Supplier Selection: Unilever Dove & Lynx

Supplier Selection Criteria and Issues:

Discuss about the Supplier Selection of Unilever for Dove and Lynx.

The purpose of the assignment is to analyse the three aspects of purchase management namely, supplier selection criteria, purchasing cost and use of information technology in purchasing operations and management. The paper studies these three aspects from the view point of a purchase manager of an organisation. The organisation selected to study purchasing operations is the British-Dutch multinational FMCG company, Unilever. Unilever is the owner and manufacturer of branded products like Lux and Axe which are worth billions of dollars. The FMCG giant has to acquire raw materials, work-in-progress and finished goods from thousands of suppliers all round the globe, both from local and overseas suppliers. The purchase goals of Unilever is to acquire these materials at economic prices to ensure smooth production.

Tesco is one of the biggest local retailers of Unilever in Britain and sells a number of products like Dove and Lynx.  The products offered by Tesco can be categorised into frozen food, fresh food, bakery, drinks, baby products, health, beauty, pets, household articles, home, entertainment products, inspiration & events.  Tesco obtains products from a vast supplier market consisting of suppliers of diverse categories(tesco.com, 2017). For example, it acquires FMCG products like health and beauty products from FMCG companies like Unilever and Colgate-Pamolive. It acquires dairy products and meat products  from dairy and meat packing firms like Nestle. The competitors of Tesco in the United Kingdom are grocery chains like Morrisons and local grocery stores who sell grocery items. As far as electronics items are concerned, Tesco has to compete with the super market chains and stores like electronic products like Samsung stores and Sony World. The organisational goals of Tesco is to provide its customer segments chiefly in Britain with high quality goods and act responsibly towards stakeholders’ interests. The organisational strategy of Tesco consists of several components. The first strategy of Tesco is offering high quality products to meet the demands of the customers at affordable prices to earn high revenue and market position in Britain. The other two business strategies of Tesco are to reduce the waste emission and recycle them to reduce environmental pollution. The company through these strategies strive to benefits its stakeholders like customers, shareholders and the community as a whole.

Multinational FMCCG companies like Unilever purchase raw materials, work-in-progress(WIP) goods, information and machinery from the suppliers according to certain criteria. These goods are required by the production department of the company to manufacture finished goods. The company has several purchasing goals of the multinational company like production of finished products following its own international standard which make it acquire materials from the suppliers. The following section analyses the criteria Unilever should consider while selecting suppliers and decisions required to be made for issues relating to the supplier selection:

High quality of raw materials

The first criteria Unilever considers while selecting suppliers is that the suppliers should provide the company with high quality raw materials. The purchase goals of the multinational company is to acquire high quality raw materials which enable it to manufacture and market high quality products. This enables the company to ensure that its products find a huge consumer base and earn it high revenue. The company acquires materials using its own the Unilever Supplier Qualification System(USQS) to select suppliers for all its raw materials(Unilever Supplier Qualification System., 2017). This helps the management of the company to minimise the issues of low quality raw materials that result in low quality finished products and consequent loss of consumer loyalty. Thus, acquiring high quality raw materials remains an important criterion for selecting suppliers. Unilever is one of the largest FMCG multinational companies in the world which acquires materials from thousands of suppliers. The purchase managers in the company have to decide whether the company should acquire materials from single supply source of raw materials or multiple sources of raw materials. The managers also have to make decisions whether the raw materials have to be acquired from overseas or from local suppliers(Tibon & Edralin, 2016). For example, the company acquires cocoa from the overseas suppliers of Africa and South America. This is an important issue because it has deep impact on the purchase expenditure of the company. For example, acquiring materials from overseas suppliers is more expensive than from local suppliers. Thus, the purchase managers have to make important decisions regarding sources of acquiring materials.

The next important criteria which Unilever is recommended to consider while selecting suppliers is sustainability. Unilever is a multinational company which operates in more than hundred countries and comes under the purview of several environmental laws Environmental Protection Act 1990(Environmental Protection Act 1990., 2017). The customers today prefer to purchase goods from manufacturers who use environment friendly raw materials. Thus it makes it important for Unilever to acquire environment friendly raw materials to manufacture environment friendly goods. It can be pointed out that this production of eco-friendly goods are important for the multinational company to earn high revenue by selling its products to a large base of consumers(Akhtar et al., 2017). Thus acquisition of sustainable raw materials remains one of the crucial purchase goals the multinational company needs to consider while selecting suppliers to buy raw materials from. The purchase managers make important decisions whether to acquire sustainable raw materials from overseas suppliers or local suppliers. They have to decide whether the raw materials are easily available locally or are difficult to obtain and have to be obtained from overseas suppliers. They usually acquire environment friendly raw materials from all over the world, which ensures that the company is able to offer environment friendly finished goods to its customers and earn high revenue(Park et al., 2014).

