Monczka, R.M., Handfield, R.B., Giunipero, L.C. and Patterson, J.L., (2015). Purchasing and supply chain management. Cengage Learning.

O'Brien, J., (2015). Category management in purchasing: a strategic approach to maximize business profitability. Kogan Page Publishers.

Pooler, D.J. and Pooler, V.H., (2012). Purchasing and supply management: creating the vision. Springer Science & Business Media.

Procurement Professionals. (2017). Advantages and Disadvantages of Outsourcing - Procurement Professionals. [online] Available at: https://www.procurementprofessionals.org/advantages-and-disadvantages-of-outsourcing/ [Accessed 17 Apr. 2017].

Ross, D.F., (2015). Distribution Planning and control: managing in the era of supply chain management. Springer.

Rushton, A., Croucher, P. and Baker, P., (2014). The handbook of logistics and distribution management: Understanding the supply chain. Kogan Page Publishers.

Wisner, J.D., Tan, K.C. and Leong, G.K., (2014). Principles of supply chain management: A balanced approach. Cengage Learning.

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