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Procurement Needs in Different Categories

Procurement management emphasises on all processes of product, material, goods and services required for ensuring efficient business operations in a concise manner (Li & Biying 2021). In this report, the core concepts of procurement management to fulfil Bravo Patisserie’s intent of market share increment in case and pastry manufacturing industry in Australia will be defined. The key intention of this report is to define the details of the company’s procurement strategy in terms of identification, sourcing, assessment as well as managing the external resources for launching the new products and becoming a leading brand in the mentioned industry. In order to fulfil this aim, the critical aspects of covering the procurement requirement and strategy for the organisation’s growth will be demonstrated. Fulfilling the core requirements of procurement will be discussed in the report after demonstrating the company’s background, equipment requirements, and procurement strategy.

Procurement management has a direct impact on an organisation’s strategic business operations (Mena, Remko & Martin 2018; Benchekroun, Zoubida and Hanaa 2019). Therefore, the strategy discussed here will provide a clear demarcation of procurement management. Classification of procurement needs in different categories including equipment and ingredient, manufacturing, commercial refrigeration, point of sale, as well as display cabinetry equipment will be depicted. Recent researches depicts that demand forecast is important for checking whether or not a product or service is feasible (Liang et al. 2021; Bag et al. 2020). Likewise, in this report, clear approach of demand forecasting will be demonstrated to depict average selling price, purchasing budget and others based on which calculation of estimates will be defined. Exploring different opportunities related to the context of procurement alongside reducing total cost to increase the factor of competitiveness will be emphasised in the report for better demarcation. Some options that can be considered to improve the procurement related aspects such as recognition, purchase requisition, reviewing requisition, order management, invoice approval, order management and record keeping will be focused in the report.           

Bravo Patisserie

The company aims to become among the top-ten Patisseries in Melbourne and top-five in pastries brand recognisability in Australia. This will be achieved through the following: -

  • Introduce a new product to the market in the form of Raspberry Chocolate Mousse Cake. An eggless version of the same will also be available.
  • Increase the production capacity to three times the current number.
  • Expand the customer base to the whole of Melbourne city.
  • Embark on an aggressive targeted marketing campaign for duration of 12 months in the form of social media, print and electronic media, discount and promotions, et cetera.
  • Enhance service delivery and customer care through staff training, home deliveries and e-commerce.

Bravo is a patisserie located in Victoria, Melbourne city. It specializes in making high quality products (cakes and pastries) for a specific niche market of young people and women. The company aims to create a national brand and become the go-to establishment for cake and pastry lovers.

This will be achieved through: -

  • Production of premium, high quality products targeting specific niche market.
  • Robust customer service and care to ensure customer satisfaction.
  • Aggressive, targeted marketing to ensure brand recognition and awareness.
  • Adoption of new innovative methods of production, service delivery and supply chain in order to ensure viability and sustainability of the business. 

Bravo is planning to unveil a new flavour of chocolate cake into the market to supplement the existing flavours. This product will be used as the star-product during a planned aggressive marketing campaign to be carried out in the next 12 months and is targeting the two market groups all over the Melbourne area.  The new product, Raspberry Chocolate Mousse Cake, has been tested during a marketing survey and found to be the most desirable among five types of cakes presented to samplers. The cake will come in both egg and eggless versions in order to take care of customers who are allergic to eggs. This product is expected to increase the sales numbers of the company and create greater brand awareness. 

  • The patisserie is already up and running with a modest number of customers. It will be easier for the marketing team to build the customer base from an existing number.
  • The company has established a network of suppliers and other partners and will only need to pick from a tested list to partner with in the expansion campaign.
  • Company can use existing customers in its advertising marketing campaigns through word of mouth, invitations to sampling, discounts to customers who bring in new customers et cetera.
  • A new supplier for fresh raspberry, chocolate blocks and other food items needed to make the cakes to complement the existing one. 
  • 2 extra industrial baking ovens.
  • 2 customized trucks for supplying and outside sales/marketing duties.
  • One extra medium sized cold room. 
  • Ten extra employees to handle the increased production, sales and marketing, and customer service. 
  • Two extra temperature-controlled pastry display panels. 
  • Four branded scooters for marketing and home delivery purposes. 
  • 20 cooking sheets.
  • 15 cooking pans.
  • 10 cooking racks
  • 20 measuring spoons and cups
  • 10 Rolling pins
  • 10 Mixing bowls
  • 20 Cookie cutters
  • 10 muffin tins. 

