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Supplier Selection Criteria

Discuss about the Purchasing Management Practices for Sheng Siong.

Currently, most businesses are imperatively committed to spending on various expenses that keep consuming their profits. The fixed and variable costs keep rising because of uncertainties like inflation and changes in labor laws (Weele, 2010).This report is intended to explore three most important aspects regarding purchasing management of Sheng Siong Group Ltd. Notably, the areas addressed includes supplier selection criteria, supplier evaluation systems, information and communication technologies for purchasing operations and finally purchasing cost analysis. This discussion has, however, wrapped up by reinstating the main ideas concerning purchasing used by Sheng Siong Group Ltd to enhance quality, maintain competitive advantage, minimize costs’ as well as maximize profits.

Sheng Siong Group Ltd is a retail company headquartered in Singapore with about forty stores. It was founded in 1985 by Lim Hock Chee, Lim Hock Leng, and Lim Hock Eng. Sheng Siong Group Limited sells its products in the grocery stores, supermarkets and the hypermarkets in the entire Singapore. It is ranked the third largest supermarket in Singapore. Despite a starting as a single shop-house, immeasurable changes have occurred which have enabled the company flourish, grow and emerge the main provider of households products. It thus means that Sheng Siong Company targets and serves the entire population of Singapore. The stores are located at various points to enhance access by customers. The company has heavily relied on pricing strategy, offers products at a low price as well as efficient that has significantly assisted to tap a large pool of customers. It has plans for growing and expanding to Malaysia, China and other countries in Asia (Sheng Siong Group Ltd, 2014). However, Sheng Siong Group Ltd faces stiff competition from Prime supermarket, NTUC Fairprice, Jasons Market Place and more.

Sheng Siong has enacted effective guidelines to enhance strategic fit in the supply chain practices. Through the mission of commitment to quality, Sheng Siong Company has sustained strong trading relations with its suppliers who offers’ quality goods at the lowest cost. Apparently, Sheng Siong Company has designed various policies to foster healthy relations with the suppliers. Some of the important purchasing goals include optimizing inventory holdings, lowering supply costs, accessing quality supplies, reliability from the suppliers to reduce stock out costs and avoiding a shortage of the supply. Meeting these objectives consequently leads to optimization of objectives (Robert et al., 2008). Procurement of inputs is just part of the direct costs and is the nerve centre of business that handles products primarily produced by suppliers (Wan and Beil, 2008).

Supplier Evaluation System

Besides, the selection of both local and overseas suppliers has to follow a particular procedure. The suppliers should, however, be selected based on the following criteria; the reliability of the supplier, the quality of the products supplied, value for money, the possibility of the supplier providing a strong service (Sherry, 2008). Additionally, the company should consider the previous experience with the vendor, vendor capacity, the total cost of assessment, and the availability of the technical support (Robert et al., 2008).

Usually, companies have to ascertain the reliability and financial soundness of their suppliers to enhance the smooth flow of the operational process. The applauding of the supply chain management creates efficiency and further facilitates continuity even it times of shortage (CIPS, 2013). With the unpredictable trends in the supply of agricultural products due to the fluctuation in the economic factors, the identification of reliable suppliers who gives priority to the supply contracts inked (Dong et al., 2009). As earlier noted, Sheng Siong Group Limited has streamlined its procurement process to enhance the persistent flow of inputs and assists in the realization of the objective of on demand of supply of quality products to customers (Nelson et al., 2009).

The evaluation system is structured to measure and monitor performance to enhance mitigating of risk, reduction of costs and driving continuous improvement (CIPS, 2013). However, the recommended supplier evaluation tools include the evaluation forms, spreadsheets, surveys, system metrics and software applications. A crafted survey can be administered to the employees particularly in the supply department to rate the suppliers based on the supplier's selection criteria. Also, QuickBooks enterprise accounting software solutions can be used to evaluate suppliers’ compliance to quantity, capacity, and consistency (Song-Dijong, 2013). The combination of several tools, therefore, increases the accuracy of the findings. Furthermore, the evaluation tools should ascertain that the following factors like; capacity, competency, suppliers consistency, control of process, commitment, financial soundness, cost, culture communication efficiency and cleanliness.

