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Procurement Strategy of Canadian Tire

Discuss about the Sustainability in Procurement on Canadian Tire.

The following report aims at elucidating the supply chain management of Canadian tire. Supply chain is the basic business initial for a retailing or manufacturing company, in the course of the production. For a company, supply chain comprises of the procurement of raw material or that of the basic required tools.

Canadian Tire is a retail company that sells locomotive, sports and other products within and outside Canada (Naraine, Dixon and Horton 2015). Despite having the prime business focus on the locomotive stores, the company further operates in repairing garages, apparel stores and others sections. Because of its wide range of business, the company has been stringently structuring the Supply Chain strategies so that best supply is made possible maintaining low supply cost. The supply chain of the company has been structured with the conglomeration of Forzani Group Limited, Mark’s, and PartSource. Canadian Tire has created some strategic planning to inspire the suppliers to carry out their supply plan (Saraswat Venkatadri and Castillo 2015).  Supply includes packaging, transporting, labelling and storing (Boukherroub et al. 2017). Hence, it has designed some important clauses to be adhered by the company’s suppliers. It has clearly stated the supplier requirements following the legal procedures designed by Canadian standards Association (CSA).

The following report succinctly illustrates how the procurement functions of Canadian Tire are practised. The discussion further moves towards examining the external turbulences in the market. Some techniques of improvement is also set be in use for the procurement in supply chain.

Canadian Tire objectifies at creating and pioneering standards of strategic supply and sourcing. Procurement management of the company deals with the packaging, transporting and storing the received materials. Since this segment is completely different from the segment of the marketing of finished products, the managerial intervention and performance of the Supply Chain Manager entirely depends upon a different section (corp.canadiantire.ca, 2017). Followings are some of the strategy development plan of Canadian Tire in terms of procuring quality material from the suppliers-

i) Ensuring High Quality Resource Material

ii) Supplier Relationship Management

iii) Measuring the Supplier Performance

iv) Adherence to the Supply Chain Laws

Sourcing of material does not remain limited to the sourcing of raw materials; it rather expands to the idea of quality supply services, logistic sources and so on.

The concept of sustainability has led the companies think about the proper method of using the resources so that they do not face the huge crisis of the resources they procure from the market directly or indirectly. To carry out such idea, most of the leading companies are planning to ensure their resource management technique. This is called sustainable procurement. With the implementation of Business Sustainability Strategy, Canadian Tire has stepped into the campaign of sustainable development through effective supply chain procedure. The venture of Environment footprint in 2013, the company has launched their corporate concept to frame a deal with its suppliers so that they can quantify the proper number of usages of the sources. According to the sustainability report published by the company, the rate of emission of GHG is planned to be reduced to 80% during manufacturing and packaging of products (corp.canadiantire.ca, 2017).

Effective Procurement Planning

Effective procurement planning of the company relates to safe packaging of Green House Gas, which is used in the petroleum business sector of Canadian Tire. It checks the emission and tries to reduce the amount of it so as to ensure sustainability of the resources thus lowering down the cost of resource procurement. Saving energy has been vitally important for the company to  reduce its cost for the procurement of the petroleum products.

Sustainable procurement refers to the one that is practised in order to ensure the objective of “making green” and “saving energy”. It has a positive impact upon the business as well. Properly packaged gases and rubber materials are not wasted thus saving a lot of repeated production cost. Followings are the objectives of sustainable procurement initiated by Canadian Tire:

  • Minimising Risk and Cost thus resulting in Maximising Profit
  • Reducing emission of Green House Gas
  • Minimising the Consumption of water
  • Minimising the Rate of Pollution

Procurement strategies of Canadian Tire have been quite interesting as the company strives to apply every possible plan to achieve the highest level of sustainability. Being the largest retailer in the country, Canadian Tire holds the responsibility to respond to the growing tension pertaining to the environment. Moreover, they also focus onto the best practices in their retail business ensuring profit maximisation.

 Transportation is one of the most important and effective tools to the procure management that further ensure sustainability. The intermodal container that is not less than 60 feet long is the first intervention of the company in collaboration with the Ministry of Transportation, Ontario. Pacific Railway has also been a strategic partner of Canadian Tire to provide sustainable transportation ensuring low cost through railway track.

In the year 2015, the company has designed a Structural Packaging Test (SPT) for the company’s own manufactured product. It has further inspired the suppliers to follow the same so that best and secured materials are supplied to Canadian Tire. The vast chain of procurement of the products by the company from the other suppliers is set to maintain the ethical value of the company’s Supplier Code of Conduct.

Since Canadian Tire sources materials from different countries of the world, it ensures the proper maintenance of its ethical values. Canadian Tire has a vast range of its suppliers in different sectors. The apparel sector has been doing business in the country as well as in USA through the impression of its best practices. The biggest responsibility has to be taken in case of its petroleum business where the possibility of waste is the highest. However, the company has taken care of its petroleum pumps. On top of that, it makes sure whether the LPGs are supplied to them in proper condition. The outlets are properly maintained so that the gasoline is stored properly. The company has designed some ethical statements pertaining to the eco friendly procurement process of gasoline (Mani, Agrawal and Sharma 2015).