Demand Forecasting Approach

Bravo Patisserie is located in Malvern near the intersection of Wattletree and Burke Road opposite the popular Central Park in the city of Stonnington. The business specialises in custom chocolate cakes catering for conventional and niche Vegan markets encompassing a demographic consisting of young adults to mothers’ groups. 

Malvern has a vibrant community known for its gardens, leafy streets, architecture and café culture with an estimated 24000 residents (Australian Bureau of Statistics 2020) 70% of whom are at working population age (City of Stonnington 2020). The population demographic is forecast to increase over the next 5 years including a 21% in prework age and a 15% increase of working age residents. Local residents, and a pool of 24 Early Learning and kindergarten centres (City of Stonnington 2020) including the Caulfield Grammar Malvern facility, located within a 5-minute drive radius of Bravo Patisserie (Appendix 1), represent the target market of potential customers.

The location is in a competitive environment and servicing the targeted demographic is critical to the success of the business (Chang, X, Li, J 2019).  The ongoing restrictions and COVID-19 uncertainty has influenced customers to shop locally. (Linzalone, R. and Lerro, A. 2021), argue for food enterprises within the Bakery Industry to achieve success, innovation is dependent not only on implementation of product, price, place (location), and promotion, but requires championing locality, by supporting local businesses and demonstrating Community loyalty. 

An internet search revealed 24 specialist cake businesses within a 10-minute drive with 9 located within a 5-minute drive. Benchmarking against peer companies or competitors offers a snapshot of market pricing of comparable products and improving performance (Maltz, E, Bi, HH & Bateman, M 2018). A comparison of identical chocolate and Vegan cakes advertised by competitors revealed an average price mark of $62 for chocolate and $54 target for vegan cakes.

Risk migration cannot be addressed by forecasting techniques alone for determining product position while product development and product delivery strategies are refined and established (Derbyshire, J ,Giovannetti. E 2017). Product positioning is another critical factor including mitigation of risk when launching a new product into the market. Initial procurement through reputable local suppliers offers a preview of material costs (Appendix 4) capturing data for an indicative bill of materials (Appendix 5) for budgetary purposes and forecasting. This also reduces the risk of significant financial outlay or commitment to bulk product purchases from wholesale suppliers.   

A planned purchasing strategy focusing on supplier efficiency and cost reduction is proposed through the product establishment and the market development cycle. Estimating customer and market demand through a combination of researched data, judgements, local knowledge and observations of competitor activity are contributing factors to estimating inventory profiles ( Rekik, Glock  & Syntetos, 2017 ). A forecast of predicted demand over a 12-month period, as discussed earlier in this report, is used as a basis to calculate the ingredient volume and delivery requirements. The tabulated results of the forecast (appendix Table 9) form the basis for calculating demand quantities, ingredient volumes and delivery quantities as detailed in tables 6 & 7. Delivery quantities would be amended and reflected to reflect manufactures standard package sizes and volumes as appropriate. Accumulated inventory will be managed to ensure ongoing standards compliance and consumed on a last in , first out basis.  A further product categorisation assists in identifying high ingredient volume to meet manufacturing demand (Group A) , ingredients sourced through specialist suppliers (Group B) and perishables (Group C) , scheduling smaller volumes but increased delivery frequency for perishables ,to discourage inventory waste and financial loss due to the product degradation.