The proliferation of the Information Communication Technologies in most companies has unveiled new avenues through which simplicity and efficiency have been enhanced in the stores and warehouses (Andersen and Segars, 2009). The purchasing operations, as well as the accounting and transactions departments, have immensely benefited by the breakthroughs experienced in the creativity and innovation. Information Communication Technology refers to the use of an integrated system in the collection, processing, and dissemination of information across various departments of the organization (Andersen and Segars, 2009). Simply, it customizes on the use of computers and telecommunication devices to receive, manipulate, store and disseminate data. Regarding the purchasing operations, the ICT is very fundamental in ensuring that there is a smooth flow of materials in and out of the stores (Cantoni & Danowski, 2015). For instance, it enhances timely delivery of materials and products based on the customers’ demands. The integration of the sales and the warehousing departments has assisted them to perform inventory planning appropriately, hence avoiding stock out costs. Activities that were cumbersome to perform in the stores are now swiftly executed.  With the integration of information using the current technology has acted as a yardstick that has sharpened the competitive edges of several companies (The International Telecommunication Union, 2013).

ICT for Purchasing Operations

It is a fact that Sheng Siong Group expanded market needs a sophisticated system to handle purchasing operations. The increased number of stores demands a unique system that can timely transmit inventory data to the responsible parties to alert them the type of products that need to be ordered. Also, the system needs to give information about the slow moving goods to enable the management deliberate about the key causes for the decreased demand for such products. In return, the suppliers will be informed about the need of further developing the goods to suit consumers’ preferences, or the company can embrace integrated communication marketing to market and promote the product.

For Sheng Siong to achieve the objectives of; staying relevant, meeting demand preferences, gaining loyalty among shoppers regarding products availability and further improve purchasing operations, it has to formulate and implement the enterprise resource planning system (ERP) (Olifer and Olifer, 2006).  It is a system that integrates internal, external and departmental information across the organization. It is a system that stores and manipulates the accounting, finance, manufacturing, procurement, sales, and management information (Stratman, 2007). The automation of this information can significantly help the management of Sheng Siong timely access essential information and plan accordingly. The system is a modification of Material Requirement Planning and gave it an updated and better focus that captured all key organization departments. The system majorly relies on the database technology to function effectively. Therefore, a successful implementation the ERP system will help Sheng Siong realize its procurement objectives and further maximize profits (Croom and Brandon, 2007).

The purchasing cost analysis refers to the process of examining the costs of procuring and shipping products to and from the stores (European Commission, 2011). The competitive business environments restrict firms from pricing products expensively. For instance, if companies’ takes overpricing initiatives, it can result in loss of customers as well as the market share to competitors (Dong et al., 2009).  Therefore, it is upon the management to negotiate better terms with the suppliers to provide quality products at a lower price so that the retailers avert passing the impact to the final consumer. Besides, Sheng Siong Group Limited has partnered with its suppliers to ensure quality products are supplied. Also, the partnerships have played a pivotal role in cementing the relationship between the company and the suppliers. As a result, there has been an understanding of various economic influences and thus striking of fruitful supply chain agreements that have significantly enhanced the supply of inputs at low costs.

Purchasing Cost Analysis

Still, on the cost analysis subject, Sheng Siong centralized its logistics and distribution centre that has enabled it to cater for the increasing number of customer base. For instance, the distribution facility established at Mandai Link centre has significantly assisted in the reduction of purchasing costs hence profit maximization. Additionally, the centre supports the delivery of many products that has helped to reduce the transport costs, optimization of inventory and economize on the human power usage.

Few tools can be applied by the management to analyze the purchasing costs. However, the most appropriate approach that Sheng Siong Company should use is the cost-benefit analysis. It involves making a quantitative decision based on various metrics (Garrett, 2008). For instance, the management can quantitatively examine the pros of purchasing the products from the suppliers, pay for the transportation costs and incur storage and handling expenses by storing the products in the company warehouse (Menard, 2011). This postulation can be contrasted by adopting a just in time approach, where inventory is purchased whenever the stock falls below optimal levels. Similarly, the management can apply the tool in evaluating the appropriateness of purchasing inventory from the supplier in large quantities or adopt other possible methods (Grant, 2010). Moreover, the costliness of these options can make the management to further their reasoning by opting to outsource the storage, transportation and procurement services (Feridun & Karagiannis, 2009).

This tool is executed through four processes. First, the purchasing department brainstorms the costs and benefits. Secondly, the costs are assigned a monetary value. Thirdly, the monetary value is assigned to the benefits. And finally, the comparison is performed between the costs and benefits to formulate a wholesome option (Wilson, 2008). However, the CBA tool is inappropriate where projects have cash flows over time.

