Emerging Issues Of Procurement Management – Discussion And Risk Management Strategies

Role of procurement management

Discuss about the Emerging Issues of Procurement Management.

The risk is a probability of happening something unwanted which can impact the management and operations of the organisation. The food chain supply management comprise of greatest risks which is essential to be managed as it can lay a immense challenge for the company. The other sectors of economy sustain risks through various measures while, the food chain supply has greater risk because of the perishable nature of food. As per this, industries related to food supply chain is essential to be managed in most efficient way that can help in handling of potential risks of its vulnerabilities (Phillips, 2013). The present study is based on risk and procurement management in which a UK based firm Edible solutions Ltd. who imports the food products from Greece has been chosen for detailed discussion. The report will carry out a critical discussion on supplier relationship management and various risks that can be faced in supply chain.

There are a number of risks in the supply chain management which can exist either internally or externally. The impact of this supply chain risk is high which has the potential to affect the operations of business seriously. According to Fu, Lee and Teo, (2010), the risk in food supply chain is higher as compared to other business organisations engaged in supply chains as food is a perishable thing. The time factor has a crucial importance in supplies of food materials as after a specific time period, food may get destroyed or perished. Various factors like natural disasters, epidemics, changes in weather etc. have the potential to put the food supply chain in a vulnerable state. As per these complexities related to food supply chain, it is crucial to integrate various functions in best possible way so as to minimise the risks related to supply chain of food and maintain the quality of products. From the reports, it has been found that the demands related to various food has increased to very high level in UK as compared to supplies. Besides this, various recent scandals related to quality oif food products have raised awareness among public. Thus, there is an increasing demand of regulation for food safety so as to supply quality products (Sodhi, Son and Tang, 2012). As per the scenario, the Edible solutions Ltd. of UK import the food materials from Greece. The organisation makes attempt to provide high quality products that has been imported buy reliable suppliers so that further processing can be done in right manner and end product reaches with same quality. Therefore, the organisation uses to apply various technologies and expertise to manage different kinds of risks that may create a complex situation for the industry.  

Sustainable procurement process

The respective firm imports the food materials from Greece and supply it to various major retail and manufacturing companies in UK. The organisation believes in working closely with the suppliers and customers so that the rising demands among consumers can be catered successfully. In the views of Osipova and Eriksson, (2011), the ISO and HACCP systems are applicable on food industry which acts as a regulatory firm to control quality of food. Yet, the diseases and other risks relevant food quality are not properly met by these bodies. On other hand, many food processing companies either at small or big level are facing challenges in managing the supply chain as a result of lower quality of raw materials, less innovativeness and research activities, use of obsolete technologies and many more. These challenges are the major barriers because of which the firm is not able to cater intensifying demands among customers. Consequently, the trade balance for food products has gone negative (Waters, 2011).

Blome and Schoenherr, (2011) states that supply chain manager is mainly responsible for applying a best practicing model that can aid in achieving a fully incorporated supply chain which is potential of sustaining the competitive advantage. Besides this, it must be capable of enough flexibility so that manager can implement required changes to meet the extreme events. The supply chain management consists of a number of risks which can be managed and understood through the application of some relevant theories of risk management.

It is evident that the natural resources of world is getting reduced and is under a severe pressure. Besides this, Waters, (2011), states that economies of the world are also changing fast with a number of fluctuations in it that directly impacts the vendor and supplier relationships. Further, this fluctuation in economic conditions results into rising prices of food and energy. Olson and Wu, (2011) argues that in this situation, the role of procurement is to develop understanding for those drivers that can impact demand for natural resources. The procurement management strategies can help in mitigating various risks related to supplies in following way:

• Developing the knowledge on various alternative sources of materials so that the time of uncertainties can be met.
• Building up of various alternative product strategies with a relentless supply insecurities so that losses can be written-off which are related to business transactions done at this time.
• Adopting the approach of circular economy which entails sourcing of secondary raw materials and use of renewable primary materials.
• Making good investments in the development of various new capabilities in cooperation of strategic partners.
• Making links and partnerships with local suppliers within supply chain so as to provide micro financing to the local suppliers which can aid in developing jointly local economies and more secure chain of supplies.

For instance, the Edible solutions Ltd. has faced issues in supplies of food at the time of economic fluctuations occurred in UK. The company was not able to import required goods from the suppliers at reasonable price and on time. Therefore, it contacted multiple suppliers so as to meet the demands of customers. Besides this, now it adopts the strategy of making investments on new markets and developing partnerships with local suppliers as well.

