Demonstrate an understanding of the importance of procurement for global organisations operating in complex market environments
Locate, synthesise and critically evaluate recent/current information from a wide range of published literature in the area of Project Risk and Procurement Management.
Sustainable procurement ensures a smooth flow of products in a businesses environment. The most significant tool for sustainable procurement is effective risk management. According to Amann et al., (2014, p. 360) the proper understanding of acquisition risks surrounding a project helps procurement officers in making effective decisions when it comes to assigning contracts, choosing suppliers, and designing the bidding strategies. Research conducted by Dong and Burritt, (2010, p. 110) states that Australian Worldwide Exploration oil and gas company exists in a highly competitive global business environment. The company operates in Yemen, New Zealand, Indonesia, Vietnam, Argentina, and Australia and looks forward to reviewing expansion opportunities to other international markets. The major competitors of Australian Worldwide Exploration company are Arrow Energy, Beach Petroleum, Chevron Australia among many others both domestic and international. As per Bome et al., (2014, p. 32), the fact that the oil and gas industries operate in an increasingly complex environment, uncertainty surrounds their projects success, and this necessitates the establishment of excellent strategies for risk and procurement management. This academic report will demonstrate the importance of risk and procurement management in assisting the Australia Worldwide Exploration Limited to gain a competitive advantage over its closest rivals and analyze the strategies that will help the company mitigate both the existing and surrounding risks to enhance sustainable procurement.
Bryde et al., (2013, p. 975) argues that the procurement activities for the company focus on the equilibrium between severity and risk mitigation strategies and this establish the need for sustainable procurement. However, based on the recent occurrences in oil and gas sector, the industry is prone and vulnerable to various risks whose impacts on customers, suppliers, and the project drivers are severe and thus need to be controlled. Australia Worldwide Exploration Limited management has a well-defined risk master plan for allocating the right resources to the procurement department.
To gain a competitive advantage against Chevron Australia and Beach Petroleum, Australia Worldwide Exploration Ltd adopts the use of effective risk management standards that incorporate international procurement standards. Burke, (2013, p. 5) argues that given the oil and gas operations encompass challenges in the current complex market environment, understanding what strategies apply to the management of risks to ensure a sustainable procurement process should get identified, assessed, and ranked on the severity of project risks. Recently, the global oil and gas price has dropped compared to prices in early 2014, and this has adversely affected Australia Worldwide Company project and procurement processes.
The company ensures energy security in a sustainable and profitable manner right from the project conception. The management of Australia Worldwide leads the acquisition executive in exploring various alternatives of ensuring access to affordable energy, and these strategies used include: hedging energy costs to remain as low as possible, encouraging self-supply, diversifying energy inefficient operations and synergistic acquisition of energy companies. Hahn and Henirich, (2012, p. 136) further argues that the procurement department should procure innovative technology companies whose actions diversify the companies operations to Africa, Asia, and other international markets. Also, through the advice of procurement, the company invests its capital in the acquisition of production plant and equipment that are pollutant-free and able to enhance environmental conservation.
In the current oil and gas business environment, risk management plays a significant role in the supply chain management for this leads to sustainable procurement Headley and Griffith, (2014. P 410). For Australia Worldwide, the procurement professionals are mandated by the top executives to identify risks surrounding a project before it gets undertaken, using the right approaches. With a clear understanding of the sources of project risks, the project managers avoid undertaking risky projects which do not benefit the company. Yusuf et al., (2014, p. 536) argues that when it comes to the choosing of suppliers, analysis of the bids placed by vendors and the awarding of contracts through the assistance of procurement personnel, contracts should get awarded to reliable suppliers.