Sustainability

The use of information and communication technology(ICT) plays a very important role in ensuring that the Unilever improves its purchasing functions. It plays crucial role in selecting of suppliers, entering into contract to buy raw materials, The purchase managers have to take crucial decisions regarding using ICT to make acquisition of raw materials better by selecting appropriate ICT tools(Cotteleer & Joyce, 2014). The following are the various ICT tools which the purchase managers need to consider obtaining purchase goals and needs of the company:

Unilever is a multinational company which acquires raw materials both from overseas suppliers and local suppliers. It can be recommended to the supply manager of the company to use supply chain dynamics to improve purchasing operations. The supply dynamics consists of both software and hardware. The supply chain dynamics help the suppliers to place orders even when multiple suppliers are involved. It allows Unilever to place orders, manage inventory and place query to the suppliers(Christopher, 2016).

Purchase managers can be recommended to use ecommerce to acquire raw materials and improve the purchase operations of Unilever. Electronic commerce allows the purchase department of Unilever to view a wide range of products and gain information about their attributes. Ecommerce also enables the company to communicate with the producers of these goods and gain deeper information about the raw materials. This enables the company to communicate with suppliers and view products from all round the world. Ecommerce allows Unilever to procure raw materials from all round the world at economic rates(Aghamirian, Dorri & Aghamirian, 2015). For example, if cocoa butter for from overseas suppliers of Africa and South America while coconut is imported from Asia. The purchase managers at Unilever, UK have to select among the producers of these products and choose the producers who are ready to supply high quality raw materials to Unilever at the most economical price. An analysis of the purchase over here shows that the purpose of using ecommerce is to acquire products from all round the world at the most economic prices, which is not possible by using supply chain dynamics(Ou & Perng, 2014).

It can be recommended to the purchase manager to use knowledge management system (KMS) to monitor and integrate the vast information about raw materials and suppliers, which Unilever uses. The purchasing goal of Unilever here is to ensure optimisation of purchasing functions to order the right amount of materials at a given time and reduce acquisition cost. Using of knowledge management system or KMS is to integrate the purchase information with the other departments like marketing and finance(Laudon & Laudon, 2016). For example, the purchase manager can gain information about the order sizes from the order acquisition department and available stock of inventory from the store manager using KMS. He can then plan the amount of raw materials to be ordered from the suppliers. This would ensure superior inventory and material management in the company, which would prevent funds being locked in excess inventory of raw materials and work-in-progress materials. This would also help Unilever to optimise its purchasing operations and reduce cost of acquiring and maintaining inventory(Heizer, 2016). Thus it can be inferred from the discussion that the purchase manager of Unilever can use knowledge management system to select suppliers of raw materials, the amount of materials to be ordered and purchase materials economically by integrating knowledge from other related departments.

ICT for Purchasing Operations

The purchase managers at Unilever have to use appropriate tools to analyse purchase costs. It must be pointed that the purchase of Unilever is to acquire high quality raw materials at the most economic prices in order to reduce the purchase costs. The following are the tools, which can be recommended to the purchase managers at Unilever to analyse purchase costs:

The purchase goals of Unilever are to acquire the high quality raw materials, work-in-progress(WIP) and finished goods at the most economic price. An analysis of these goals show that the company is required to adopt cost analysis to analyse the purchase costs of raw materials to ensure that it does not incur high costs to acquire materials. The purchase manager first have analyse the actual cost of the materials being ordered and the associated costs like taxes, freight and transportation costs to be borne to acquire the materials. They have to consider procurement issues like whether the materials to be acquired are available locally or have to be imported from other countries(García-Rodríguez, Castilla-Gutiérrez & Bustos-Flores, 2013). It can be recommended to the purchase managers at Unilever to use softwares to analyse the costs to ensure detailed calculation of all these costs. They must also consider the different prices at which different suppliers are ready to supply materials. They must then choose the supplier supplying materials at the most economic rates. This analysis of the purchase cost would ensure that Unilever does not incur unprofitable expenditure to acquire materials(Grant, 2016).

The next tool, which purchase managers at Unilever can use to analyse purchase costs and ensure profitable acquisition of materials, is inventory analysis. The purchase managers need to gain information about the inventory of raw materials and WIP, which are already in stock. The aim of this activity is to ensure that the company does not spend resources to acquire materials, which are already in stock. The purchase managers conduct an analysis of the present inventory levels to estimate the future requirements of raw materials and the cost of acquiring them. They have to estimate the amount inventory to be present to ensure smooth production of goods. They also have to calculate the time when they can order the inventory to ensure the materials are available for production. This ensures that excess funds are not blocked in storing of raw materials and WIP goods(Ingrao et al., 2014). Thus inventory analysis ensure that the purchase managers order materials at the correct time and in appropriate amount to ensure smooth production and reasonable liquidity of funds.

Supply chain organisational dynamics:

Conclusion:

It can be summed up from the discussion that the purchase managers at Unilever select suppliers using appropriate criteria based on high quality of raw materials and sustainability. They use ICT to improve their supplier selection and procurement of raw materials. They use purchase cost analysis tools like analysis of inventory cost and material cost analysis to ensure profitable acquisition of raw materials from suppliers at economic rates. It can said that these decisions of purchase managers ensure that the company achieves its purchase goal of acquiring high quality materials at the most economic rates to ensure continuous production of finished goods. The products of Unilever are sold by a large number of retailers in Britain like Tesco, which also sells products from other companies like Nestle. Other retail chains and grocery shops in Britain who are competitors of Tesco sell the products of Unilever.

References:

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