Sustainable Procurement

The company has developed several strategies to ensure safe and sustainable procurement of its source materials from different locations of the world. Some useful steps have been initiated by the organisation in its different retail sectors ranging from tire and gasoline to apparel. However, following steps could be taken to improve the quality of sustainable procurement-

i) The company could frame an outsourcing program to train the employees of the suppliers. Selection of the employees may depend on their understanding of environmental value.

ii) In case of transportation, the company can build contract with the Canadian as well as some others international railways to increase the number of freight trains so as to avert pollution.

iii) Social Responsibility may be taken as a useful strategy to educate the suppliers regarding the concept of sustainability.

iv) Since better service needs better investment of capital, the company is expected to prioritise where to invest more. Since it belongs to manufacturing cum retail industry, the source of procurement both by the company and from the company has to be stored in proper storehouse to avoid wastage.

Canadian Tire Company procures its materials through its vast supply chain spread both in and out of Canada by eProcurement method. The suppliers require to electronically place purchase orders, ship notices, invoices and other trade and logistics documents. This reduces the cost and time to acquire materials as suppliers from other countries can easily communicate with the company. Canada is a developed economy where advancement of technology encourages companies to use eProcurement to get their supplies of raw materials. This has made maintaining of raw materials and their accounting easier, faster and cheaper. However, the process of eProcurement faces some certain challenges that needs to be improved.

Today, Asia dominates the global supply of natural rubber, which is the most important raw material for the tyre industry (Vongkhamheng et al. 2016). China, India and the United States of America are the biggest consumers of natural rubber. The companies in these countries have a wider supply network and are able to strike better deals due to their proximity to the rubber producing areas. Canadian Tire is not able to access the market physically to ensure economic values. The company should conduct physical research in the market in order to gain information about the most economic cost of acquisition. It can then procure the materials, which will allow it to consume materials at more competitive rates.

Procurement strategies

eProcurement exposes the company to risk of security information because the owner of the procurement network is a third party. The company should enter into creating its own portal for electronic procurement (Suliantoro, Ghozali and Wibowo 2015). The company should ensure security of its information on the portal. Canadian Tire must also ensure that the suppliers are financially strong to continue business on the portals. The company should ensure that the suppliers are not engaged in illegal activities to carry on the business. They should confirm to the codes the company has already laid down for the suppliers.

The next defect of electronically procuring raw materials is that the company is not able to ensure sustainable procurement of rubber. The company must verify the source of the raw materials to ensure that their sources are eco-friendly and sustainable. The company needs to bring about enhancements in its supply chain to ensure environment friendly ways of production. Supply chain management plays a very significant role in the production process of companies, which give them the desired competitive edge in the market. Canadian Tire should review, evaluate and nominate suppliers very carefully to ensure that they comply with the quality parameters and environmental laws of the countries, most importantly Canada (Kumar, Jain and Kumar 2014). Then it can electronically procure materials from them at the best market prices.

The Canadian Tyre is one of the biggest tyre retail companies in Canada. The quick tour through the company’s supply chain management reveals that it works with the most famous retailers and merchandize sellers in Canada. Its supply chain is aligned with its product line consisting of automobile parts, food items and toys. The intricate network of wholesalers, retailers, stockists, warehouses, suppliers, ancillary industries and so on provide innovative products at attractive discounted rates (Grant, Trautrims and Wong 2015). The suppliers have to comply with the laws of Canada like abstaining from child labour, accepting bribery and follow the codes laid down by Canadian Standard Association (Csagroup.org 2017). The financial report of 2016 shows the company has earned revenue of $12.7 billion which is 3.3% more than the previous. The performance of Canadian Tire, Marks’s Up and FGL Sports increased by 8.1, 10.6 and 5.1 percents respectively(Investors.canadiantire.ca 2017). These figures show that the company’s supply chain is strong and the company follows a very strong regime of supply chain management, which has been directed through the Supplier Code of Business Conduct (Corp.canadiantire.ca, 2017). The company also enters into trade relation s with suppliers and other stakeholders in foreign countries through eProcurement. This exposes the company to macro economical factors, which are out of the control of Canadian Tire but have profound impact on it. The company needs to consider these factors and incorporate them in its policies (Amin, Zhang and Akhtar 2017).

Transportation

The first important external factor is political factor, which Canadian Tire has to comply with. The country carries on trade exchanges with other countries, which require it to follow the complex laws of the various countries. Expansion into a new foreign market and establishing a supply chain in that market can seem lucrative. However, a hostile supply chain can prove disastrous for improvement. The company entered the American market in 1980s to establish itself in a new market with more scopes of expansion. The dealers sued the company for $400 million and the company had to pull out. Its expansion efforts failed due to legal issues but the same strategy paid off in 1990. The company succeeded in consolidating its American position earning $4.3 billion and earning a revenue of $3.1 billion in 1999 (Cbc.ca 2017).