Based on the past experiences and project failures, numerous international oil and gas companies continually take much interest in project risk management. In the year 2014, Australia Worldwide Exploration Ltd suffered project failures in the acquisition of manufacturing equipment whereby the machinery got acquired at a high cost, it broke down and immediately the oil and gas prices deflated. However, Anantatmula and Thomas, (2010, p. 66) states that with effective project risk and procurement management adopted thereon, the company has meticulously driven actions for better risk management models that have made it develop excellent project management tools. With these remedies, Australia Worldwide Exploration Ltd has currently continued to find a greater phase in the global market environment across all the world’s continents, and this makes it to firmly position itself in the market by enjoying a competitive advantage.
To further assist the company in gaining a competitive advantage, the procurement management adopts the use of four risk management strategies which include:
Risk avoidance: Since the main hazard that the company gets exposed to is a poor assignment of contracts and insecurity of personnel handling the procured equipment, the company organizes training events for the procurement officers on how to come up with risk management strategies that the project remains exposed. All the positive opportunities get exploited.
Risk acceptance: Under the supply risks, the company experiences transportation risks for the loss of procured equipment. The Procurement staff has well-established risk acceptance strategies and allocates some funds to cater for project risk management costs. The company recognizes that various risks accompany the purchasing process, and therefore the company accepts this fact by staying alerted on the approaches to risks once they arise.
Risk transfer: Under the senior management assistance, the procurement ensures that all the procured items, computers, machinery, and technologies are insured such that in the events of calamity, the company may get compensated by the insurer. The company ensures its manufacturing equipment under theft, fire, and natural peril effects once compensated the competitive advantage of the company remains sustained.
Risk mitigation: For adequately reducing the impacts of earthquakes and other calamities in the production of oil and gas process, the procurement of Australia Worldwide Exploration company procures sustainable plant, property, and equipment that can withstand the effects of calamities. Normally, the most adverse effects surrounding the oil and gas industry go beyond man’s control and remain uncertain and unpredictable.
Grounded on the above project risk and procurement management strategies, it remains evident that the actual procurement process depends on the cost and availability of resources in the company, Bourne, (2016, p. 210). Below is an analysis of the procurement processes followed by the management of Australia Worldwide Exploration Limited in its attempt to maintain a global competitive advantage in the global oil and gas industry.
The company has well-established project procurement processes for purchasing goods and services from the eligible suppliers. In this situation, the company advertises tenders for manufacturing equipment, computers, and office furniture so that supplies businesses can apply. The procurement management for Australia Worldwide Exploration company plays the role of administering the contract to the reliable supplier as per the requirements of the project. As per Meyr et al., (2015, p. 106), this proper administration of contract between Australia Worldwide and the contracting party enables the procurement team to assist the company in avoiding risks associated with poor engagement in supply contracts. With reduced risks to poor contracts, the company gains a competitive advantage over Chevron Australia and Beach Petroleum businesses that pose a significant threat to the sustainability of Australia Worldwide in the global market for oil and gas products. The company adopts the use of project procurement management processes as discussed below.
Effective planning of procurements: The top management of Australia Worldwide Exploration Ltd has established effective policies that the procurement considers while documenting project purchasing decisions, the approaches, and in the identification of potential suppliers. The qualification of a vendor remains the key determinant of whether a company will be chosen by the corporation to supply anything for its operation.
Conducting the actual procurements: The project of acquisition management obtains and compares different sellers responses to the advertised tenders selects a suitable supplier, and awards the contract. The efficient and fairness employed by the company in awarding contracts creates a positive image in the public and thus making customers prefer its products to those of the competing firms and thus, gaining a competitive advantage.
Administering procurements: To effectively manage procurement relationships, monitor the awarded contracts performance, and make remedial actions if needed, Australia Worldwide Exploration has a set team of procurement experts whose role is overseeing the progress of the tender as prescribed in the procurement policies of the firm. Here, the company follows the set bidding policies such that the highest bidder gets the tender in a fair and open manner.
Closing the procurement process: In Australia Worldwide, once the project’s role get achieved, the contract gets terminated. Contract termination leaves room for the purchasing personnel to focus on procuring other manufacturing equipment that can cope with the new technological trends in oil and gas production sector.