Agency Theory in Supply Chain Management

The sustainable procurement process is a concept where social and environmental factors are taken into consideration along with financial constituents for taking decisions related to procurement process. The decisions taken through this concept are based on whole life cost, related risks, parameters of success and its implication on society and environment. Through this process, Edible solutions Company can apply the management through buying of assets, services and supplies by taking into consideration, a number of factors like:

• Whole value for money including price, quality, functionality etc.
• The product’s life cycle
• Environmental aspects related to processes of supplies
• Sustainability and recyclability of the products

The application of sustainable procurement process will help in long term savings, efficient and optimum use if available resources, reducing deteriorating impacts of various materials, more encouragement to innovations etc. Through this concept, the firms meet their needs for different products and services which can achieve value for money by generating benefits for society and environment. In this sustainability process, inclusion of ISO 20400 will aid in bringing value within procurement and purchase process by disseminating CSR practices within it. The ISO 20400 contains standard principles and guidelines for various stakeholders who are related internally or externally in purchasing processes. The application of ISO 20400 in procurement process will help in increasing value of essential management practices, differentiating genuine efforts from programmes that demonstrate mere window dressing and will encourage other firms to include similar programmes and standards in practices.

The Agency theory has evolved between 1960s and 1970s where it was incepted basically for risk analysis. As per Kalvet and Lember, (2010), the agency theory is meant for assessing the risks after identifying various issues in the firm. Thus, it reflects to recognise various common problems of the company and ways to manage them in conditions of uncertainty. The theory states that one of the party which is said as principal allots a task or work to opposite party known as agent. Tang and Musa, (2011) presents a different view that in this relationship, the principal works for minimising the cost of agency while on other hand, the agent will seek to minimise the control of principal. Thus, on applying this theory in supply chain management, it can be inferred that sourcing company act as a principal while the supplier firm act as an agent. Principals are usually risk neutral while the agents are risk aversive in nature. The rationale behind this risk related nature of principal and agents is that sourcing company has the power to contact different suppliers or agents by diversifying their investments (Mwikali and Kavale, 2012). While agents or suppliers are, dependent on principals.

The Resource dependency theory sets a specific view which relates with the supply chain management for understanding the risks related to the process. Organisations use to manage the risks because most of the times, firms are constrained as a result of external environment. Giannakis and Louis, (2011) states that to manage the risks related to resource dependency, a company must have the arrangements related to inter organisational relationships. In addition to this, the theory suggests that those firms who are engaged in supplying bulk products must have the relations and contacts with multiple numbers of suppliers. This facility will help in minimising the most common risk of timely delivery.

There can be a number of reasons which may delay the process of supplies between buyer and supplier. These types of reasons may comprise weather changes, issues in transportations and many more. Therefore, to manage such kind of risks, it is essential that the buyer company establishes contact with multiple suppliers so that risks related to the supply management in emergent conditions can be met (Xu, 2010). Here, it can be stated that by acquiring various external resources, required by a firm can be attained by reducing its dependency on others and increasing others’ dependency on it.

The resource based view is an approach that was initially given by Penrose who took the firm as a set of resources through which organisations can differentiate themselves from each other. The resource based view theory suggests that firms possess a number of resources internally (Hong and Kwon, 2012). These resources are the major competitive advantage for the firm and its competitiveness highly depends upon which universal internal resources the organisation possesses. As per the supply chain management, it is evident that a company must strive for using resources of its own firm as much as possible so as to save cost and also minimise the risks related to supplies.  Besides this, the mentioned approach also states that the members who are involved in the supply chain management have a close link among themselves so that so as to enhance their capabilities and manage risks. In addition to this, the resources that exist externally or beyond the boundaries of organisation are required to be accessed through management of long term relationships with suppliers so to attain competitive advantages.  

Not withstanding the significance of co-operation and harmonization for supply chain management, a privileged level of interface passion is needed in order to have an incorporated supply chain management. As per Chaturvedi and Martínez-de-Albéniz, (2011), the supply chain management is a process in which a collection of relationships and various use to get organised for smoother flow of materials, information and money between buyer and supplier. However, Lavastre, Gunasekaran and Spalanzani, (2012) contradicts that the efficient management of different information, material and cash is significant so as to improve the performance of supply chain.

The complex structure of supply chain management has attracted the interest of many researchers. As per Loch, DeMeyer and Pich, (2011), there are several ways through which the upstream risks in food supply chain can be managed. For this purpose, it is crucial to be familiar with whole process of production, making more investment in designing and integration of supplies, to have win-win situation through effective monitoring and maintain good level of transparency. Therefore, it is crucial to understand the nature of risks and undertake various steps that can help in their management so as to minimise risks and maintain a smooth flow of materials and information (Merna and Al-Thani,  2011).

The risk management is a process which follows some of the specific steps that can help in complete solution of its management. These steps can be understood within a risk management cycle in which there are five steps. These steps can be understood in the following section in an elaborated manner:

• Identification of risks: This is the first step in risk management cycle where manager of Edible solutions Company attempts to make identification of risks. As per this, the manager applies a range of technologies so as to make correct identification of risks. In context of food chain supply, there can be a number of risks that are essential to be forecasted and also to make identification after initiation of the process (Xanthopoulos, Vlachos and Iakovou, 2012). The manager makes the identification of risks by making a risk register in which detail explanation of risks, their impacts and likelihood are mentioned.
• Analysing the risk: On the basis of above process, where risk register is prepared, the analysis of risks are done. Here, the risk register is used as a base as it contains types of risks, their likelihood to appear and their impacts on supply chain management. These risks are analysed so as to understand their nature and various impacts that which are potential to affect the goals of supply chain. The collected information is analysed by the concerned manager and ways are found out for its solution (Olson and Wu, 2010).
• Evaluating and ranking risks: On the basis of risk register, the results obtained by combining outcomes of likelihood and consequences of risks are used for ranking the risks. Here, the cited firm makes an evaluation of risks so that a particular ranking can be done so as to make a decision regarding whether the risk is acceptable or needs urgent action for its treatment. On this basis of evaluation made for analysing impact of risks, the managers in supply chain management take various decisions (Nagurney, Masoumi and Yu, 2012).
• Treat the risk: As per the above step, in which the analysis is made for giving ranking to the risks on the basis of their seriousness are addressed for treatment. The highest ranked risk is taken on priority basis so as to undertake steps for its solution. These risks are treated in a way so as to minimise its impact or bringing it to the acceptable level. This is a crucial step in which decisions related to mitigating the risks and enhancing opportunities are taken. The contingency and preventive plans are prepared so as to treat the highest ranked risk as per the risk register.
• Monitoring and reviewing risk: This is the last step in entire process of risk management where the manager of mentioned enterprise makes some provisions so that he/ she can keep watch over the project risk register (Colicchia and Strozzi, 2012). This helps in monitoring entire process so that any new risk can be identified at earlier stages and appropriate measures can be adopted for their treatment in advance.

From the studies, it has been discovered that supply chain consists of a wide number of risks as well as opportunities. Both risks and opportunities for an organisation have an impact on the entire chain. In addition to this there can be production related risks in cited venture and also procurement of the risks. Therefore, it is essential that steps are taken as per the nature of risks so that their management can also be done in appropriate manner. The number of risks and their management along with its likelihood and impacts can be studied properly within a risk register. Thus, the risk register related to the food supply chain can be developed in following manner (Nojavan and et.al., 2015).

Sr.no.	Risk description	Cause	Likelihood	Impact	Required action
1.	Sometimes, timely delivery of food materials may not be received due to which food may get perished.	There can be both controllable and uncontrollable reasons for such condition like unfavourable weather, loss in transit and delays due to heavy traffic or closure of roads (Olson and Wu, 2011).	High	The delay caused in timely delivery may impact the relationship between buyer and supplier firm. Besides this, the buyer organisation will have to face heavy losses in financial terms and loss of customers as well.	To make arrangements of insurance so as to recover losses incurred from uncontrollable events. Besides this, order can be placed in well advance so as to keep a margin of some days in case of delay (Fu, Lee and Teo, 2010).
2.	The quality of food and raw materials supplied can be of lower quality.	The relation between buyer and supplier may not be sound because of which the supplier may not send the quality material. Besides this, the buyer may not have the contact with a good supplier.	Moderate	The consumers who get the end products may not get satisfied with the quality of product. This may increase dissatisfaction among the consumers and fir may get loss its customer base (Osipova and Eriksson, 2011).	The firm must ensure that the procurement is made through a loyal supplier. Besides this, it is also essential that buyer shares all required information to the suppliers about quality of products in a proper way so as to get the desired quality product.
3.	The enterprise sourcing raw materials and food must comply with the safety and quality standards along with regulatory laws which may result into lawful actions against the organisation (Dey, 2010).	Sometimes, the companies may not meet the regulatory requirements and quality standards so as to operate at minimum cost of operations.	Low	In case of violating any food and safety law which may be intentional or unintentional, the lawful action may be taken against the firm. Thus, the goodwill of organisation may get impacted negatively resulting into loss of customers for the company.	The entity may adopt an option of appointing a professional who can give advices related to laws and regulatory frameworks that are necessary to be complied with (Blome and Schoenherr, 2011).

On the basis of above risk register, the organisation based on food sector can assess various risks and divide them on priority basis so as to mitigate them.

In near future, the task of strengthening relationships between vendor and supplier with a wide network will have a significant importance. Therefore, it is crucial to adopt some concrete steps by the Edible solutions, so that deal between buyer and supplier can be handled in changing marketplace. Therefore, the stated venture has adopted the approach of Digital supply management which will support in cultivating different insights and capabilities. The said approach is based on developed business strategy with increased value of supply chain management (Xanthopoulos, Vlachos and Iakovou, 2012). Through leveraging analytics, digital manufacturing and logistics and reconfiguration for Supplier Relationship Management, procurement is proficient to sustain the business to exploit value in the upstream supply chain, whether it is in merchandise innovation, delivery superiority or product precision and sustainability.

Conclusion

The present report is based on managing risks related to the supply chain where the companies importing the food materials are at greater risk. It is evident that the organisations facing issues in managing risks related to certain and uncertain events use to adopt various approaches so as to mitigate risks. The report has discussed various models which conclude that supply chain management is affected by a number of factors. Therefore, it is crucial to manage different types of factors so as to minimise the happening of varied risks. The report has critically discussed the significance of various models which can help in managing different risks.

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