Canadian Tire engages in foreign electronic procurement of materials through third party logistics. The economic factors consisting of the factors of production are intricately related to the operations of the company. The company uses Free On-Board (FOB) freight terms and assumes the responsibilities of the goods once they reach the Canadian ports. The company abstains from using child labour, slavery and pays its workers compensation legitimate as per the Canadian laws. The company train sits onshore and offshore suppliers on the laws of Canada, who form an integral part of its human resource, one of the factors of production.

The company has several stores, factories and outlets, which requires the company to acquire new land, one of the factors of production. The shortage of land in Canada often necessitates encroaching of industries on the agricultural land in the rural areas (MMD 2017). This poses threat to the environment of the places and creates health risks for the inhabitants. The company’s often overrule public resentment. Canadian Tire should comply with the environmental laws of the nation and acquire lands keeping the ecological aspects in view ( Friedrich, Derpsch and Kassam 2017). Capital is the next important factor of productions, which includes funds and everything related to it.

The Canadian Tire carries on business with both domestic and foreign suppliers. The volatile exchange rates, labour wage rates and cost of raw materials in foreign countries are some of the risk factors the company has to consider seriously. The mode of financing and the financial infrastructure of the various countries have serious impact on the company’s supply decisions. The company can either enter into joint venture with a foreign supplier or create a subsidiary to carry on business. This poses risk because the company works with several third party suppliers and is often faced with the challenge of linking cost and pricing (Beroeinc.com 2017). The company can improve on these problems by engaging in arbitrage and spread its risk associated with suppliers over a huge revenue.

Packaging

Raw materials, both direct and indirect ones play a very important role in the production strategy of companies. The present tyre industry is undergoing the changes in technological and economic changes towards sourcing of eco-friendly rubber for tyre. TyreASia stated that car companies like Ford and BMW even demand for tracing the source of material which has made the management of supply network even more costly(Tyre Asia 2017). Canadian Tire should use natural sourcing of raw materials to ensure reduction in pollution and prolonged sustainability.

The company should design its products to meet the consumer needs which will fetch revenue to its dealers. It should operate following the highest codes of ethics and morality to ensure benefit of its stakeholders. There has been a history where the company charged taxes, which it later withdrew. These measures, though supported by the government are too complex and detrimental to the goodwill of the company (Mail 2017).

Technology is the biggest driver and area of risk for any industry that also provides scope for improvement. According to an article by the global rating agency CRISIL, the raw materials of tyre industry are the greatest sources of pollution. The company must shift towards adopting more eco friendly technology to produce its goods. Radicalisation, advanced technology, entry of multinational companies who are also suppliers with a strong capital and technological structure has a great promise for the company (Reddy 2013). The report also predicts a stable demand of tyres and prices of raw materials in the tyre industry.

Conclusion:

Raw materials are the key to the production processes and their quality sourcing is very important. The big companies procure raw materials from around the whole world to take advantage of the difference in prices. This necessitates the creation and keep of an efficient supply network. The supply networks of suppliers, wholesalers, dealers, retailers and logistics have become so important that the companies monitor them closely. They being third parties may conduct business in a way that is capable of harming the company and its reputation. That is why the companies set standards of conducts for these bodies and evaluate, upgrade and even train them. Today adopting an eco friendly mode of production has made it almost mandatory to source their raw materials using sustainable environment friendly way. The companies today source their raw materials using electronic procurement methods, which allow them to procure materials from distant lands. Electronic procurement helps these companies to maintain records of acquisition of raw materials, invoicing, and legal documentation in much easier and cheaper way. Canadian Tire uses this method to procure its raw materials, which allow it to trade with overseas supply networks. However, this method is not free of pitfalls and requires the company to improve its strategies to ensure maximum utilisation of it. Canadian Tire must assess the supply chain network because the network exposes the company to greater macro economical risks. The company needs to change its way of dealing with the supply network to ensure that it acquire sustainable raw materials. The company needs to increase its physical presence in the market, especially in the overseas markets to ensure that it is able to procure the raw materials of best quality at the most economic rate. The company can then take to acquiring the materials from the desired sources through eProcurement. This, on one hand will enable Canadian Tire to procure raw materials from over the world and take advantage of the price differences in the international market on the other. It is very important to ensure that the company is able to maintain its position it the world market through its high-grade products. The company can also keep its pricing strategy low, which will give it deeper penetration into the market. 

Ethical Value in Procurement

References

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Beroeinc.com. (2017). ? ?Tyre/Tire Industry » Beroe Inc - Advantage Procurement. [online] Available at: https://www.beroeinc.com/tyre-industry/ [Accessed 9 Mar. 2017].

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Suliantoro, H., Ghozali, I. and Wibowo, M.A., 2015. E-Procurement Adoption in Government Institution: Predicting Social Values Effect on Intention and Usage Behavior of E-Procurement. International Journal of Business and Society, 16(2), p.167.

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