Procurement has become a central part of the corporate performance and continually keeps on drawing increased attention from the executive role of companies. The research led by Badiru and Osisanya, (2016, p. 100) states that while risk management focuses on mitigating risks involved in the procurement process, procurement risks affect the flow of business transactions, and this calls for immediate action on how to effectively manage a project. According to Hong and Lee, (2013, p. 70), the key challenge to procurement is a lack of training and development. With proper training and development, the role of procurement in a business thrives. For sustainable development in the competitive market environment, Australia Worldwide Exploration Limited uses four guiding principles and considerations as per the Australian Procurement and Construction Council (APCC). These principles effectively guide the project risk and procurement management and include:
Strategies for avoiding wasteful consumption and managing the market demand.
Policies for reducing adverse impacts of production processes to the environment.
Establishing a strong value for money in the acquisition of products and services deemed necessary in the manufacturing process.
Ensuring total compliance with suppliers socially responsible practices and the establishment of a conducive environment for the employees.
The following is a discussion of the actions taken by the procurement department of Australia Worldwide Exploration Limited in its functional roles to remain competitive in the global competitive oil and gas industry.
The acquisition department of Australia Worldwide Exploration makes use of unique procurement systems that helps in the assessment of transaction costs in cases of investment decisions; this ensures high profitability and larger purchasing volumes. The procurement ensures that the investment cost does not exceed the benefits that the manufacturing equipment will give to the company. As per Sodhi, et. Al., (2012, p. 4), supporting operational requirements of the business entails understanding the market demands so that the company can manufacture the right quantity and delivering it to the right customers. The procurement department of the company follows a clearly outlined procedure while buying goods and services to facilitate production within the enterprise. The plant, property, and equipment procured always conform to the needs of the engineering and technical groups, information technology, physical distribution centers, and transportation. Monczka et al., (2015, p. 400) states that with effective cost management, unnecessary direct material costs get reduced, standardization of products is enhanced, and intensive employment of global sourcing links is enhanced. Further, competitive tendering process persists and therefore, creating a competitive advantage for the company against its rivals especially Chevron Australia.
The supply and chain department of Australia Worldwide Exploration fosters sustainability of the business, and this supports a wider social, economic, and environmental objectives in a manner that establishes long-term advantages to the company and the suppliers. According to Govindan et al., (2015, p 66), a well-established environment for sustainable procurement between the contracting parties, the procured resources in the company are effectively utilized to achieve the desired value for money. Holding to the fact that the firm operates in a complex global market environment, the company procures manufacturing equipment that is environmentally friendly, and this shows a strong compliance to the legislations laid by the global procurement acts under the oil and gas industry Ahi and Searcy, (2013, p. 330). With compliance to the environmental legislations and directives, the company enjoys the benefit of established permanent vendor relationship with the government and also firmly positioning itself in the oil and gas business market.
The management of Australian Worldwide Exploration continually seeks to invest and embrace new technologies that make its procurement process more user-friendly and efficient. Despite the fact that the company is a private firm, currently it concentrates on investing in the Public Services Network for the procurement considers it a key program for the delivery of a more cost effective and efficient standardized information communication and technology. In the research carried by Sutton, (2013, p. 95) indicates that with the aid of e-procurement, the company generates savings by ensuring reduced complexities and expenses as well as eliminating duplication of networks used by the competing firms. Therefore, with this adoption of unique ICT tools for administering procurement contracts and services, the company gains a competitive advantage over the rival businesses and thus generating high incomes from the global customer base.