Procurement Related Aspects

The delivery process is managed and measured through monthly purchase orders which stipulative ingredient group, delivery frequency, and scheduled delivery dates based on business demand and delivery replenishment lead times as illustrated in the Gantt chart. Note:  The Gantt chart included in the report covers 2 periods of 6 months of the 12-month period for illustration purposes. 

A pre-qualification process identified ingredient suppliers through due diligence including quality accreditation (Table 8) resulting in a pool of businesses capable of meeting the business’s needs. The purchasing methods should remain flexible (Wang, Fan, & Gong  2018) to mitigate supply risk through inventory control while sales and demand data is accumulated to optimize a purchasing and supply schedule. Adopting a “value- at- risk” method will provide a tool to manage price risk exposure and measure risk, by setting risk limits based on investment value at any point based on current market knowledge and operational conditions (Wilson, Naaje, & Hawes 2017). 

The sale budget is based on the average selling price of $62 per cake. A monthly sales budget is determined by Multiplying the monthly demand by the unit price, leading to a total of $139,744.49 for the year 2022. 

The sale budget is based on the average selling price of $62 per cake

A preliminary assessment to identify established local suppliers by examining their commitment and ability to provide the industrial specific products and services to meet the business needs. Two purchasing categories included equipment supply and the supply of ingredients. A heavier weight was placed on manufacturing, commercial refrigeration, point of sale and display cabinetry equipment supply due to its specialist and capital-intensive nature with limited options. (Mwesiumo, 2021) Ingredient suppliers presented a broader range with multiple supply avenues options. Accreditation of supplier or distributed products are relevant to food industry equipment suppliers. Four Food Industry standards form the basis for equipment supply and applicable supplier qualification. These include ISO 9000 -documentation, HACCP -system for food hygiene (FSANZ), and European Standards ISO 45000-Occupational Health and Safety and ISO 14000 – environmental management. (International Standards Organisation c. 2022) A series of criteria including local supplier product profile and capabilities, quality systems and certification, delivery and support network, inventory and cost control management, innovation and location. provided the main prerequisites for supplier consideration. (Clauss,T & Tangpong, N c. 2019)

The successful supply partner will play a critical part in the success of the business so establishing a cooperative supplier relationship is the groundwork to an effective supply chain, controlling risk, reducing purchasing costs and improving efficiency (Jiang Z 2017).  

Preliminary suppliers of equipment and ingredients

Preliminary suppliers of equipment and ingredients, who have been identified as potential suppliers, are listed in the above table and are candidates to identify application, specification and procurement processes. Extended supplier capabilities are listed in the table of raw data.

Market research through Inox (Inox c.2022) , Varoooy  Machinery (Vanrooy c.2022), Hospitality World direct, (Whd c.2022)  and Petra Equipment (Petraequipment c.2022) of based on the listed equipment in “Procurement needs'' section earlier in this report are estimated at $50,000. The acquisition would necessitate application specification, capital equipment expenditure justification prior to budgetary inclusion and planning. Expenditure approval would initiate an invitation to submit quotations by preselected qualified suppliers listed in the table above. Estimated product delivery lead times of 4- 6 months are anticipated.

Bravo Patisserie’s Market Goals

Rental or lease equipment options may require consideration should the delivery lead times exceed the production and product launch schedule.

The supply chain diagram offers a visual sequential illustration of all parties involved upstream and downstream from Bravo patisserie, in fulfilling a customer request. The objective of managing the supply chain is to maximize profit through the management of product flow and information flow, controlling inventory costs and ensuring the planned volumes are delivered at the right time to the right place.  Supply chain management also mitigates the bullwhip effect through visibility of product planned delivery and volumes Information. The bullwhip effect can materialise when the additional stock is ordered up stream in response to increase downstream demand. The result can be excess inventory if the delivery time frames are not managed correctly adapting the delivery to the downstream demand.  (Dai, Li 2017). 

