This assignment entails the details of procurement processes and the comparison of 3 various organizations that we have selected– the Minimart, Online shop and Animal product markets. Although they are all micro organisations and retailers in the supply chain, they encompass private requirements and choice requirements of their procurement procedures.
In this task, we will identify what are the resemblances and distinctions in their Procurement-to-Pay procedure, their ‘What if” risk factors and the mitigation technique in overcoming the risks.
The 3 micro organisations selected are namely the Mini-mart, Online Apparel Shop and the Family pet Shop.
Firstly, the mini-mart serve as a “hassle-free store” located around real estate estates. It takes advantage of the proximity and region and targets the morning rush hour crowd such as the trainees and working grownups. The mini-mart uses items like canned food, beverages, tidbits, newspapers, ready-to-go foods like packed rice, finger food and desserts.
As the mini-mart deals with highly perishable items, the procurement procedure will be special to the industry, as they have actually limited shelf lives.
Next, a recent pattern in the fashion market is the online shop. The online store sells garments and accessories that the owner source from worldwide leeching on bulk discounts.
The online shop targets female customers that enjoy the benefit of online shopping. Finally, the animal shop offers family pets and their associated items such as cages, food and treats, grooming packages and toys. The main consumers will be individuals who are trying to find family pets and existing animal owners who will require to acquire the animal’s necessities often.
All 3 organisations serve as retailers where consumers purchase products from them directly.
They straight import the items themselves from abroad or buy from local wholesalers who import them in bulk. The focus for these three micro organisations selected in their procurement process will be on the techniques that they make due to the minimal area operating in Singapore.
In addition, the mini-mart and pet shop have limited shelf life for some of the products that they carry. The two major products we identified for minimart are the newspapers and the ready-packed food. As mentioned, the consumers are mainly working adults and students that patronize during rush hour. Items like local newspapers and ready-packed food are in high demand. The shelf life of these products are short, thus once unsold will deem the newspaper obsolete and food stale. Next, the two major products for the online shop are clothing and accessories.
The online shop needs to bring in new apparels constantly. They need to catch up with the growing demands and changing taste of the customers. A factor that contributes to these is the seasonal fashion that changes every time. Thus, seasonal demand should be included into forecasting for inventories as this would keep the company competitive.
Finally, pet item consumers would mainly look forward to daily requirement such as pet canned foods and grooming products. They are two major products that petshop need to constantly keep them in sufficient amount of inventory required when they affect the sale rates. As mentioned earlier, they are imported overseas.
The three organisations that we have chose have all followed this Procure to Pay process, however they have their differences in determining these processes. For forecasting, the online shop and the pet shop has less frequent level of forecasting their requirements due to its irregularity sales of goods which depends on seasonal demand. However, the mini-mart actually requires daily forecasting and is more volatile in their forecast. The shopkeeper take into considerations like public and school holidays before he actually consider how much to procure for the day worth of food and newspapers to sell.
For example, during weekends in the morning, crowds tend to be lesser and thus, lower in demand. For the clarification/requisition and supplier selection process, the online shop had done their clarifications virtually through online e-mails and phone calls as most of their suppliers are all overseas. The mini-mart and the pet shop actually do face-to-face meet up with suppliers to look at the real products, whether they can match their requirements before confirming the order and delivery. The approval and contract process is quite similar for both the mini-mart and the pet shop as it is done locally.
After identifying a supplier, they will send purchase order according to demand. The online shop process is slightly different as the suppliers are mainly from overseas. Once the proprietor has identified their supplier, she will travel to the country to visit the supplier to determine the product’s quality, and to establish a rapport with the supplier before giving the approval. After discussing with these three organisations, we have discovered that price is one of the key factors on how these three organisations measures the performance of their suppliers.
They will not want to see a sudden increase of their cost of products. However, there is a difference in their selection criteria. The mini-mart factors in the timeliness of goods, the petshop factors in the brand of products that consumers prefer, and the online shop focuses in the design, quality and bulk purchase discounts.
The similarity in requirement for selecting suppliers is the timely delivery. All three organisations, especially the mini-mart requires punctual delivery of newspapers and ready-packed food daily. They rely on the supplier’s punctuality to stock up right inventories to make items available at the right time and place for consumers. With the Fedex Strategic sourcing process (Annex B), we are able to show their differences in identification and selection of suppliers.
For the Minimart, we have identified two key mitigation strategies to acquire alternate/redundant source of suppliers and increase responsiveness. Acquiring redundant suppliers helps to reduce disruptions, procurement and inventory risk. However, as we discuss further, the mini-mart might face the risk that alternate supplier capacity might not be sufficient to meet their needs. This will in turn, pose as a risk to their inventory. To reduce the risk of delay, we have proposed to increase the responsiveness of the supplier due to short life cycle of food products. It also helps to reduce both forecast and inventory risk.
For Online shop, the main focus was to get supplies ready when needed. Having alternate suppliers is necessary when there is delay or failure in the potential supplier. Accurate forecast is important when consumer demand is different every season. Leftover items from excess inventory could have difficulty in meeting buyers and cause wastage.
As for the pet shop, we concluded that to gain competitiveness in pricing, they require the suppliers to issue bulk discount. Thus, they will have a few redundant suppliers to allow them to manipulate the prices between the suppliers, giving them a lower price. In doing so, it also mitigates on problems like disruption and delays as if any of the suppliers will fail on such a secondary will take the job mitigating these issues. We must understand that when they engage any supplier, they will stock in more than enough stock setting buffer and leeching on the bulk discount.
For the above different categories of risk, there are a few similar mitigation strategies for each risk for the three organizations studied. For the risk of disruption, the key strategy for the organizations is to acquire alternative/redundant suppliers. This strategy will help to mitigate the risk of sudden stoppage of supplies. Also, it helps to reduce the procurement and delay risk.
However, we have also concluded that as these organisations are retailers, which are subjected to the supplier capacity to provide the inventory needed. As such, if disruption from supplier were to happen, the organisations might face inventory risk. Coming to risk of delay, the pet shop and online shop are able to eliminate this risk by increasing inventory level as canned food and clothes can be stored. This will also help to lower disruptions and procurement risks to the organisation.
However, for the mini-mart, the approach is different due to the short life cycle of food products and the timely delivery requirement due to daily demand. As such, it requires an increase in the responsiveness of the suppliers to ensure quality of products. For risk of procurement, we are able to conclude that all three organisations require having redundant suppliers. Mostly, for these organisations faces risk in an increase of the cost of goods and transportation cost.
As such, they require different suppliers so that they are able to benchmark their suppliers against others to get an overall competitive edge in cost saving. Lastly, for the risk of system, the organisations are facing mostly on issues like purchasing system breakdown or the organization system failure. Thus, they need to increase their flexibility in having other source of communication like telephone, mobile phones or backup copy of their own orders.
In conclusion, the above analysis on the three organisations helps us better understand the procurement process and the importance of considering such processes when it comes to reducing costs, risks and selection of suppliers. It is also concluded that all the three organisations rely in a way or another procurement strategies to ensure normal business function in serving targeted consumer demands, making them available in the right time, right place and location.
In addition, the suppliers and the three organisation’s relationship in the existing market play an important role in terms that affects the delivery to end consumers. Also, we have concluded that for micro organisations, the three most important mitigation strategies is in having redundant suppliers, and keeping and forecasting the right inventory level and having flexibility in their organisations. This will help in the organisations smooth operating process.
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