Currently, with the advancement of modern technologies, the Australia Worldwide Exploration management has encouraged the use of Procure to Pay (P2P) strategy as part of Enterprise Resource Planning (ERP) system to procure and pay for the goods. The procurement department reviews e-sourcing and e-tendering options. Burke, (2013, p. 8) explains that through the assistance of P2P, the company implements the procurement services and works electronically and thus, reducing transactional processing expenditures. Customers of the company value its high-quality delivery, and this creates a competitive advantage for the firm. Further, the development of P2P strategies encourage electronic invoicing, improves the contracts modules, manages the procurement data of the enterprise, and provides a greater visibility of costs spent to inform the collaborative procurement opportunities of the company in a transparent agenda.
The company advocates for continuity in the application of distinguished supply chain strategies, and this improves its performance and the opportunity for gaining competitive advantage. Research from Dong and Buritt, (2010, p. 118) compared the approaches adopted by Chevron and Beach Petroleum, the main competitors for the company, and found that Australia Worldwide Exploration Ltd has decreased costs in the supply chain domain and continually advocated for increased attention to the client’s demands. The company coordinates and optimizes its operations by providing valuable strategic plans for resources which are difficult to imitate by the rival firms, and thus gaining a competitive advantage.
The procurement functions to manage supply risks effectively, and this is useful in all public procurement projects. With the current levels of high competition in the business environment, it is a requirement that the time spends on risk management remains proportional to the uncertainties involved in the procurement project as explained by Lusty and Gunn, (2015, p. 266). The Australia Worldwide Exploration firm recognizes the value of all stakeholders inputs about the successful implementation of risk management tools for effective procurement management. Always, risk management in the supply processes of the company has been the reason behind the quality and fit of decisions called for in attempts to eradicating negative risks associated with the supply chain for resources.
The procurement role of Australia Worldwide Exploration company uses agile supply chains so as to shorten the distance between the flow of goods and services in the business. Through the unique and efficient performance of supply chain, a company can gain a competitive advantage over the competitors. Strategic procurement sources go hand in hand with the forecasting, sourcing and supply, stocking, production planning, and efficient order and warehouse management. Sutton, (2013, p. 95) states that creating a competitive advantage requires a company to undergo supply chain collaboration with the key procurement sources in an attempt to synchronize and plan business processes. Strategic sourcing policies for the company states that the acquisition role must be keen in ensuring that the contracting party’s goals are in conformity with the overall company’s goals. Under this procurement role for sourcing tools and equipment necessary for facilitating the realization of targets, the company is given a green light to understanding the current trends in the market and thus able to invest its financial resources wisely.
Once the procurement officers assign a contract to the supplier, the company ensures a continuous review of and management of the contractual terms stated in the agreement. The procurement process followed by Australia Worldwide Exploration ensures that the outcomes agreed in the contract are delivered by the supplying companies in a prescribed manner. Xanthopoulos et al., (2012, p. 352) argument that excellent management of contracts and relationships between the company and its delivery partners ensures immediate risks and costs management is justified.
Conclusion
Effective risk management contributes to sustainable procurement and enhances continuity and growth of business. With the integration of sustainable procurement and project risk management, stakeholders of a company get able to manage the risks surrounding the business operations. The organization’s goal in alignment with the underlying objective of the project undertaken to assist the top executives to handle the firm’s operations effectively. If the aims of the organization do not align with the purpose of the project, then the manner by which risks get handled get interfered with and thus failing to create a competitive advantage over the competitors. Effective procurement management arises from this clear integration of the project and organizational goals since the purchasing personnel has a clear description on what goods and services to buy, what contracts to sign, and how to ascertain that the procured products meet the desired purpose.
Given the numerous advantages of ensuring effective project and procurement management strategies in companies, every firm should establish a project risk and procurement management department in its day to day operations. Project risk strategies enable the management to align the requirements of the companies stakeholders by identifying, mitigating, planning, and managing the risks as they arise. Thus, it is essential for the management of businesses to ensure that all the risks encompassing the projects undertaken become appropriately matched with procurement management functions for this create an environment for gaining a competitive advantage over the rival firms in the market.
References
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