A quality management system (QMS) consists of procedures and processes through specification and measurement practices in order to deliver consistency and quality throughout the enterprise. Total Quality Management (TQM) not only encapsulates QMS but extends to the leadership by management and commitment by staff to ensure every process is carried out correctly within their area of responsibility (Antunes et al 2021).

Purchasing techniques which support Total Quality Management practices with the target of not only reducing costs but, wherever practical, standardise processes encourage optimal service, delivery, continuous improvement and innovation by suppliers. (Calda-Miguel et al 2020)

Federal and State legislation and Food Industry Standards exist and are enforced for the protection of business, suppliers and customers creating a standardised platform for business practises within the industry. These include ISO 9000 and ISO 22000 designed for quality management systems and documented processes, production and processing standards. Additionally, the Australian and New Zealand Food Standards Code (FSANZ) requires businesses to comply with three standards ranging from food preparation to equipment and hygiene practices. (Food Standards Australia and New Zealand 2020).  The Food Safety Practises Code references HACCP which is an internationally recognised food safety method which utilizes quality control methods to measure biological, chemical and physical hazards potentially present during food preparation. (Zupanets et al. 2020).

Quality is critical to all aspects of maximising and enhancing the performance of a business and its products and services, it encompasses all processes and work practises within a business to produce goods and services with a goal to create a product which meets or exceeds the customers’ needs and expectations.

The method used in this report to generate the forecast and future demand is the exponential smoothing method. The method only requires little record-keeping of historical data, making it fairly easy to use. The report uses available industry data to generate historical data to be used as a starting point of the forecast. The Canadean, in its 2017 report on the bakery and cereals market in Australia, has forecasted a market value of 858,400,000 Australian dollars from cakes, pastry and sweet pies for the year 2020 (Canadean 2017). Cakes represent 27.2% of the total revenue of the cake and pastry manufacturing industry in Australia (Yeoh, YH 2021). 30.2% of the business in the industry are located in Victoria and 30% of the total revenue comes from small and medium enterprises (SMEs) (Yeoh, YH 2021). An extrapolation of the market value figures using these percentages leads to $21,153,722 in revenue from cakes produced in Victoria by SMEs in 2020. A 2.66% demand increase between 2020 to 2021 brings the revenue from cakes made in 2021 in Victoria by SMEs to $21,716,411 (Yeoh, YH 2021). For the simplicity of the calculations, the report uses the average price of chocolate cakes ($62) to convert the revenue figures into the number of cakes sold by SMEs in Victoria for the year 2021; that is about 350,000 cakes produced. There are 518 SMEs in Australia (Yeoh, YH 2021). Again, for the simplicity of the calculations, using the 30.2% representing the proportion of those businesses located in Victoria, it comes down to 157 SMEs in Victoria. Using the assumption that these businesses share equally the Victorian market, the report establishes that each patisserie in the SMEs category in Victoria has sold approximately 2,200 cakes in 2021 or a monthly average of 184 cakes. Considering the assumptions made in establishing the monthly average for 2021, the report will use a lower value of the smoothing constant α, say 0.2. The report will take some liberties in assuming that the business has gone through the year 2022 providing the business will have real demand data for the period t-1 used in the calculation of the forecast for period t. Figure 1 is a graphical visualisation of  the forecast obtained under the above assumptions. 

Targeted Demographic and Competition Analysis

Outsourcing in Bravo Patisserie is essential as it is a business in a high competition market that requires maintenance of well-trained staff with skills and knowledge in order to compete profitably and productively.

Through outsourcing of certain processes in the pastries business, the company will be able to develop new products such as cakes in a relatively short period of time. Among the most important elements to be outsourced Is the company’s payroll. By outsourcing the payroll, the company can focus on its core business of making pastries and improving the existing catalogue of products (2020) .

Staff training is the second most important element to be outsourced. By having a different company that is specialized in recruitment handling the training of staff, the company will be at an advantage as it will save not only on training costs but also get quality work staff that have the necessary experience to build on the Bravo pastries brand. 