Conclusion

In conclusion, the turbulent business environment imperatively requires companies to adopt all possible ways in reducing the operational costs. With the ever rising expenses, retailers are taking measures that enhance sharing of the burden with the suppliers through reduced prices for quality products. The most important aspects involve the consideration of the vendor selection criteria that increases compliance with the provisions of the supply agreements. Also, the business adoption of appropriate supplier evaluation system assists in identifying the non-performing products and brainstorming for the better ways of enhancing quality and also exposing the products to new developmental processes to superbly suit customers’ preferences. The enactment of effective evaluation system further acts as a yardstick in guiding the management about the course of action to take while addressing suppliers’ issues. Moreover, the current change justifies the incorporation of ICT by Sheng Siong to perfect the purchasing operations and remain competitively fit. Lastly, CBA is an essential tool that Sheng Siong should utilize in determining the best alternative to pursue regarding purchasing of inventories.

References

Andersen, T. and Segars, A. (2009). The impact of IT on decision structure and firm performance: evidence from the textile and apparel industry, Information and Management, Vol. 39 No.2, pp.85-100.

Croom, S. and Brandon, J.A. (2007). E- Procurement: Key issues in e-Procurement adoption and operation in the public sector: 13thInternational Purchasing & Supply Education & Research Association (IPSERA) Conference, April 4-7, Catania, Italy.

CIPS, (2013). Monitoring the Performance of Suppliers: CIPS Positions on Practice.

Retrieved from https: // www.metricstream.com/

Cantoni, L., & Danowski, J. A. (2015). Communication and Technology. Berlin: De Gruyter Mouton.

Dong, S. T., Xu, S. X., and Zhu, K. X. G. (2009). "Information Technology in Supply Chains: The Value of IT-Enabled Resources under Competition," Information Systems Research, 20, 18-32

European Commission, (2011). ‘GREEN PAPER on the modernization of EU public procurement policy: Towards a more efficient European Procurement Market.

Feridun, M. & Karagiannis, S. (2009) "Growth Effects of Information and Communication Technologies: Empirical Evidence from the Enlarged EU". Transformations in Business and Economics, 8 (2) 86–99.

Garrett, G. A. (2008). Broaddus, Aaron M., ed. Cost Estimating and Contract Pricing: Tools, Techniques and Best Practices. Commerce Clearing House (CCH).

Grant, R.M. (2010). Contemporary Strategy Analysis: 7th ed. John Wiley & Sons, p. 239-241

Gunasekaran, A., & Ngai., W.T. (2008). Adoption of e-procurement in Hong Kong: an empirical research. International Journal of Production Economics, 113(1), 159-75 International Telecommunication Union (2013) Measuring the Information Society: The ICT Development Index (PDF). p.254

Menard, R. (2011). "Cost Analysis: The Single Most Important Tool of the Purchasing Profession | Purchasing and Negotiation Training"

Nelson, R., Moody, E., and Stegner, J. (2009). The Purchasing Machine: How the Top Ten Companies Use Best Practices to Manage their Supply Chain, New York: The Free Press.

Olifer, N. and Olifer, V. (2006). Computer Networks, Principles, Technologies and Protocol for Network Design: John Wiley and Sons Ltd, England.

Robert ,M., Monczka R. B. & Handfield, L.G. (2008). Purchasing and Supply Chain Management: Cengage Learning

Stratman, J. (2007), The impact of enterprise systems on corporate performance: A study of ERP, SCM and CRM system implementations. Journal of Operations Management, 25, 65-82 Song-Dijong, C. (2013). "Super brands Volume VI: an insight into many of Singapore's strongest brands" (PDF). Singapore: SB Asia: 64–65.

Sherry R. Gordon (2008). Supplier evaluation and performance excellence: a guide to meaningful metrics and successful results. J. Ross Publishing.  p.232

Sheng Siong Group Ltd, (2014). Annual Report 2014: Accessed from https://www.shengsiong.com.sg/product_images/investor/2014/Sheng%20Siong%20AR%202014.pdf

Wan, Z and Beil, D.R. (2008). RFQ auctions with supplier qualification screening: Forthcoming in Operations Research.

Wilson, T. C. (2008) "Purchasing and Total Cost Analysis," in his The Systems Librarian: Designing Roles, Defining Skills. Chicago: ALA, p. 105-121. 

Weele, A. J. (2010). Purchasing and Supply Chain Management: Hampshire: Cengage Learning EMEA.

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