There are however risks involved when outsourcing is used by the company. The main disadvantage of outsourcing is there is reduced control of the pastry shop as we will have to trust third parties with our assets. The second risk resulting from outsourcing is issues in communications as it is cumbersome to contact third parties everyday leading to delayed services. The last risk of outsourcing is that you can lose your brand uniqueness as the outsourcing companies provide the same services to everyone else thus your business can’t stand out. By having many companies that they outsource to means that your needs may not be their most urgent priority.

Based on some of the objectives of the business which are to enhance quality and maximize profits, some of the services such as information technology and marketing should be outsourced. According to Lair (2019), one advantage of outsourcing is that it enables businesses to concentrate on their core functions. Therefore, outsourcing will enable the cake shop to concentrate on identifying consumer needs and preferences. In addition, research suggests that outsourcing provides businesses with better control over some of the activities that they do not perform (Liar, 2019).

Besides, if the cake shop outsources some of the services to other firms, there will be a decline in cost since it will not have to incur cost in relation to recruitment, hiring, and training personnel for the services that have been outsourced. Another reason outsourcing has been considered as a good option for the cake shop is that it will enable the business to derive more value since the services will be undertaken by reputable organizations in Melbourne. Liar (2019) claims that outsourcing entails giving other organizations that have skills and competency the mandate to undertake certain business functions.

However, there are certain risks that are associated with outsourcing, and they need to be considered before entering into an agreement with another organization. One drawback that is linked to outsourcing is that it compels businesses to rely on other entities for survival since they do not have their own capabilities to undertake certain functions (Lair, 2020). 

Product Positioning and Risk Mitigation

Conclusion

The key intention of this report is to define the details of the company’s procurement strategy in terms of identification, sourcing, assessment as well as managing the external resources for launching the new products and becoming a leading brand in the Australian pastry industry. Through an appropriate chronology of depicting organisational introduction, competitive advantages and procurement requirements is demonstrated. In addition, discussion on location and target market for launching the new products is defined which demonstrated a proper orientation of management. Apart from that, descriptive idea on location and target market, procurement strategy, sales budget, equipment and ingredient supplies, supply chain, quality system, demand prediction, and outsourcing procurement related aspects are clearly demonstrated. A planned purchasing strategy that focuses on calculating demand has been provided. In addition to that, the demand forecast defined that quality management system helped to identify a whole year’s sales demand identification method. Apart from that, federal and state regulation is focused before the procurement strategy is applied.

Mostly, the strategy defined for the organisation to strive in the market with their new product is a combination of estimating customer demand, market demand, product establishment, and market development cycle. Based on the results identified in the forecasting method, it has been found that delivery quantities needs to be amended as well as reflected. Supply chain diagram offered a proper illustration of all individuals involved upstream and downstream from Bravo Patisserie. Furthermore, quality systems that supports total quality management has been clearly defined for better proceeding. Maximisation or enhancing performance by meeting customer requirements has been identified here for further strategic development.  The patisserie is already up and running with a modest number of customers; Thus, it can be concluded that, with implementation of the aforementioned procurement strategy, adding up to the number of customers can be done which will enable the patisserie to fulfil their underlying goal of becoming the best in the Australian market.

Improving procurement efficiency through accepting the elevated position within the business needs to be done for further strategically improving the underlying goal of the patisserie. Furthermore, the following recommendations can be put into practice for further strategic development:

Consolidating supplier list: Integration of supplier list to leverage economies of scale can be further focused by the patisserie. Additionally, establishing meaningful and trusting suppliers for developing a clear idea on procurement can be emphasised.

Reviewing requirements: Procurement requirements tend to change as per the changing notion of operations (Bandara et al. 2019). Therefore, emphasise on reviewing requirements time to time for managing a proper idea of strategic development needs to be further highlighted here. Furthermore, considering trial and error method to manage proper experience management needs to be strategically done. This is because procurement for similar businesses can differentiate; hence, emphasising on only one specific method may not work.

References

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